Latest Tax Talk Needs More

As an open economy our corporate tax rate has to be on a par with comparable countries. But  this latest policy suggestion from Treasurer Swan’s  business tax working group looks like a good idea that’s undercooked.

The plan: drop the tax rate by 2% and fund the $3.6bn a year by reducing concessions in research, exploration and capital investment. Rely on modelling that suggests growth and productivity effects across the broader economy.

The problem is that we have a government that is borrowing-and-bleeding money. We have a Treasurer playing populist anti-wealth and anti-business cards at every other opportunity. We have an expanding regulatory state and a series of reckless policy projects that burn money and raise questions of sovereign risk. And we have a government in thrall to a zombie 1970s Union mindset, and twisting on a Green spike.

While this is going on a funded reduction in the company tax rate  to 28%, while welcome, is not likely to make the emotional investment environment much more appealing. Especially for small to medium enterprises, which employ close to 50% of our workers. That modelled growth in productivity and wages has to look pretty rubbery.

And the BCA suggestion to go ahead even if the tax cuts aren’t funded is a nonsense in our current budget environment.

Tidy up the tax system, by all means. But fix spending, and fix policy execution. Tax talk without it usually ends up in populism or nutbaggery.

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