David Leyonhjelm: Hanson true to form on company tax cuts

Senator Hanson’s opposition to company tax cuts is disappointing, but unsurprising. The main benefit of company tax cuts is to boost foreign investment, and Pauline Hanson’s One Nation opposes foreign investment.

The company tax rate is the final rate of tax paid by foreign investors. So for them a lower company tax rate means any given investment offers a higher after-tax rate of return. If Australia has a lower company tax rate, foreign investors, who have options to invest anywhere in the world, would pursue more investment opportunities in Australia. And if our company tax rate is higher than other countries in which they have an interest, they would pursue fewer investment opportunities in Australia.

Consider an example. A subsidiary of global bank HSBC is the biggest shareholder of our two biggest employers, Wesfarmers (owners of Coles) and Woolworths. The higher our company tax rate, the lower will be the after-tax rate of return from building a new supermarket, meaning that fewer supermarkets will be built and fewer Australians will be employed. And as there would be no bidding war for workers, there would be no boost to wages.

More than half a million Australians voted for One Nation, in part of because of opposition to foreign investment. The irony is, many of these voters are employed by companies like Wesfarmers and Woolworths, and their futures and the futures of their families rely on foreign investment.

While Senator Hanson’s opposition to company tax cuts is consistent with her opposition to foreign investment, she has put up other arguments to justify her position. Each of these arguments is weak.

Senator Hanson says tax cuts alone are not enough to encourage investment. This is not an argument against tax cuts; it is an argument for other pro-investment reforms, like cutting red tape, in addition to tax cuts.

Senator Hanson says no one knows what companies will do with additional cash from a company tax cut. This sounds as if she will only support changes with mandated outcomes, reminiscent of centrally-planned command economies. She says that instead of investing more, companies could pay down debt, increase shareholder returns or lower prices. This is true, but all of those are good outcomes and many companies would increase investment to boot. The idea that no companies would increase investment is fanciful and argued by no-one, not even the Greens.

Senator Hanson says a company tax cut would not help workers or retirees because of dividend imputation. This would be true if all companies immediately distributed all after-tax profits every year, because the increased dividends would be perfectly matched by reduced dividend imputation credit. But companies don’t do that; they reinvest a proportion of their profits. So, as each year passes, a company tax cut would boost the funds that companies reinvest. This translates into additional jobs.

And when this investment flows through to profits the increase in the distribution far exceeds the drop in the dividend imputation credits. A company makes a return on reinvested profits, not on dividend imputation credits. A company tax cut would undeniably help workers and retirees despite dividend imputation.

Unfortunately, it seems One Nation is deaf to informed advice on how dividend imputation works.

Finally, Senator Hanson says company tax cuts could lead to a catastrophic tax collection shortfall. In fact, already high Commonwealth tax collections will rise in years to come even if company tax cuts are legislated. Senator Hanson’s lament only makes sense for fans of big government.

Our current debt and deficit crisis is not caused by falling tax collections, which are as high now, after accounting for inflation and population growth, as they were a decade ago. The crisis is caused by government spending, which is higher than it was a decade ago and still growing. If more Senators were willing to join me in advocating for across-the-board spending cuts, that might not be the case.

Some people supported One Nation because of its opposition to foreign investment, so they will be heartened by One Nation’s opposition to company tax cuts. But others supported One Nation because they saw it as a less stuffy version of the Liberals. One Nation’s opposition to company tax cuts means these more market oriented supporters of One Nation should be reconsidering their support.

David Leyonhjelm is a Senator for the Liberal Democrats

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24 Responses to David Leyonhjelm: Hanson true to form on company tax cuts

  1. tezza

    Well said, Senator Leyonhjelm.

  2. jupes

    Yeah Pauline Hanson has certainly swallowed the kool aid on this.

    Still, she has the best policies in Australia dealing with Muslim immigration and climate change.

    Tax cuts won’t induce companies to invest in Australia if there is no electricity or we have a mini-Caliphate.

  3. tgs

    While I agree with the general direction of this article you might have made a rookie error with:

    Consider an example. A subsidiary of global bank HSBC is the biggest shareholder of our two biggest employers, Wesfarmers (owners of Coles) and Woolworths.

