The Australian Government is celebrating after getting its signature policy of company tax cuts through the Senate. The core of their argument is that a lower tax regime will attract more international business investment and create more jobs.
The argument conveniently ignores the reality that companies are one of the major beneficiaries from a robust tax regime that directs expenditure in a way that develops opportunities for all. Access to a well-educated workforce, high-quality transport infrastructure, reliable power supply and government funds not only removes risk from any business enterprise, it also adds to their bottom line.
The post-war German and Japanese economic ‘miracles’ are testament to decades of government expenditure in developing high-end engineering, technology and other value-added industries to allowed the countries to compete and thrive in the global economy.
Each country ended World War II with their infrastructure destroyed and their intellectual property pillaged by allied governments. The post-war rebuilding of Germany included massive spending on technological research and development and today, Germany continues to spend government funds on scientific research and development, which is exploited by German companies through the publicly underwritten IP transfer Fraunhofer Institutes. The link between publicly funded scientific research and GDP growth is undisputed, both sides of Australian politics support the recently created National Innovation and Science Agenda (NISA).
Well-funded academic institutions engaged in long-term research is an excellent laboratory of ideas for companies which do not wish to have empirical research on their balance sheet, but certainly want to profit from it.
Companies also benefit from a well-educated workforce, which requires major government investment and expenditure in an education system that can produce literate, numerate people who can go onto technical colleges and universities to develop all of those skills useful to companies.
Sovereign risk remains a key investment decision parameter because trying to develop anything in a country with a poorly educated workforce, poorly developed road infrastructure and intermittent and unreliable energy sources is difficult. Companies operating in countries with robust taxation systems are mostly relieved from the burden of generating power for their operations, building of roads and other infrastructure to get goods in and out of their operations and creating a telecommunications system to be able to operate the IT.
The focus on reducing company tax rates to bolster profits and share price in the short term suits the professional investor community, who invest our retirement and savings money on our behalf. They are rewarded for investing in companies that have artificially inflated profits now, at the expense of longer-term growth. The dominant narrative of profits for shareholders is more important than any other driver ignores the broader benefits that taxation provides to businesses and to the investees themselves.
Indeed, many of the ageing baby boomer generation, so in love with the idea of individualism and wealth as a reflection of morality, may wish to consider how beneficial it is to them to live in a country with an extremely good health system. And perhaps ponder the fact that it is money raised through the taxation system that allows us to have well-trained clinical and administrative staff across the health system, from hospitals to GPs to nurses that visit the homes of the elderly and unwell.
It is reasonable for the Australian community to request all businesses to pay a decent amount of tax when they profit enormously from a stable political environment, a workforce that has access to an education regardless of their personal wealth, an infrastructure system that allows them to deliver their products to market and an energy source that doesn’t drop out in every storm.
The value of the tax system to the community goes beyond the profit for a few.
Excellent article. How do we mitigate the retrograde political behaviour that is allowing this lower company tax to proliferate?