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Queensland Economic Advocacy Solutions

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Lower Company Tax - What’s in it for me

This week a cut in company tax for businesses with a turnover greater than $50 million will be given one last opportunity to be passed by the Australian Parliament when it is due for debate in the Senate. It is widely anticipated that the Bill will again be rejected spelling the death-nell for the initiative.

One would have initially thought the case for this initiative was relatively sound and straight forward. Treasury and KPMG modelling clearly demonstrated that the original “Enterprise Tax Plan’ would have a significant positive impact on the Australian economy. The results of the long-term impact of lowering the company tax rate to 25 per cent would:

  • Boost GDP by up to 1.2 per cent;
  • Lift wages by up to 1.4 per cent;
  • Lift household consumption by up to 1 per cent; and
  • Increase employment levels by up to 0.4 per cent.

The argument that tax savings are used to create jobs and lift wages as well as the need for an internationally competitive tax rate to ward off any negative impacts on Australian industry have considerable merit.  However, the problem as I see it, is that those with the responsibility to lobby for this change and the Coalition have failed to raise awareness and educate the broader community on what’s in it personally for Australians.

In short, a what’s in it for me (WIIFM) campaign would have clearly demonstrated the jobs created and wage increases possible from a lower company tax for businesses of all sizes. The chief proponent for the reduction in the company tax rate, the Business Council of Australia who predominantly looks after the big end of town, has largely ignored the WIIFM approach and instead founded its campaign on why it is good for business.

This relies on an inference (and I might add a correct one) that what is good for business is good for their employees and potential employees. However, it would appear that an inference has not been enough and it has failed to have any cut through to everyday Australians.

Arguments of tax savings creating jobs have been dismissed by three words ….. 'trickle down economics'. Unfortunately Australians are skeptical that companies will follow through on their promise to create jobs. And the erosion of industry competitiveness will play out in the longer term which is difficult to motivate people when so many Australians have not seen or felt the prosperity of 27 years of uninterrupted growth.

As an example of lack of cut through, recent work by the Committee for Economic Development of Australia (CEDA) indicated that when asked what were the most important actions for the nation, Australians incredulously listed lower company tax in the bottom two issues of importance.  Quite simply company tax is not even on their radar.

The short lesson to this debate is that unless lobbyists and policy makers convince the average Australian on why a particular initiative is personally good for them then it will almost certainly fail.  We are in an era of populism as opposed to strategic policy for the longer term. What should be highlighted in plain and easily understandable terms, Queensland's average wage would rise by $826 each year and 9,600 unemployed Queenslanders would have a job if we were to cut the company tax rate for companies of all sizes.

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