    Pretty sure that is HSBC Custody Nominees, i.e. a subsidiary that holds shares on behalf of HSBC customers. That doesn’t mean HSBC owns those shares itself, they are custodians of the securities acting as trustees on behalf of institutional and retail investors.

    This is the same mistake Andrew Leigh made when he released that unhinged “research” with his ANU buddy claiming that HSBC, JP Morgan and a couple of other nominee firms owned all da shares like he’d uncovered some sort of evil conspiracy.

  4. H B Bear

    This is the same mistake Andrew Leigh made when he released that unhinged “research” with his ANU buddy claiming that HSBC, JP Morgan and a couple of other nominee firms owned all da shares like he’d uncovered some sort of evil conspiracy.

    Bwahahaaa That would have earned Leigh an Alberscreechi Award had they existed at the time. Sure we can laugh about this now but in less than a year this IYI will have Treasury in his ear, his hands on the levers and cheque book.

  5. md

    More than half a million Australians voted for One Nation, in part of because of opposition to foreign investment.

    I doubt that very many PHON voters gave a second thought to foreign investment when casting their votes. To understand the motivation of PHON voters, consider this analogy.
    During WW2 the Luftwaffe used triangulation on signals from radio beacons to accurately guide its night bombers to specific locations. The British countered by transmitting radio signals at the same frequency as the German beacons that ‘bent’ the German signals and sent their bombers off on a different course.
    That was how PHON voters saw the party. It was a means though which the so-called conservative parties could be made to change course. It was the only chance we had to force change on cowardly, self-serving ‘conservatives’ and halt the destruction of our society through leftist social policy in welfare, education, justice, free speech and other rights, immigration, refugees, policing, tax and spending and so on.
    A golden opportunity to divert the course of politics in this country has gone begging. Meanwhile, the ruination of our society continues.

  6. Entropy

    PHON voters are voting against The Boss Man, the political elite, the corporate raiders, filthy rich bastards who have wrecked the little guys lives. While there is no logic to it, of course PHON would be against cuts to the big end of town.

  7. notafan

    Phon voters see a cut in company tax as a reduction in their franking credit refunds.

  8. PoliticoNT

    Okay, some nice points about the dangers of fucking over foreign investment, but half a million One Nation supporters voted for Pauline because they were sick of being called racists, not because they have any understanding of this.

    Senator Leyonhjelm might like to avail himself of what happened last time around with One Nation. A lot of its support fell away when the rural base in Queensland realised Hanson’s anti-globalisation nonsense was contrary to how they were making a lot of their money (agri exports).

  9. duncanm

    Okay, some nice points about the dangers of fucking over foreign investment, but half a million One Nation supporters voted for Pauline because they were sick of being called racists, not because they have any understanding of this.

    Exactly.

    If everyone voted for a party that aligned with all their views, no votes would be cast.

  10. PoliticoNT

    Exactly.

    Shame of it is Leyonhjelm’s post is the kind of straight forward thinking and common sense PHON supporters love. But long term Leyonhjelm, PHON, NXT, ACs, even The Greens – all have a limited shelf life. There’s a 100 years+ of Australian electoral data showing we always default to two parties. And easy to understand why.

    (Post script – I’d outline how an alternative party goes about replacing one of the majors, only I don’t do political work for free any longer.)

  11. Tel

    OK, there’s a number of things happening at once here. If this were the year 1800 I could very easily understand why a primitive developing nation like Australia needs a head start with foreign investment from Europe. But 200 years later we still use foreign investment like some sort of crutch and I have a gut feeling that a lot of that “investment” goes primarily into raising property prices and just buying business for the sake of holding it, ultimately the money gets used by Australians for consumption purposes. The climate for genuine business investment in Australia is poor, because of many types of government interference, especially in the labour market. Pulling in foreign money to paper over this is a short term strategy, like living on your credit card debt when you don’t have a job and don’t produce anything. It gets you through the week but eventually you have to pay the piper. Foreigners aren’t giving out free money, they expect to get something.

    Senator Hanson says tax cuts alone are not enough to encourage investment. This is not an argument against tax cuts; it is an argument for other pro-investment reforms, like cutting red tape, in addition to tax cuts.

