Senate’s Bizarre Inquiry On Tax Cuts

The Senate is currently running a strange inquiry. It is about the company tax rate, but doesn’t involve the government’s proposal to cut that rate to 25 per cent from 20 per cent. It doesn’t even consider the merits of such a proposal. Rather, it is investigating a statement made by the Business Council of Australia which outlined how major companies, such as Qantas, would increase investment and wages following a cut to the corporate tax rate.

The IPA provided a submission to this truly bizarre inquiry explaining, firstly, why the inquiry itself is bizarre and, secondly, why Australia must cut its high corporate tax rate. Here are some of the highlights. Alternatively, you can read the entire submission here.

“This Senate Inquiry is highly questionable. It refers to an undertaking made by private companies in relation to a public policy. Decisions which companies make around remuneration, pricing, and investment are the preserve of those companies. Businesses are not communal property to be intervened with at will by government. They are privately run, owned, and managed, and should remain so…

“… Every minute that representatives of a business spend before the Senate is a minute that is not dedicated to the core functions of that business, the costs of which are felt most heavily by customers, workers, and shareholders.”

“Australia’s high business tax rate – combined with a $176 billion red tape burden and rigid industrial relations system – is causing business investment to decline. Business investment is just 12 per cent of GDP, which is lower than what it was under Whitlam. Low levels of business investment are contributing to below trend rates of labour productivity growth, which in turn is making workers less valuable than they otherwise would be, which is holding wages growth down. A lower business tax rate, by contrast, will encourage investment, productivity, job creation, and wages growth.”

“The best empirical evidence that is available is from the Treasury which estimated that a reduction to the business tax rate from 30 per cent to 25 per cent would create a permanent increase to GDP of 1 per cent. This equates to around $17 billion each year, in today’s dollars. A separate Treasury report estimated that two-thirds of the benefit of a company tax cut flows through to households, primarily through rises in real wages. The remaining one-third would flow to shareholders”

“Australia’s high business tax rate must be reduced in order to encourage higher levels of business investment, which is currently at a near-record low. The Government’s proposed reduction to 25 per cent over a ten-year period is a modest proposal, which would still result in Australia having one of the highest business tax rates in the developed world. At a bare minimum the Senate should pass the Government’s preferred tax reduction, despite its lack of ambition.”

Download the submission here.