EMMA ALBERICI. There’s no case for a corporate tax cut when one in five of Australia’s top companies don’t pay it.

There is no compelling evidence that giving the country’s biggest companies a tax cut sees that money passed on to workers in the form of higher wages.

Treasury modelling relies on theories that belie the reality that’s playing out around the world.

Since the peak of the commodities boom in 2011-12, profit margins have risen to levels not seen since the early 2000s but wages growth has been slower than at any time since the 1960s.

It’s also disingenuous to talk about a 30 per cent rate when so few companies pay anything like that thanks to tax legislation that allows them to avoid paying corporate tax. Exclusive analysis released by ABC today reveals one in five of Australia’s top companies has paid zero tax for the past three years.

And while the Treasurer and Finance Minister warn that Australia’s relatively high headline corporate tax rate means Australia remains uncompetitive and companies will choose to invest in lower taxing countries, the facts don’t bear that out. Business investment in Australia has been at historically high levels over much of the past decade despite our comparatively high headline corporate tax rate.

There’s more to investment than corporate tax rates

Before Donald Trump cut the US corporate tax rate earlier this year, it was 5 to 9 percentage points higher than Australia’s. That hasn’t deterred Australian companies from seeking opportunities in America instead of Ireland, where the corporate tax rate is less than half ours (12.5 per cent), or Singapore (17 per cent).

In truth, businesses make decisions about where in the world to park their money based on myriad reasons, possibly least of which is the headline corporate tax rate.

Will I be closer to my main customers? Where is the best talent located? What are the labour costs? How onerous are the regulatory hurdles to investment? Is the culture and language easy to navigate? Is the country politically stable and is there respect for the rule of law?

When Incitec Pivot chose to build a $1 billion factory in Louisiana rather than Australia, it did so due to America’s strong productivity levels and its speedy approvals processes. Tax was insignificant on the pros and cons list.

Tax rates don’t matter if you’re not paying tax

High-profile chief executives like Qantas chief Alan Joyce are adamant that investment decisions rest largely on the rate of a country’s corporate tax. But it’s hard to see how a lower tax rate is an incentive for investment when one in five of our biggest companies haven’t paid any corporate tax at all in at least three years.

Qantas is about to clock its 10th year tax free. Qantas won’t pay tax again until its profits exceed the tax losses recorded since 2010. Only when all the accumulated losses are offset will a lower tax rate mean a higher cash flow. Besides, regardless of where the corporate tax rate sits, the airline has already indicated an intention to invest $3 billion across 2018 and 2019.

The overwhelming benefit of higher profits flows to shareholders. A zero corporate tax bill at Qantas has certainly seen one significant wage rise at the company — the chief executive’s. The benefit to workers has been less pronounced.

According to the Australian Services Union, representing just under half of all Qantas workers, the average pay rises for staff since the airline has returned to profitability have barely kept pace with inflation.

Alan Joyce, on the other hand, has seen his total salary close to double from $12.9 million in 2016 to $24.6 million last year thanks to a huge jump in the value of shares provided as part of a bonus scheme.

Linda White, Assistant National Secretary of the Australian Services Union told the ABC she is far from convinced about the value for workers of a corporate tax cut:

“While Qantas workers have seen pay rises of less than 3 per cent on average over the past decade, we’ve seen the CEO’s salary balloon to almost $100,000 a day — much more than most workers earn in a year. It doesn’t trickle down — it trickles up, and the rules need to change to give workers a better deal in this country.”

The apples and apples comparison

When drawing comparisons with experiences in other countries, Canada provides a good like for like profile.

Australia and Canada share a similar history and are both resource rich economies. Our financial and political systems are also on par.

Canada cut its corporate tax rate from 42.4 per cent in 2000 to about 26 per cent in 2011, where it has remained. In 2000, Australia cut its corporate tax rate from 34 per cent to its present 30 per cent.

Business investment rose in both countries during the mining boom but it rose more in Australia, despite a corporate tax rate that’s four percentage points higher than Canada’s.

Economist Saul Eslake says:

“It can be argued that the mining investment boom was bigger in Australia than Canada but now that it’s over in both countries, it’s worth noting that business investment as a share of GDP was 2.4 per cent higher in Australia in 2016 than in 2000, as against only 1.5 per cent higher in Canada, despite Canada’s massive cut in company tax.”

It is also worth noting that wages have risen by about 20 per cent more (in nominal terms) in Australia than in Canada since 2000, despite Canadian companies having had a much bigger corporate tax cut.

Do workers really win?

The White House claims the recently legislated cut in the US corporate tax rate will translate to higher wages for the average worker of between $4,000 and $9,000 a year, but there is no credible evidence to support that boast.