    Sure, you are stepping on a land mine while wearing unfashionable 60’s flares and a loud Hawaiian shirt. Someone shouts, “Watch out for the landmine! Dive into that ditch!” and you reply, “But this outfit… it really needs updating. I’m deeply worried about my social image here.” My point is that tax cuts are useless without government spending cuts and good luck getting that past the ABC brigade. Foreign investors that simply buy assets and sit on them do not contribute to productivity nor do they address the deeper reasons why Australians (who have plenty of funds available) choose to avoid investing anything in Australian business. Our super funds are almost anti-entrepreneurial and a good chunk of the money goes overseas anyhow. Then they stick money into wind farms and solar arrays or make a big public show of demonstrating how excellent they are by NOT loaning any money to a coal mine.

    I can see what Pea Hon is getting at here. It’s time to stop believing that slurping on foreign money is the answer, and the sooner we start facing up to the real problems the better.

    https://tradingeconomics.com/australia/government-debt-to-gdp

    Would you invest in a country with that kind of thing going on?

  12. Tel

    It was the only chance we had to force change on cowardly, self-serving ‘conservatives’ and halt the destruction of our society through leftist social policy in welfare, education, justice, free speech and other rights, immigration, refugees, policing, tax and spending and so on.

    And those things are much more fundamental than getting an extra few temporary bucks in the door from China which probably won’t result in any genuine new business development anyhow.

  13. struth

    Okay, some nice points about the dangers of fucking over foreign investment, but half a million One Nation supporters voted for Pauline because they were sick of being called racists, not because they have any understanding of this.

    Everything you say regarding foreign investment may be correct Senator, however to think Hanson voters were contemplating this at all, or not prepared to sacrifice this policy to stop mussies coming into this country and to hold some opposition to this multiculti attack on Australia, shows clearly how out of touch with voters you are on this.

    So although Hanson is a moron on this issue, many consider open borders and massive invasion of mussies into the country a more pressing problem.

    A hint.
    Try looking at yourself and your own policies to work out why she’s getting more votes than you.
    I am not supporting Hanson at all, just saying…………………………

  14. Chris M

    This DLP buffer is still about?

    Obviously company tax rates are trivial compared to the rubbish this loon supports – unrestricted access to drugs, open borders, fag and poly marriage etc etc. Destroy the country but hey, we support a low company tax rate!

  15. Rococo Liberal

    Phon voters see a cut in company tax as a reduction in their franking credit refunds.

    How many PHON voters will be getting franked dividends?

  16. Anton

    Imagine a politician sticking to the policies they took to the election, rather than go on a queer diversion after people have voted.

    PHON will never be libertarian with that primitive attitude

  17. EvilElvis

    Wow, a libertarian minnow attacking a nationalist populist protest vote party.

    Always after the low hanging fruit aren’t we. How about going after the liblab cabal, David.

    Anyway, guns for all and all in to Australia, as you were…

  18. notafan

    How many PHON voters will be getting franked dividends?

    Lots of part pensioners with money from compulsory super in shares

  19. Mr Black

    The influx of unassimilated and unwelcome immigrants places a massive shadow tax on the entire country. Not only do we foot the bill for their living expenses for the rest of their lives (because let’s face it, some Sudanese dirt farmer isn’t going to be running an IT business next year), we have to harden our cities and targets of opportunity against immigrant crime, employ legions of translators and public service providers and so on. I’d rather take a higher corporate tax rate to get rid of this hidden tax any day of the week.

  20. overburdened

    Senator Leyonhjelm is sound.
    He should be consulted widely.

  21. Dr Fred Lenin

    The senator would not have a seat under my reformed senate with one senator per one million people ,23 or so .
    He would go and most of the gangrenes , Lambie and motormouth Hinch and the like <political party hacks would be banned ,only concerned citizens willing to serve one three year term then retire from politics for life .

  22. overburdened

    ffs that is the most inane rubbish with nothing much to do with the topic.
    I have been advised that the open thread is the place for yapping and the posts are for more serious discussions.

  23. Barry 1963

    I saw Hanson talk about this issue. Gibberish.

  24. Adam D

    The right cannibalising its own as the left march in lock-step to our socialist demise. Tell us what you don’t like about the conservative party next David, maybe we can destroy all conservative protest vote options so the ALP/green can finally get total power.

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