Treasurer Scott Morrison and the Business Council of Australia have wasted no time in grabbing Donald Trump's election as a justification for cutting Australian corporate tax rates.
When you're fighting a losing war, you'll grab whatever weapons you can.
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ScoMo's challenge to Labor
Continuing to push his budget repair agenda, Treasurer Scott Morrison says Labor is playing politics with superannuation changes.
ScoMo and the BCA have a fair point about the Australian tax system needing to be competitive. If President Trump wasn't lying when he promised to cut America's corporate tax rate to 15 per cent from 35 with extra concessions for those prepared to repatriate funds from tax havens, Australia's 30 per cent would look expensive.
However, we're yet to see how far Trump will really go, or be allowed to go by Congress, with policies that would massively blow out the US debt and deficit.
Meanwhile, the local tax cut chorus loses credibility when it persists with its song about corporate tax cuts being required to boost our low wages growth.
Tax boost?
The AFR reports Morrison as saying the latest slump in wages growth drives home the need for the tax cuts which would generate stronger economic growth and boost profits "which will then support higher wages growth".
BCA chief executive Jennifer Westacott has jumped aboard Trumpnomics, saying the higher end estimates are that Trump's tax package could lift US investment by more than 20 per cent, or $US400 billion ($530 billion).
"But even if the investment uplift were 5 per cent, this represents about $US100 billion of extra investment most of which will be drawn from global capital markets," she will tell a dinner tonight.
![Donald Trump's election has sparked a fresh debate over taxes.](/web/20161118225436im_/http://www.theage.com.au/content/dam/images/g/s/q/9/6/o/image.related.articleLeadwide.620x349.gsrz5g.png/1479454430475.jpg)
The theory is that's money Australia would miss out on – never mind the reality of the world being awash for money and excess capacity.
The BCA and federal government continue to cling to dubious Treasury modelling that claims half the benefits of corporate tax cuts eventually flow to workers. This is a prime example of a little economic theory failing the common sense test, of one part of a puzzle being seized upon as ideal without considering the overall picture.
![Treasurer Scott Morrison has argued lower taxes for companies could boost wages.](/web/20161118225436im_/http://www.theage.com.au/content/dam/images/g/s/9/8/z/6/image.related.articleLeadwide.620x349.gsrz5g.png/1479426706344.jpg)
The theory is reasonable enough – lower tax rates encourages investment which results in more jobs which increases the competition for labour which pushes up wage rates. Too bad it doesn't actually hold water and has been effectively trashed upon review.
Workers won't win
The reality is particularly different in a time of technological change and extreme global competitiveness. The first instinct of business is to maximise profits for shareholders (and executive bonuses) and minimise costs, not to pay workers more.
![Jennifer Westacott, chief executive of the Business Council Australia has argued in favour of tax cuts.](/web/20161118225436im_/http://www.theage.com.au/content/dam/images/g/s/6/5/u/i/image.related.articleLeadwide.620x349.gsrz5g.png/1479426706344.jpg)
Unless labour is scarce, extra profits from lower taxes are more likely to go to higher dividends and share buy backs. The only employees picking up bigger wage rises are in the executive suite.
The wave of artificial intelligence that is about to wash over us threatens do to white collar jobs what automation has done to many blue. There is not going to be a shortage of people looking for work and, therefore, there won't be upwards pressure on wages no matter how low our tax rate might be.
![Bill Gross, co-founder of Pacific Investment Management Co. (PIMCO), has criticised Donald Trump's tax plan](/web/20161118225436im_/http://www.theage.com.au/content/dam/images/g/r/u/3/q/y/image.related.articleLeadwide.620x349.gsrz5g.png/1479426706344.jpg)
The challenge ahead is for governments to invest in the education and retraining and services necessary to absorb redundant transactional workers. That sort of government investment requires tax revenue from all sorts of sustainable sources.
And while the BCA and ScoMo go Trumpian, the AFR also is reporting Bond Czar Bill Gross giving Debt King Don Trump short shrift.
Grossly unimpressed
"While the Fox (Trump) promised jobs and to make America great again, his policies of greater defence and infrastructure spending combined with lower corporate taxes to invigorate the private sector continue to favour capital versus labour, markets versus wages, and is a continuation of the status quo," Gross said.
Gross said the 50 largest S&P; 500 companies were already "lightly taxed" at an average tax rate of 24 per cent and were unlikely to invest much of the $US2.6 trillion parked offshore back into American infrastructure if given a tax break. He cited the Bush administration's 2004 "pardon" for repatriated foreign earnings, saying "no noticeable pickup in investment took place".
"Of the $US362 billion that earned a 'tax holiday', most went to dividends, corporate bonuses, and stock buybacks."
Gross lashed the business tax cuts and plan to incentivise private infrastructure investment, submitting that companies were fighting demographic aging, technological displacement of jobs, "deglobalisation" and indebted balance sheets.
His biggest forward-looking call for the Brave New World won't win any of the ideological hearts in the BCA or coalition:
"Government must step in, not by reducing taxes, which will only increase profits at the expense of labour, but by being the employer of last resort in hopefully a productive way."
Try selling that line over Christmas drinks at the IPA.
Not that Bill Gross is necessarily all that bright. He clearly doesn't fancy the idea of the Trump presidency, but he didn't vote on November 8. As it turns out for millions of Americans, that had pretty much the same effect as voting for the Trump.
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