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Why small business tax cuts aren’t likely to boost ‘jobs and growth’

Saul Eslake writes in The Conversation (20.2.17) about doubts over the effectiveness of the federal government's planned cuts to the rate of company tax payments.

'The Turnbull government’s signature economic policy at last year’s election was a 5% cut in the company tax rate, over a ten-year period, at a cost to revenue estimated to be in excess of A$48 billion. As the government itself has conceded, this now stands very little prospect of being passed by the Senate.

'However, there is one element of the government’s proposal which appears to enjoy almost universal political support - the idea that “small” companies should get a tax cut. The only disagreement among the Coalition, Labor and the Greens on this score is how small a company should be in order to be deserving of paying a lower rate of tax.

'From the standpoint of good economic policy this is surprising. There has been a lively debate for a while among economists as to whether cutting company tax rates will boost economic growth, employment and real wages – and the extent to which this theory is supported by evidence. But there is no evidence at all to support the notion that preferentially taxing small businesses will do anything to boost “jobs and growth”.'

 

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