We have to trump US tax game
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Those who talk about the unfairness of company tax cuts should take a look at the latest wages figures. Andrew Quilty
by The Australian Financial Revew
Australia has to make its way in the world as an exporting nation, competing for the capital of others to finance our efforts. How we compare with other investment destinations matters. That's why President-elect Donald Trump's plan to aggressively slash US company taxes should be viewed with alacrity here.
In a competitive world, a company tax cut in the US is a tax rise for investors in Australian business.
That makes Prime Minister Malcolm Turnbull's push to bring down the business tax rate to 25 per cent in stages over a 10-year period, and so boost the incentive to invest here, begin to look even more imperative.
Those reforms already begin from a high base of 30 per cent, against an OECD average of 27 per cent. If Mr Trump were able to get a 15 per cent company tax rate (some achieved through closing loopholes) through Congress, then it would reduce the OECD average to 20 per cent – leaving even Mr Turnbull's reform target stranded at the starting gate.
And even if Mr Trump does not get all the tax reduction that he wants, any fall in US tax rates immediately will entice the $3 trillion that US multinationals have stashed offshore beyond the reach of US tax authorities. If that money starts to repatriate, it will also have a substantial effect on the global capital flows on which we acutely depend.
Those who talk about the unfairness of company tax cuts – the "tax breaks for the rich" that play into the populist politics now being spouted by Labor and the minor parties – should take a look at the latest wages figures. Annual wages growth fell in the September quarter below 2 per cent for the first time since the data series started in 1998. That points to the wage stagnation that the Trumpist electoral backlash in the US so clearly fed upon.
But Australia's top bureaucrat, Martin Parkinson, explained again this week that it is precisely a company tax cut that would drive investment in technology, that would drive productivity, that would drive up workers' wages – indeed half the effect of the tax would flow to them. That logic does not get past Labor's faux-fairness sloganeering, but there is not much unfairer, or more costly to the budget, than a stagnating economy.
It is being said that voters in the Western world have finally revolted this year because all the big aggregate gains of globalisation and market capitalism, trumpeted by governments and corporate leaders, did not deliver them any specific improvements they could see. But Prime Minister Malcolm Turnbull, speaking at the Business Council of Australia dinner last night, pointed to the opposite problem: if every single reform is assessed only through the narrow range of losers rather than the general gains, then nothing will ever get done. Policy paralysis and economic stagnation will be the baleful result. A broad uplift in the national economy, achieved by a strategic cutting of business taxes is the best way of guaranteeing the financial resources that lets us afford to be the fair society that we are.
