Finance Experts Say Company Tax Cuts Unlikely to Increase Economic Growth

Finance experts have said cutting corporate tax further won’t accelerate Australia’s economic growth despite Federal Treasurer Scott Morrison declaring it “urgent.”

In September, US President Donald Trump suggested similar cuts.

A landmark Productivity Commission report was released on Tuesday. This is the first of a series of five-year reviews.

During his speech, Mr Morrison said these tax cuts are vital for Australia to remain competitive with other economies such as France, the US and the UK.

Comparing the proposed reforms to the ones that took place in the early 1990s, he said they’re crucial for increased productivity.

“The changes that were made then overhauled old economy regulation — trade liberalisation, reductions in tariffs, widespread reform to capital markets, sale of government assets, changes to labour markets, competition and taxation reform, and better targeting of macroeconomic policy,” he said during the speech.

“These changes brought about a new generation of prosperity.”

Mr Morrison said the price of the reforms of the early 1990s allowed a generation of Australians to grow up without experiencing a recession. Now more reforms are required to drive wage growth and increase employment.

“Our challenge now is not just to create more jobs, but as I outlined in this year’s Budget, better paid jobs as well,” he said.

Corporate tax rates were cut two years ago, with businesses with $10 million annual turnover or under paying 27.5 per cent down from 30 percent. This rate is set to drop to 25 per cent incrementally over the next ten years.

However, Curtin University Finance Senior Lecturer Elson Goh said these tax cuts are not necessarily translated to into an increase in spending or an increase in wage growth.

“It hasn’t increased in any sense the demand for businesses and flow in the economy,” he said.

Currently businesses with an annual turnover of more than $10 million are still paying 30 per cent. By the 2016-27 financial year, companies with an annual turnover of $50 million or less will be paying 25 per cent.

These proposed reforms would extend this tax cut to all businesses operating within Australia regardless of their annual turnover.

Mr Goh said tax cuts alone won’t be enough to allow small businesses to attract more staff, as there is no evidence of an increase in spending.

He also said increased productivity depends on which businesses are favoured.

“Large companies have operations overseas. They are able to shift the operations around and are able to make use of the tax regimes of other countries in their favour.

“That’s not going to help us in any way.”

However, there are some other things the government could do to accelerate economic growth. Mr Goh suggested developing satellite towns on the outskirts of the city.

“This would help businesses start up in those areas and families could start moving in.

“Schools could start being build.

“Therefore, that would cause a slight increase in the economy.”

He said another option would be for the government to provide low cost housing for retirees.

“Retirees could downsize and free up the equity that they currently have.

“That would definitely translate to increasing the spending overall I the economy.”

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