Well, you can forget about Treasurer Jim Chalmers’ three-day roundtable discussions leading to any improvement in the economy’s productivity and growth, let alone getting the budget back under control.
Late last week, the Business Council of Australia persuaded all of Canberra’s many other business lobby groups to join it in rejecting out of hand the Productivity Commission’s proposal for reform of the company tax system which, the commission argued, would increase businesses’ incentive to invest more in productivity-enhancing plant and equipment, without any net reduction in company tax collections.
The proposal is for the rate of company tax to be cut for all but our biggest 500 companies, while introducing a 5 per cent tax on the net cash flow of all companies.
The join statement by 24 business lobby groups says that “while some businesses may benefit under the proposal, it risks all Australian consumers and businesses paying more for the things they buy every day – groceries, fuel and other daily essentials”.
Get it? This is the lobbyists’ oldest trick: “We’re not concerned about what the tax change would do to our profits, dear reader, we’re just worried about what it would do you and your pocket. It’s not us we worry about, it’s our customers.”
Suddenly, their professed concern about the lack of productivity improvement and slow growth is out the window, and now it’s the cost of living they’re deeply worried about. They’ve been urging governments to increase the GST for years, but now they don’t want higher prices. Yeah, sure.
Bet you didn’t know there are as many as 24 different business lobby groups in the capital. Their role is to advance the narrowly defined interests of their paying clients back in the rest of Oz by means fair or foul. They’re not paid to help the government reach a deal we can all live with, nor to suggest that their clients worry about anything other than their own immediate interests.
Canberra calls this lobbying. Economists call it rent-seeking. You press the government for special deals at the expense of someone else, while ensuring you contribute as little as possible. This, apparently, is the way democracy is meant to work.
And if the lobbyists can play this game, why can’t the business press join in? As its blatantly partisan commentary makes clear, big business’ only interest in attending the government’s roundtable was to come away with some new concession, ideally a cut in company tax.
At the summit after Labor was elected in 2022, business came away with nothing, we’re told, while the unions got all they wanted. Well, not gonna play along with that again.
It’s no surprise the Business Council is so opposed to the Productivity Commission’s proposal, which would reduce the tax paid by all companies bar the top 500. They’d get no cut in conventional company tax, but would pay the new 5 per cent cash flow tax.
Which lobby group roots for our biggest companies? The Business Council. What is surprising is the ease with which it was able to persuade all the other business lobbies to join it in helping protect the Big 500, even though most of their own members should have benefited from the deal.
Huh? I think the explanation is in the first sentence of the joint statement: the “proposal to tax business cash flow is an experimental change that hasn’t been tried anywhere else in the world”.
True. So, a simple case of resistance to radical change. And who could blame them? Economists – and the Productivity Commission itself – don’t have a good record in promoting radical changes that look good on paper and also work in practice. Think: the whole neoliberal project and, especially, the notion that creating from nowhere a market for the supply of disability services would be easy and efficient. It’s wasted billions.
When we wonder why productivity has stopped improving, the obvious suspect is the huge decline in the growth of business investment in new plant and equipment. Giving workers more and better machines to work with is the main way we’ve increased their ability to produce more per hour.
On paper, the commission’s partial switch from conventional company tax to a tax on companies’ net cash flow – which allows them to write off the full cost of new assets immediately – ought to improve productivity.
But the budget’s projected decade of deficits prohibits the Albanese government from giving tax cuts to companies or anyone else. So, while the commission’s plan would cut the tax paid by almost all companies, this cost to government revenue would be recouped by the extra tax paid by the Big 500.
Guess what? Many if not most of those companies pay far less tax than you’d expect. In particular, many of them are the subsidiaries of foreign multinationals using profit-shifting to pay laughably small amounts of tax in Australia.
The commission readily explains that the tax saving to most companies would be covered by tax-dodging foreign companies. Australia’s rare system of dividend imputation (“franking credits”) means that the Australian shareholders of Australian companies get their share of company tax refunded.
Only the foreign shareholders of Australian companies bear the cost of company tax. So why does the Business Council bang on unceasingly about the need to cut the rate of company tax? Because, when it gets down to cases, the Business Council represents the interests of foreign multinationals operating in Australia. That’s its guilty secret.
Footnote. When I wrote last week about the way “modelling” is used to make estimates of the favourable effects of a proposal sound more scientific and reliable than they are, I didn’t know the first offender would be the Productivity Commission, quoting results produced by Australia’s leading commercial modeller, Chris Murphy.
It says modelling suggests its proposal could increase investment by $7.4 billion, Gross Domestic Product by $14.6 billion and labour productivity by 0.4 per cent.
Sorry, no “computable general equilibrium” model can tell you the likely effect of some policy change on productivity. Someone has to insert their best guess at the effect on productivity, and all the model does is calculate what, given a host of other assumptions, such an improvement would mean for GDP.
