There’s a lot of heat not much light being generated around Bill Shorten’s “Captain’s Call” to repeal the tax cuts for medium-sized businesses. It was probably poor politics but it’s worth giving thought to whether it is good economics.
Naturally, the Business Council and small business owners are up in arms. Withdrawing the tax cuts they say will curb investment and decrease productivity.
But the central problem in the Australian economy is flat wage growth and flat retail spending (coupled with increasing house prices). Businesses will not invest if there is no increase in demand and increases in demand will only come if the workers have discretionary income to purchase. And that is not the case at present.
Giving businesses, particularly large, overseas owned, businesses tax cuts will not stimulate the local economy.
Whereas giving tax cuts to workers will stimulate the economy and that stimulation, particularly in the area of retail sales, is what will spur investment in small business. Not tax cuts.
The Business Council and small business owners are being disingenuous suggesting that tax cuts will spur investment. It will not. Only increases in demand will do this. Tax cuts to small and medium-sized businesses will only put money in the owners’ pockets. They are highly unlikely to pass that on to the workers.
It is worth watching this video from American billionaire entrepreneur Nick Hanuer/
The Australian electorate is being conned by the Coalition. They had been conned into thinking that providing tax-cuts to business owners is somehow beneficial to wage earners. There is little economic evidence to suggest that this is the case.
Economist Saul Eslake has emerged as a prominent sceptic of the benefits of reducing the company tax rate.saying would prefer cuts to personal income tax rates to more directly address the main problem besetting the Australian economy – weak consumer spending.
Economist Saul Eslake has emerged as a prominent skeptic of the benefits of reducing the company tax rate. Photo: Christopher Pearce
In fact, many economists will argue that exactly the opposite is true.
It seems as if the Government’s tax cuts to business has been defeated in the Senate having failed to secure the support of Pauline Hanson and the One Nation Senators.
Given the instability of the Hensonites and tenacity and undeniable ability of Finance Minister Mathias Cormann the issue is clearly far from dead. It is also disturbing to see that he appears to be bargaining One Nation’s demands for new coal-fired power stations against the tax cuts, two issues two are clearly not related. But then, what else could you expect from Hanson.