there is much talk about the corporate tax cuts the government is trying to get through the senate. apparently companies need to pay less tax to stay competitive, or rather: australia needs to ask companies for a smaller contribution to the common purse in order to attract or retain investment.

i find this perplexing: in my simple view a government has revenue – tax – and cost – services and investments, hopefully for the common good. if they raise less revenue from one party, say companies, they can either raise more from others – private individuals – or provide less in terms of services or investments.

raising more money from individuals, say through income tax or gst, reduces the spending capacity of families, or by another name: customers. why that is in the interest of companies is not entirely clear to me. who will they sell to when customers stop spending?

and the government’s own modelling has shown that the company tax cuts will only deliver a miniscule benefit to workers as the tax cuts filter through the system, which apparently takes many years.

it’s rare to read an alternate perspective. saul eslake is a highly respected economist and academic and his thoughts deserve attention.

here is an article i found offers a compelling alternative perspective.

in short: why go the long way via corporate tax cuts and – doubtful; better; discredited – trickle down economics when the money can be placed right into the hands of consumers, who we know will feed much of it back into the economy.

makes a lot of sense to me. it might not make so much sense to corporate executives whose short term benefits are tied to the bottom line, which would look nicer if tax was lower. but that can’t be the reason, can it?

on a much more sobering note there is also an argument that reduced tax rates might also reduce the incentive to avoid taxes (in more or less legal ways). we all know multinationals in particular are good at finding way to do that. it’s a pretty sad state of affairs if the only way to stop bad behaviour is to stop calling it what it is.

with the may budget coming up it will be interesting to see where the government takes the discussion.