Australian Economists Are as Divided as Parliament on Corporate Tax Cuts

In recent days, Australian Prime Minister Malcolm Turnbull has admitted defeat. He has long been a supporter of corporate tax cuts and, along with his coalition party, had revived a decade old review of the Australian tax system conducted by then Treasurer Ken Henry.

After close scrutiny of what it would take to grow the nation’s economy, Henry and his team concluded that by reducing corporate tax from 30 percent to 25 percent, more money would be made available for companies to funnel into growth. This would include investments and increased hiring. But what do Henry’s findings really mean? This is what has economists in a quandary.

Australian Growth at the Centre of the Debate

Just a decade ago, Ken Henry alongside heavyweights in the corporate sector such as James Packer, Andrew Forrest and Lachlan Murdoch went head to head with the Governor of the Reserve Bank at the time, Glenn Stevens. On Stevens’ side of the debate was Gary Banks, the Productivity Commission leader of the time and everyone was gathered to come up with a plan for the “Future directions for the Australian economy.”

Even then, the debate was heated and when Henry published his review it became touted as the “Holy Bible” of tax reform for the nation. Unfortunately, the debate became even more heated when it reached the whole legislative body and his paper was set aside where it is said to have been “gathering dust” until its revival by the Coalition party.

Corporate Tax Cuts the Key Issue to This Day

While millions of Australians struggle to file an online tax return that would net them a decent sum of money, companies with an annual profit of under $50 million were to be offered a tax cut from the straightforward 30 percent to 25 percent. While economists agree that this would give corporations an additional amount to reinvest in their companies and grow their workforce at the same time, it left Australian investors short of the mark.

The problem many economists see in this tax cut proposal is that the real beneficiaries of this legislation would be predominantly banks, corporates and foreign investors. With so many working-class investors in Australia relying on profits, their share would be minimal to none and that is the core of the debate. Even with the proposed mining super profits tax, the only winners in this scheme would still be large corporations who are already prospering.

Turnbull Concedes Amidst Controversy

Having vowed to take his party’s tax cut proposal to the next general election, Turnbull has done a turnabout and is now agreeing to leave it aside. With Labor being set against this bill and with a great deal of support, Turnbull and Treasurer Scott Morrison have agreed the proposal had little support. However, Morrison is quoted as saying that the opposition used lies and deceit to discredit the bill.

Even with so many economists in favour of corporate tax cuts, there is still a faction that agrees with the Coalition that emphatically believes the average worker would see no benefit and the economy wouldn’t realise the expected growth. In other words, it’s politics as usual