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Company tax cuts just one aspect

Government senators seem happy with themselves during a debate on the Company Tax Bill on March 31.
Government senators seem happy with themselves during a debate on the Company Tax Bill on March 31. MICK TSIKAS

SOMEONE once suggested to me that when deciding which countries are worth doing business in, ask yourself this: if you went into business with the son or daughter of the prime minister (or anyone else important or well- connected), and they ripped you off, could you take them to court and win?

The answer had better be yes, because if it isn't, then you really need to question just how effective is the rule of law, and hence your ability to get any kind of contract enforced in that country.

I remembered that rule of thumb in the context of the current debate about company taxes, and the apparent need for a lower company tax rate in order for Australia to remain internationally competitive in the global market for capital.

My point is that tax rates are just one of many factors that make a country worth investing in, including a first-rate legal system, a highly skilled workforce and decent infrastructure.

In recent days, the Federal Government has been able to get part of its company tax cut plan through the Senate.

For companies with a turnover less than $50million, the tax rate falls from 30 to 25% at a cost to the budget of a bit over $5 billion over the next four years.

The business community and the government continue to push for the full package of corporate tax cuts - for all companies, not just those with sub-$50 million turnover - but is it fair to ask whether the benefits to the economy over the long term are really worth the budgetary cost, particularly at a time when the budget isn't exactly a picture of health?

There's ample economic modelling that shows company tax cuts result in higher investment, and eventually higher employment and wages, but the size of the benefits aren't enormous.

Moreover, what happens if, in the era of Trump, the US and other nations cut their company tax rates? As with the penalty rate question we wrote about last month: it's complicated!



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