Tuesday, March 31, 2015

Zero company tax?

I understand Peter Martin's argument about stopping dividend imputation and reducing company tax, but I don't get the last bit:
Gruen believes  a 19 per cent company tax would push up demand for Australian shares and push their prices high enough to compensate existing Australian shareholders for no longer having imputation. He says the government could use the extra tax it got from the investment surge to cut the company tax rate further, to 15 per cent.
Eventually we will have no choice but to cut it even further, ever closer to zero. As long as just one nation undercuts all the others with a low tax rate, businesses will choose to invest there over other countries. It's why Google will sell you its products in Australia but routes  your money through Ireland, where its profits are taxed at 12.5 per cent.
The man who designed the dividend imputation scheme for Keating can see a zero corporate tax rate beyond the horizon. "The evidence before the Henry review is that cutting the company tax rate is the most helpful thing we could do," said Greg Smith shortly after the Henry Tax Review was released.
Smith served on Keating's staff throughout the tax reforms of the 1980s and later served on the Henry Tax Review. "I have thought seriously about a 15 per cent company tax rate partly funded by the abolition of imputation," he said. "There is an intellectual case for a zero rate. That's the way the world is going, that's the direction in which our competitors are moving."
Why does a race to the bottom on company tax make "intellectual sense"?   Do that, and the next thing the "taxes are bad - very bad" crowd will be arguing  that alternative sources of revenue should be reduced too, no?

1 comment:

Not Trampis said...


Where Greg smith is coming from, I think, Is on the incidence of company tax i.e. who actually pays it.
It is consumers who actually pay for it,

It is the easiest tax to avoid[evade given international trade.

Thus what Greg smith says makes sense.