Prime Minister Malcolm Turnbull has seized on International Monetary Fund (IMF) forecasts predicting a rise in global economic growth following the US administration’s corporate tax cuts, to call for similar cuts here.
Describing the proposed cut as an “enterprise tax program”, Turnbull said on January 22 that the measure would “result in more investment and more jobs” — despite significant evidence that “trickle down” economics does not work.
Treasurer Scott Morrison has demanded that Labor supports its proposal to cut the tax rate for big business from 30% to 25%.
Opposition leader Bill Shorten said it would not support giving away $65 billion in tax cuts to large companies. It must be an election year. Not so long ago, Labor shadow Treasurer Chris Bowen said he “accepted” that corporate tax rate had to come down to 25%.Now, however, Labor said it is concerned that the US tax cuts will widen the gap between rich and poor. Shadow Minister for Employment and Workplace Relations Brendan O'Connor described the impact of the US tax cuts on IMF forecasts as a “sugar hit”.
IMF chief economist Maurice Obstfeld admitted as much at the World Economic Forum at Davos, Switzerland on January 22, saying the gains from the tax cut would be temporary unless structural changes were made.
The Tax Justice Network (TJN) pointed out that Trump’s tax cuts for big business will accelerate a worldwide “race to the bottom” on corporate tax.
TJN senior adviser James Henry said: “Far from leading quickly to higher US economic growth, more jobs and higher wages, the deep corporate tax cuts contained in this bill have already triggered, or at least substantially accelerated, a global tax war — an aggressive ‘race to the bottom’ in international corporate tax rates, rules and regulations that will be deeply harmful, especially to developing countries.”
Henry went on to list the countries that have announced corporate tax cuts, explaining that poorer nations with smaller economies are more reliant upon corporate tax revenues than others.
“With a few exceptions, the real problem is not this ‘happy few’ of relatively affluent OECD countries. By now, most of them rely on corporate taxes for well under 10% of all government revenues.
“For the United States and the United Kingdom, for example, this figure is only about 8%; for France it is 5.8%; for Germany it is 4.7%. The handful of OECD countries that are still most exposed includes (as expected) Australia (18%), Korea (14%), Chile (22%) and Mexico.
“While the race to the bottom between nations on corporate tax began in the 1980s with Reaganomics, throughout the 2000s the United States resisted joining this tax war. With Trump bringing the US back into the race, the downwards momentum will accelerate, causing real suffering and hardship, and massively increasing global inequality and insecurity.
“The Trump reforms represent a major political triumph for the owners of capital, and we fully expect that the race to the bottom dynamic won’t stop with the abolition of the corporate income tax: across the world we will see subsidised capitalism, diminished genuine competition and monopoly-dominated economies.”
In Australia, the relentless push for lower company taxes — supported in the main by both major parties — combined with large-scale tax avoidance, means many multinational and national corporations already pay little or no tax.
Moreover, the Australian system of “dividend imputation” means domestic investors already receive a rebate for the company tax paid on their shares. This reduces even further the net effect of tax paid by Australian-based companies.
Ironically, it will be multinational giants like Facebook, Google, Esso and Chevron that stand to gain the most from any cut to corporate tax in Australia. These are the same giant corporations that are already systematically dodging paying company tax.
Inequality is increasing, as the Oxfam report indicates, and wages have flat-lined. This means that the labour movement needs to oppose any corporate tax cuts and demand that corporations pay their tax bill.