The Daily Telegraph reports
THE Federal Government is rumoured to be set to drop its promised one per cent company tax cut to pay for a carbon tax sweetener for low and middle income earners.
Is that good economic policy? Well this is how the government sold to policy in the 2010-11 Budget.
The Government’s tax plan will promote growth across the entire economy. Independent modelling of the plan indicates that it will deliver a reform dividend of a 0.7 per cent increase in GDP long run, which can, over time, be expected to flow through into taxation revenue.
The reduction in the company tax rate is expected to increase GDP by 0.4 per cent in the long run with a further 0.3 per cent increase from the resource tax reforms.
This growth will also include a $94 million increase in GST collections which will flow through to payments to the States and Territories.
Now we can quibble over the ‘independent modelling’ and the assumptions and what-not. The government believes that a reduction in the corporate tax rate will grow the economy and will rise additional revenue. Not cutting the corporate tax in the face of results like that in the budget papers would be immoral and require a lot of explanation.
If true then we look forward to the explanation Wayne Swan provides in his budget tonight.