A cut in the rate of company tax could actually see Australians worse off to the tune of $1,600 each, according to economic modelling released today at the Melbourne Economic Forum.
The modelling, undertaken by Victoria University’s Centre of Policy Studies, reveals that the cost of cutting into government revenue through a reduced company tax rate outweighs the benefits that could eventually flow from increased foreign investment and higher wages.
“The cost to revenue from a company tax rate cut would add to pressure on government to reduce spending in areas such as health and education and income support, or to raise personal taxes,” said Dr Janine Dixon, Senior Research Fellow at the Centre of Policy Studies.
Dr Dixon, who undertook modelling for last year’s National Reform Summit, said a company tax rate cut amounted to a transfer of government revenue to foreign investors – but that those investors were expected to invest more in Australia, making workers more productive and driving up wages.
However, any new investment would take time, and a large share of future company profits would accrue to the same foreign investors.
“Our modelling results for the impact on national production, as measured by GDP, are similar to Treasury’s, but this is not a suitable measure of national benefit,” Dr Dixon said.
“The right indicator of national benefit is the impact of a company tax rate cut on national income, and that’s clearly negative.”
The comments come ahead of next month’s federal budget announcement, when business owners will hear whether last year’s measures, including the tax cut for SMEs, will be retained or even expanded to stimulate growth in the broader economy.