Abstract
Australia has experienced a largely one-sided ‘debate’ on the case for cutting the taxes faced by business, especially the company tax. The arguments are put forcefully by business people and their lobby groups and those views find echoes in official thinking such as the Henry review of taxation in Australia. This chapter attempts to critique the arguments used for cutting the company tax rate. It points out that in the early post war period the company tax rate was in fact much higher than it is now at 30 cents in the dollar. Yet that period recorded a much better performance in terms of standard measures such as economic growth and unemployment rates. We also find that in terms of economic theory the case against the company tax is very weak and relies on unrealistic views of the world. Many of the arguments such as those that relate to international competition for investment are inconsistent with the facts; the flow of investment into Australia from countries with tax rates lower than the Australian rate is a good example.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
Spending figures includes 2012–2013 estimates for general government cash payments for operating activities at all levels of government together with purchases of new non-financial assets (public investment) from ABS (2012c) and GDP is from ABS (2012a) and updated using forecast growth in the budget papers (Australian Government, 2012).
- 2.
Prior to the Barwick Court the tax office could look behind artificial contrivances that were clearly designed for tax avoidance. The government has just released an exposure draft of legislation designed to counter tax avoidance. It remains to be seen how effective those initiatives may be.
- 3.
Most of the rates reported in this paragraph come from the historic tables reported in Australian Taxation Office (2012) and where necessary those figures were supplemented by Australian Bureau of Statistics (various years).
- 4.
- 5.
That is the value of total non-financial assets at 30 June 2012 (ABS 2012a).
- 6.
Savings for the whole economy is defined as GDP less total consumption using ABS (2012a).
- 7.
Note that the tax concessions for funds going into these assets and the earnings on them are subject to abuse by high income earners. For example, most of the concessions for superannuation go to the rich who are unlikely to need help saving for retirement and instead tend to use super as just another tax avoidance scheme (Denniss and Richardson 2012).
- 8.
These and similar figures are taken from, or based on ABS (2011) and all wealth estimates relate to 2009–2010.
- 9.
After that there are a large number with one per cent or less. See ABS (2012b).
- 10.
Some countries also tax profits differently depending on whether or not they have been distributed to shareholders. Australia used to have an additional tax on undistributed profits. The thinking was that while companies would want to retain some profits they should also pass dividends to shareholders who would be taxed at the personal tax rate. Retained earnings should not be a tax avoidance vehicle. That was before the imputation system.
References
ABC. (2012). Business slams scrapping of company tax cut, AM Radio Program, 9 May.
Atkinson, A. B., & Stiglitz, J. E. (1976). The design of tax structure: Direct versus indirect taxation. Journal of Public Economics, 6, 55–75.
ABS. (2011) Household wealth and wealth distribution, Australia, 2009–10, Cat no 6554.0, 14 October. Australian Bureau of Statistics.
ABS. (2012a). Australian System of National Accounts, 2011-12, Cat no 5204.0, 2 November. Australian Bureau of Statistics.
ABS. (2012b). Balance of Payments and International Investment Position, Australia, June 2012, Cat no 5302.0, 4 September. Australian Bureau of Statistics.
ABS (2012c) Government Financial Estimates, Australia 2012-13, Cat no 5501.0.55.001, 16 October. Australian Bureau of Statistics.
ABS (2012d). Labour Force, Australia, Oct 2012, Cat no 6202.0, 8 November. Australian Bureau of Statistics.
Australian Chamber of Commerce and Industry (ACCI). (2010). Henry tax review—Limited tax reform, tax & super levy hikes & missed opportunities. ACCI Media Release, 2 May.
Australian Government. (2004). ‘Revenue: Statement No 5’, Budget Paper No 1, 2004–2005, May.
Australian Government. (2008). Architecture of Australia’s tax and transfer system (Henry Review), August. Available at: http://taxreview.treasury.gov.au/content/downloads/report/architecture_of_australias_tax_and_transfer_system_revised.pdf.
Australian Government. (2012). Budget Paper No 1, 2012–2013, May.
Australian Taxation Office. (2012). Australian Taxation Statistics, 2009–2010.
Denniss, R., & Richardson, D. (2012). Can the taxpayer afford ‘self-funded retirement’? The Australia Institute Policy Brief No 42, August.
Foreign Investment Review Board. (2012). Annual Report, 2010–2011.
Gravelle, J. G. (2010). Reform of US international taxation: Alternatives, 17 December.
Gravelle, J. G. (2013) Tax havens: International tax avoidance and evasion, CRS Report for Congress No R40623, 23 January.
Gravelle, J. G., & Hungerford, T. L. (2011). Corporate tax reform: Issues for Congress, 16 December.
Hepworth, A., & Uren, D. (2012). Cut company rate to aid workers, Henry urges. The Australian, 5 October.
McLeod, S. (2010). Compromise integral to tax reform: Ridout. ABC The World Today, 2 July.
OECD spread sheet. (2012). Overall statutory tax rate on dividend income at www.oecd.org/tax/taxpolicyanalysis/Table%20II.4_FINAL.xls viewed 13 November 2012.
Quiggin, J. (2012). The problem with GDP. Business Spectator, 26 June.
Stiglitz, J. E. (1973). Taxation, corporate financial policy, and the cost of capital. Journal of Public Economics, 2, 1–34.
Stiglitz, J. E. (2012). The price of inequality: How today’s divided society endangers our future. New York: Norton.
Stilwell, F. (2000). Changing track: A new political economic direction for Australia. Annandale NSW: Pluto Press.
Stilwell, F., & Ansari, M. (2003). Wealthy Australians. Journal of Australian Political Economy, 52, 143–157.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2014 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Richardson, D. (2014). The Taxation of Capital in Australia: Should it be Lower?. In: Schroeder, S., Chester, L. (eds) Challenging the Orthodoxy. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-36121-0_11
Download citation
DOI: https://doi.org/10.1007/978-3-642-36121-0_11
Published:
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-36120-3
Online ISBN: 978-3-642-36121-0
eBook Packages: Business and EconomicsEconomics and Finance (R0)