There is absolutely no justification for corporate tax cuts

By Joe Montero

As expected, The House of Representatives passed legislation for a company tax cut at the end of last week, from 30 percent to 25 percent by 2026.

It still needs to get through the Senate, and there is a great deal of lobbying being carried out to get support, by both sides on this issue.

Cory Bernardi, Fraser Anning and David Leyonhjelm have already backed the government.

Derryn Hinch has said that he may support the cut, if it comes together with a pay rise for workers. The three Nick Xenophon Team Senators remain opposed to parts of the package.

Pauline Hanson has turned on the company tax cut and this may well drag the three One Nation Senators against the legislation in its present form. Hanson says big companies should not get the cut, which should only be given to those with a turnover of less than $50 million a year.

Only Tasmania’s Rebekha Sharkie is totally against any form of  company tax cut.

What is going to happen in the end is unclear. Much of the cross-bench is once again showing its potential for infinite flexibility, so long as the government offers them a few crumbs. It is on the cards that the self-styled crusaders for justice can be persuaded, if the price is right.

This piece of legislation is once again bringing out of the worst of the parliamentary political process in Australia. Not for the first time, the courage of principle, may be giving way to political opportunism.

For us mere mortals, either the lowering of company tax is right or wrong. It should not be something to be bargained with.

Australia should expect politicians to decide on this basis. But regretfully, it does not, because the manipulation of important issues, to bargain for concessions in other places, has become the rule rather than the exception. Politicians are expected to be opportunists, free of moral compass. No wonder that as a group, they stand in such low esteem.

But a shot should not only be fired at the cross bench. Coalition government members are engaged in their usual knee jerk reaction to anything in favour of their benefactors, the big end of town. For them, the company tax cut is mantra. But there is also the stench of a corrupt political system, that rewards what favours the richest and most powerful.

After all, there is no moral dilemma, when they reward themselves with lavish pensions and other perks, as they screw age pensioners the sick and disabledsingle parents and the out of work. The treatment of Indigenous Australians is a disgrace.

There is no prick of the conscience, when these same men and women allow privatised companies to charge households exorbitantly and helping mining companies to get over the hurdles, while they eye lucrative positions as lobbyists and positions on the boards of directors of the companies they help. It has come to the point where this is expected of Australian politicians.

Company tax cuts are sold as necessary to encourage investment. If the case was that giving more to major shareholders results in more investment where it is needed, the decades of reducing the wage share and lifting the income flow into big business would have resulted in a lot more positive investment in Australia. It hasn’t.

Instead, there has been a process of concentration of the ownership of the Australian economy. Anyone doubting this just needs to look over the share ownership of the to corporations, to see that many of them are largely owned by the same shareholders. One cannot pass the banks in this context. The big four are essentially a cartel and a channel for cross company ownership and they are substantially under the control of the same even bigger international banks.

In addition to consumers, the losers in this have been small businesses, finding themselves locked out by the cartels and not having the advantages and political support that the major corporations enjoy.

The cash bonanza has been used to gamble on speculation and over indulgence in the paper shuffling economy, rather than real beneficial investment.

The biggest single cash reward for big end shareholders has come from the private debt economy. Australia suffers one of the highest personal debt burdens  in the world.

Is throwing more cash at the same source through company tax cuts going to do any better? It is not.  To start with, there is a massive money laundering industry that sends a large part of the gains overseas. A tax cut will not stop this. And it will not work towards putting and end to the speculative and over blown paper shuffling economy. It will not tackle the problem of an economy that has become dependent on excess personal debt. Nor will it meet the challenge of shifting to an environmentally sustainable economy.

A company tax cut will not do anything to tackle the most basic underlying problem in the economy. All other problems originate from the fall in the creation of aggregate value, caused by a shift in the proportions of use labour and capital. A major shift to capital intensity, has caused an increase in per unit costs and a fall in per unit profit. Statistics on return on investment show this decline. Any competent business plan will factor in the trend in the labour/capital ratio.

Investment decisions are made based on this knowledge, and is the reason why, for instance, major investors have turned away from manufacturing. It is what has driven the distortions that have grown in the Australian economy and fueled dependency on debt.

The rise in personal debt has come about, to artificially build the Australian market, because the easiest way to make up the loss of per unit profit is to increase the volume of sales and raise the total profit.

What impact will a cut in the business tax rate have on the basic problem? None. But it will put short-term money into the pockets of the major investors. In the longer-run it will add to the distortions. Just like stagnant wages and insecure work, it will work to shrink the market by redistributing income from the many to the few.

This is on the assumption that the corporations will pay anywhere near the rate. They don’t at present, and if this continues, the five percent cut may not make a great deal of difference.

Even if this is the way it goes, Australia deserves much better from these politicians and has good reason to deliver a strong message to the cross bench, and to hold the members of the Coalition to account.

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