In fact, the opposite has been true in practice when you compare business activity in Britain and America. Between 2006 and 2013, while British businesses were paying increasingly less in tax (from 30 per cent to 19 per cent), wages went down not up. UK wages have started to grow over the past four years but at a much slower rate than in the United States where corporate tax rates had remained high.

Some commentators have seized on a study from Germany to support their theories about corporate tax cuts trickling down to workers. Saul Eslake makes the point that the German economy is not all that similar to Australia’s:

“Among other things, workers’ representatives sit on the ‘supervisory boards’ of large German companies so there is probably a different debate within German boardrooms as to how the benefits of any cut in the corporate tax rate in Germany might be shared among employees and other stakeholders.”

In his speech last week, the Reserve Bank Governor Philip Lowe reiterated the need for Australia to pursue an internationally competitive tax system but he did not specify which, if any parts of the Tax Act, might need amendment. He kept his comments on the topic vague:

“The issue of how the tax system affects the competitiveness of Australia as a destination for investment is one of ongoing political debate.”

The headline 30 per cent rate is misleading

Adding to this debate is the issue of average and effective tax rates. Effective tax rates are said to drive investment decisions and take account of what companies actually pay once deductions, depreciation and other tax minimisation strategies are considered.

According to a report published last year by the US Congressional Budget Office, Australia’s effective tax rate, at 10.4 per cent, is among the lowest in the world.

The average rate paid by American companies in Australia is just 17 per cent.

The Treasurer’s office takes issues with these figures, claiming they are out of date because they are based on data from 2012. The Government prefers a study by Oxford University that puts Australia’s effective average tax rate at 26.6per cent and at the higher end of the scale.

Several analysts consulted by the ABC disagree. Managing director of Plato Investment Management, Don Hamson says:

“Whilst the data used in the 2017 CBO report is from 2012, it is the best analysis available and I don’t believe the Australian company tax landscape has changed significantly since 2012.”

Dr Hamson has worked in banking and finance in Australia, as a university professor in Australia and the United States and has served on the ASX Corporate Governance Council.

Regardless of which effective tax rate you prefer, both the Oxford and the CBO data demonstrate the folly of focusing exclusively on the headline corporate tax rate of 30 per cent.

Do tax cuts boost investment?

Chris Richardson from Deloitte Access Economics told the ABC’s Q&A that there was a “consensus” from the experts about the macroeconomic benefits of a corporate tax cut.

He said the cut represented $20 billion a year in growth for the Australian economy with two out of every three dollars showing up as higher wages. Those figures (and experts) came from Treasury who provided modelling on behalf of the Government.

The numbers are based on the widely, but not universally, accepted theory that cutting the company tax rate will raise investment, which should in turn boost productivity and lift wages.

Apart from the obvious point that all else is not equal in practice, not all investment boosts labour productivity.

According to other Treasury-commissioned modelling, if the rate is lowered from 30 per cent to 25 per cent then gross domestic product will double by September 2038 as opposed to December 2038 without the cut. Both models predict that in 20 years’ time the unemployment rate will be 5 per cent regardless of whether we spend $65 billion on company tax cuts or not.

In truth, it is hard to find real-world evidence to support these economic theories, so the Government might be wise to heed the words of Plato: “A good decision is based on knowledge and not on numbers.”

Dividend imputation often overlooked

The other issue often overlooked is the impact of Australia’s dividend imputation system. Australia and New Zealand are the only two countries in the OECD that grant companies the right to attach tax credits to dividends paid out to investors.

In most countries, companies pay tax and then shareholders pay tax on their dividends. Australia taxes just once. Cutting the company tax rate therefore doesn’t result in a higher after-tax return on investment to Australian shareholders in Australian businesses so Treasury’s theoretical model doesn’t hold.

Experts including economist Saul Eslake estimate that Australia’s 30 per cent corporate rate with dividend imputation raises about as much tax for the government as a 20 per cent rate without dividend imputation.

The principal beneficiaries of a cut in Australia’s corporate tax rate are overwhelmingly foreign companies and foreign shareholders in Australian companies. There is no guarantee at all that cutting the tax they pay in Australia will lead them to increase the level of business investment in Australia.

Can Australia afford to spend $65 billion?

The last time a government splashed around cash in the form of tax cuts the treasurer was Peter Costello, who had no debt and no deficit to contend with, thanks to oversized profits and attendant corporate tax flowing from the mining boom.

In 2018’s Australia, it’s hard to imagine how a government could ever again manage to give away the equivalent of Mr Costello’s $170 billion worth of tax cuts while still protecting the surplus.

It’s been 10 years since the Australian budget was last in surplus. With a debt of more than $600 billion, many are questioning the merits of prioritising a $65 billion giveaway to big business in the form of a tax cut.

