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Australia: $24b tax cut may be worth 0.2% to economy


Added on 05/04/2017

The Turnbull government's $24 billion company tax cut will boost the economy by less than 0.2 per cent when fully implemented, according to a preliminary analysis by the Grattan Institute, reports The Border Mail.

The federal government has been resisting pressure from Labor to outline the growth dividend from the cuts, which will see company tax fall to 25 per cent over a decade for companies with a turnover of up to $50 million, after they passed the Senate last week.

Prime Minister Malcolm Turnbull and Treasurer Scott Morrison said on Tuesday the company tax cut would deliver "substantial economic growth", but would not quantify the contribution to GDP.

Mr Morrison said while Labor argued an econometric model was needed to quantify the benefits of the cut, "I tell you what, if you go down the pub and you talk to small business people, they're not talking about econometric models. What they're talking about is how they're going to grow their businesses".

Labor treasury spokesman Chris Bowen, who has refused to say whether Labor will adopt the tax cuts or repeal them if it wins the next election, criticised the government for not having the modelling to hand.

"We know that the benefit of the smaller package they passed would be smaller, but for the Treasurer of Australia today to say 'go ask the Labor Party or go to the local pub' just beggars belief," he said.

The Grattan Institute's productivity growth program director, Jim Minifie, told Fairfax Media that according to his preliminary analysis "it is reasonable to expect that GDP and national income would rise by 0.2 per cent over the next decade or so as a result of this package.

"That translates into an increase of up to $3 billion in national income each year by the time the full effect has come in over the next decade. And unlike in the case of the full business tax cut package, more of these benefits are returned to Australians rather than in part going to foreign shareholders."

Dr Minifie also dismissed Labor claims Australia would have to wait 20 years for the benefits of the cut to be felt.

Victoria University economist Janine Dixon said the total impact of the revised cuts would be "pretty small".

"The majority of what you think of as typically small business - your local accountants, solicitor, grocery store - they pay at their personal tax rate," she said.

Dr Dixon said the company tax cuts are only going to make a difference to people who actually pay company tax, mostly foreign investors and people whose personal tax rate is above the company tax rate.

As debate about the economy-wide benefits of the company tax cuts continues, Australian Industry Group chief executive Innes Willox will warn at the National Press Club on Wednesday that if the Trump administration cuts the corporate tax rate, it would effectively turn the US into a tax haven.

That, in turn, would have two impacts on Australia: it would beneficially grow the US and therefore the global economy but on the downside, multinational companies that invest in Australia and the US would more likely invest in the US.

Mr Willox will say that other elements of President Trump's proposed program, including increased infrastructure and defence spending, could deliver potential benefits to Australia.

"We must be open to new ideas such as around the Trump tax agenda to both compete and complement the US . . . to sit back and not respond to developments occurring in our most diverse trading partner would be national folly."