The point has been made that Emma Alberici is not the only economic illiterate to say crazy things about the link between lower company tax rates, on the one hand, and economic activity, investment and wages, on the other.
Ian Verrender, whose analysis is almost always 100 per cent wrong, unsurprisingly from a solid left-leaner (a refugee from Fairfax), has made similar points to Alberici. Ditto Peter Martin. Ditto Saul Eslake (although he has changed his mind, once arguing for lower company taxes).
But the appallingly inept undergraduate piece Alberici put together (mark: F) as well as the language she used in her ‘essay’ published on the ABC website mean she has faced an avalanche of criticism that the others have escaped.
In the weekend Australian, I outlined her many mistakes in making some normative statement about companies not paying tax.
Mind you, here’s a thought: if some companies pay no tax at 30 per cent, they will pay no tax at 25 per cent. No change there. So we may as well lower the rate to 25 per cent.
But let me run through some of the other howlers in her piece, starting with the inappropriate use of language.
With a debt of more than $600 billion, many are questioning the merits of prioritising a $65 billion giveaway to big business in a form of a tax cut.
Anyone who would write that and think they could be taken seriously, obviously has no idea whatsover. (Hint to Emma: you are not writing copy for the Labor Party.)
As Cats know, company tax is a withholding tax. The incidence of any change to the rate will flow to workers, shareholders and customers. Now there can be some dispute about the division of these benefits, but the idea of a GIVEAWAY is truly bizarre.
But let’s run through some of the other incredibly weak points that Alberici desperately seeks to make:
- Canada lowered its company tax rate and Australia didn’t. There was a time in the last decade when investment increased faster in Australia than Canada. Is this a joke? After all, the explanations of investment are obviously mult-factorial and in any case Australia’s TOT rose by more than 50 per cent than Canada’s TOT. No cigar there.
- The CBO analysis puts Australia’s effective corporate tax rate at only 10.4 per cent. Now Sinc has looked at this flawed study before and found it wanting. For starters, it claims that in Australia there is difference between the top statutory rate and the average rate. This is just not so for Australia. (Remember that when something looks wrong, it is wrong.) Moreover, the effective rate applies to some type of US company investing in Australia but even this is a weird result and may have something to do with tax agreement arrangements between the two countries. Treasury has dismissed the study (which is not about Australia, by the way.). No cigar there.
- The important study published in the prestigious American Economic Review shows that lower company tax rates in Germany (there are multiple ones) lead to higher wages, particularly among unskilled workers and women. Alberici laughably cites Saul Eslake that this has something to do with workers’ representatives sitting on the supervisory boards of large (that is, with more than 500 workers) companies in Germany. Is this a joke? And note that wage growth has fallen in Germany in recent years, just like here. Definitely no cigar there.
The final point she mishandles is dividend imputation. Sure, the impact of lower company tax is muted unless the rate is substantially reduced – but the net budgetary impact is also much less than the gross figure. But the key here is the marginal overseas investor, which is impacted by company tax rates, inter alia. (Hint to Emma: always look at the margin.)
Moreover, local investors will also benefit if there is a surge of investment and dividend growth.
Alberici’s piece was the classic tail wagging the dog. She wants to campaign against lower company tax rates – I’m not sure why but it is a Left mantra these days – and she desperately searches around for any scrap of information she can lay her mitts on. This is simply not the standard we expect of ABC journalists (sic) meeting the ABC’s legislated charter.