Back in November 2016, the president of the Business Council of Australia, Grant King was warning the Government not to put the country’s AAA credit rating at risk by ignoring budget repair. He told ABC’s AM program:

“We are seeing indications that the deficit is deteriorating so it is going to be a challenge.”

Yet today the BCA and its high-profile members like Mr Joyce are insisting on a company tax cut that would blow a massive hole in the Government’s revenues and push the budget and national debt further into the red.

Emma Alberici is the ABC’s chief  economics correspondent.  This article first appeared on the ABC website.


This entry was posted in Economy, Media, Politics. Bookmark the permalink.
newest oldest most voted
Notify of

Excellent article by Emma. By Turnbull’s and Morrison’s reactions you can tell they really don’t like their junk economics, trickle down theory, Laffer curve hocus pocus, getting exposed for what it is – lies and damn lies in support of their corporate masters interests. It would be no different if Labor was in office (not in actual power of course – just in office). Corporate interests have bought both sides of politics to do their bidding, we all know this. All the bully boy politicians like Turnbull and Morrison can do is kick and threaten the ABC, tell the ABC… Read more »

Paul Harrison

I don’t think that there can be anything more damning than the censorship of an article that is not in your or your associates interests.

michael schell

Emma, congratulations on a well-researched and logically presented article re the relevance of the proposed and much trumpeted Government corporate tax cut. The promised transparency and consultation with the people that this government had heralded in 2016 seem to have been conveniently lost in the fog of “the national interest” and accelerated use of “double speak” George Orwell must be grinning from ear to ear! Please keep up this incredibly important role that you and the ABC have in trying to keep the people of Australia informed with the Facts. It is only with accurate informed public opinion that we… Read more »

Hetty Bogerd

The ATO released figures stating in 2015, 576 companies made $410 billion and paid no company tax.
In 2016 ,732 companies made over $500 billion and paid no tax. So there was an increase in the numbers of companies ,an increase in the money they made and no company tax paid.
It is a totally false argument that reducing company tax will increase the wages of PAYG workers.The above figures cannot be denied.

R John Hoepnert

How often is valid research suppressed because it is inconvenient or contradictory for some person with the authority or prestige to effect the suppression. I refer to the doctoral thesis on the suppression of valid research by the talented Dr Jacqui Hoepner. I suggest that persons doing research or comments thereon should include their pertinent professional qualifications and any qualifications or restrictions perceived to the views they have expressed. While the PM is entitled to show his dismay at the content of Emma’s article, it was a Trumpian act of suppression to request its removal. Furthermore, the ABC’s obsequious compliance… Read more »

Ken Derrick

The Government should not have got involved in this article and by doing so just goes to show how they are trying to destroy the ABC and it’s excellent staff.

G Staniford

I agree Ken – the government are using their power inappropriately and ABC management shouldn’t buckle to pressure. Emma Alberici delivers well researched facts to back what we already know – this government do not understand what Australia or Australians need.

paul walter

Dismal stuff from the government and the government is not to believed as to its whining about this, given the lies it has told concerning Barnaby Joyce and many other issues and its subjective attitude toward social infrastructure spending. It follows the old IPA tactic of presenting hearsay as fact and people like Alberici and Eslake should not be browbeaten for questioning its self serving lines. If black is black, it should be presented as black by any broadsheet journalist until such time as those it questions present empirical facts to back their cases. The claim that the Emperor wears… Read more »

Alan McGregor

Logic, as a school subject, possibly incompatible with the ‘trickle down’ rubbish that have been foisted onto the general public, I have not seen as school curriculum in 35 years. Perhaps this goes against the idea that education is for job preparation, and paying back HECS, something Malcolm didn’t have to worry about. So, imagine my surprise, at my first TAFE Human Rights class. I asked the teacher if we could talk about politics. She said, “We MUST talk about politics.” She asked the class what was the phenomena affecting the world today? I put up my hand and said,… Read more »

Frederick Jones

That Emma is employed by the ABC and her position as Economics Correspondent ought by right to have her view/commentary on the Publicly Funded ABC! You have to wonder what has come of the once fair and free Australia?? How can so many at the time of an election really and truly could judge or think that under these utter nutter right wing nut jobs that they will be better off??! Illustrated in the current context by the muted furore around the total Hypocrite Joyce B!!! As for the other Joyce how can he possibly have any sort of contribution… Read more »

Sybille Frank

Great article, well researched, clearly argued and well presented. Difficult to understand why this was ‘removed’ by ABC management. It would appear to have all the hallmarks of an independent broadcaster doing what it should do…. Investigating and reporting on matters of public interest. This will always include analysis of the current government’s policies and actions (as well as actions of other political parties and groups). This will also inevitably lead to sitting governments being irritated, angry or upset by the ABC at certain times. It goes with the territory and with the ABC’s charter. So it is highly disturbing… Read more »

David Skewes

All my professional life my practice was based on evidence. The evidence base for trickle-down economics, introduced by Thatcher/Reagan, is non-existent; forty years of the haves gaining obscene wealth and the have-nots suffering the consequences. The ABC is in dire straits, succumbing to censureship imposed by an increasingly authoritarian government; the second time in a month.

