Will corporate tax cuts improve our lives?

We are yet to be persuaded of how corporate tax cuts will work for the common good, argues Ray Cleary.

By Ray Cleary

February 23 2018 

How helpful are the proposed corporate tax cuts to sustaining and improving the household budgets and living standards of the majority of Australians, particularly families and individuals on low and middle incomes? In particular, those families struggling to keep a roof over their heads and who are at the mercy of employers for shift work, casual work or on short-term or yearly contracts.

These same families, many made up of unskilled workers, lack the ability to negotiate wage increases or move from location to location at the whim of the employer. It is often these families who struggle to provide nutritious food, access to medical services and a secure and permanent environment for their household.

Data from the Australian Council of Social Services and agencies like Anglicare Australia continually remind the community that over two million households regularly use the resources of welfare agencies to meet their needs.

If you believe the voice of corporate Australia and many economists, this struggle of lower and middle income Australians can only be met by reducing the corporate tax rate from 30% to 25% to encourage businesses to invest, despite evidence and experience to the contrary that challenge this assumption. The assumption that lower tax rates will encourage consumer confidence, create employment and improve living standards is still to be tested.

These words come at a time when numerous media report that a number of Australia’s leading corporations are planning to reduce employment levels and are seeking to lower wages and working conditions, while advising of future workforce losses as a result of technological developments.

There appears to be a cartel embracing corporate leaders, economists and politicians of varying persuasions, who have joined together in this mantra without any real answer to their critics, analysis of the likely outcomes other than theory, and the so-called “trickle down effect”. These words are being spoken while profits to shareholders continue to rise and senior executive salaries increase faster than inflation yet the plight of the ordinary worker worsens.

Those who have been entrusted to develop the mineral resources of this country appear to have little or no ethical understanding that these resources should be treated with the overall goal of improving the living standards of not only all Australians, but also the global community, and not solely for the benefit of executives and shareholders.

In a similar yet different way financial institutions of all types are entrusted with the duty to act in the best interest of those who deposit their life savings with them and to ensure funds are protected from unscrupulous agents. The banks have a privileged role in our capitalist market. In the past banks were trusted and respected. Sadly for most people this is no longer the case. Rhetoric, self -interest and ideology are now the common mantra, replacing equity, fairness and a shared concern for one another. Their performance often fails to match their marketing of themselves.

In recent days Prime Minister Malcolm Turnbull has re-energized the federal coalition’s goals to reduce the company tax rate, despite the fact that many Australian companies have not paid tax in recent years because they have been able to legally offset expenses against profits. Other corporations have used creative accounting, internal higher interest charges for inter-company loans, off-shore tax havens, and other similar strategies, to avoid paying company tax; all legal according to current law but the ethics of such actions are questionable.

The federal coalition is not alone. The Gillard governments and Labor leader Bill Shorten have also endorsed reducing company tax rates in the past and while not supporting the government at present on pragmatic grounds, Shorten is not ruling out similar future action if elected.

The current debate has stalled in the Senate and many Australians are increasingly at odds with and sceptical towards the proposal. Comparisons with Trump’s America are questionable as American companies pay not only Federal but also a range of State taxes. The tax systems of both countries are complex and comparisons are not easy.

The promise that corporate tax cuts will have the immediate effect of higher wages is also problematic, as is the prediction that jobs will be created quickly. Corporations consider a range of factors in making decisions about these matters and take time including the consideration of new investment opportunities. The claim that lowering corporate tax rates will lift shareholder profits can also be challenged, as they are affected by the level of franking credits available to individuals in Australia for tax paid by the company.

Those who advocate for tax cuts fail to explain how education, health care, housing, and public infrastructure will be improved or delivered as a result. Privatisation of essential services has not brought the benefits claimed by those who advocated for it. Instead we now have higher energy costs, a shortage of affordable housing and rising health insurance. Many have pursued short-term profit at the expense of long-term infrastructure essential for our modern cities and regional centres.

Furthermore, how will Australia achieve a sustainable long-term budget as the federal government is now proposing personal income tax cuts as well? How do both tax cuts provide better hospitals, schools, and public housing? Would a better alternative to tax cuts be to find another way to fund the future needs of our community including urgently needed infrastructure, better schools, health and housing services?

The challenge for us as a society is to find the political and community will that is based on an economic approach that embraces ethical principles of fairness, justice and the sharing of God’s given resources for all and not the few.

Canon Dr Ray Cleary is Sambell lecturer in Pastoral and Public Theology, Trinity Theological School, University of Divinity, and the former CEO of Anglicare Victoria.