Should Gillard – Swan abandon corporate tax cuts? II

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.

As we said before

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.

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8 Responses to Should Gillard – Swan abandon corporate tax cuts? II

  1. Tom Valentine

    Under the imputation system you can only cut the rate of taxation on corporate income by cutting the rate on personal and investment(ie.superannuation} income. International investors will benefit-is that the idea?

  2. Scott

    Somebody needs to explain dividend imputation to the masses and why corporate tax cuts aren’t that big a deal.

  3. Sinclair Davidson

    The two of you are assuming that corporate tax doesn’t matter given imputation. I’m not sure that is quite right – especially if the marginal investor is a foreigner. The other thing is that firms don’t have 100 percent payout ratios and so again corporate tax might matter.

  4. Even if companies do not increase their dividends after the cut in company tax, for those of us paying marginal rates of income tax of more than 29%, surely the reduction in the imputed tax implies that one will pay more income tax.That being so, the Treasury’s evaluation implies they – and Swannee – need to get Sinc to explain imputation to them.

  5. Splatacrobat

    It wouldn’t surprise me that the goose increases company tax by one percent and sells it as a bonus for working families. there is no sense in rewarding greedy miners at a time like this.

  6. mundi

    This all depends on what ‘independant’ reports showed the GDP increase from giving the money to low and middle income earners. With the way this government acts, they probably believe it will be a boon the economy – after all handing out money to families is what saved us from the GFC (according to them anyway!)

  7. mundi

    I would have thought Catallaxy files would have had heaps of posts about the budget by now 🙂

  8. Splatacrobat

    I thought the 1% reduction was offered to the big multi national miners as a concession to get them to agree to the mining tax?

    If it was I wonder if the shit sandwich Swannie serves up to Rio, BHP, & Xstrata tonight is on white or brown bread?

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