Barbara Bryan

Superb work Emma! We NEED you more than ever to keep exposing the REAL FACTS to the public due to so much cover-up and manipulation in most media circles at present. Along with Michael West (ex Fairfax media/SMH) you two are ESSENTIAL to getting the truth out there, but how do we enable more exposure for investigative journalism?

Dave Bradley

Well, when they cut Emma Alberici’s Lateline and Stan Grant’s The Link last October we all thought ‘oh yeah just in time for the By elections huh’ and they proudly boasted ‘Lateline host Emma Alberici will take up the new position of chief economics correspondent when the show finishes. ..’ and gee look how that works for her and us…. The announcement of the cuts on October 5 and then on October 26 turnbull kills the Uluru Statement stone dead… wow wonder what Stan Grant would have said about that on ‘The Link’ or Alberici on ‘Lateline.’ Lateline, The Link… Read more »

Congrats to P & I for posting this excellent article which did indeed appear first on the #ABC website but has apparently now been taken down. I have been using Twitter – where there’s much discussion about censorship and possible political pressure on the ABC – to make sure at least some people know where this article remains available.
Yet another reason why thoughtful blogs, such as this one, will play an increasingly vital role in public conversations that affect us all.

Joanne Horniman

I first read this excellent article in the ABC website, where, by rights, it should still be found. As if you needed another reason to hate the Coalition.

J. Charles Passlow

A very informative piece. I wondered at the information regarding Alan Joyce’s pay rate? How can anyone spend/use $100,000 per day? There is not, anywhere, that I have seen that indicates he is a raving philanthropist. Simply a self-centred little Irish immigrant. And as to companies paying tax? When I was a company (part) owner, our very good accountant made sure that our piddling little company paid no tax.

Peter Heinz Wendt

A brilliant analysis that pulls the cover from a corrupt government. Turnbull’s censorship vouches for its quality !



John Sheehan

PS if businesses want employees to have higher wages why did they fight to reduce penalty rates?


John Sheehan

Great article Emma! The psychology of markets is to not pass on lower costs if there is no pressure to do so – not to customers and certainly not to employees. So where is the pressure? Competition? Bah humbug! Four banks, three supermarkets, an electricity oligopoly… yeah, sure that’s going to happen. The only thing missing from the governments narrative is – “Once upon a time…” and “they all lived happily ever after”.

Hedley Heale

Excellent article Emma. Keep this good information flowing.

Bruno Wright

Having read Emma’s piece and then Judith Sloan’s reply I can’t quite see where Emma misrepresented the issue of companies not paying tax. Am I just a slave to confirmation bias?
I don’t really know the basis for CEO pay/bonus system but, interestingly CEOs pays don’t seem to follow the same rules as the tax loss/profit. It would seem that as soon as a company makes a profit CEO pay goes up.

John Attwood

And, of course, when the company makes a loss, the CEO pay stays exactly where it was (or gets bigger via “productivity bonuses”)

Susan Walmsley

I agree with Emma, the spin is not backed by much evidence. Michael Parenti points out in his talks that giving tax cuts to profitable companies in the HOPE it will lead to jobs and prosperity for the wider population is illogical and is basically fortune telling. May as well ask Gypsy Rose Lee. Even without the economic theory that disproves tax cuts for the rich grows an economy (M. Blyth and Emma), how can policy makers claim to predict how this windfall will be spent? The board members can do what they want: pay themselves more, or add a… Read more »

A good clear read with facts and not IPA theory and fantasy.

David Maxwell Gray

Quoting a working paper by Janine Dixon & J Nassios of the Centre of Policy Studies (http://www.copsmodels.com/elecpapr/g-260.htm): Quote: In some cases, taxation treaties allow a non-resident investor that incurs an Australian withholding tax liability to claim a foreign income tax offset in their country of residence. In such cases, the non-resident’s effective tax rate on Australian dividends/interest income is their personal tax rate in their country of residence. In these circumstances, a cut in the Australian company tax rate (and thus the rate of withholding tax levied on unfranked dividend payments by Australian-listed companies) would have the effect of reducing… Read more »

Bay Blue

Excellent piece Emma! Thank you for the analysis and confirming in my mind that the Wealth Tax Cut will not trickle down to the average Australian worker in wage growth or in any discernible way.

Why give a huge tax cut to Corporations who are enjoying higher than ever profits and are able to minimise their tax down to zero = $0.00. Just seems very wrong to me.