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Company tax cut not in national interest

A cut in company tax rate could see Australians worse off by an estimated $1600 each, according to economic modelling released at the Melbourne Economic Forum.

The modelling, undertaken by Victoria University’s Centre of Policy Studies, reveals that the cost to government revenue from a company tax rate cut outweighs benefits that could eventually flow from increased foreign investment and higher wages.

“The cost to revenue from a company tax rate cut would add to pressure on government to reduce spending in areas such as health and education and income support, or to raise personal taxes,” Dr Janine Dixon, a Senior Research Fellow at the Centre of Policy Studies, said.

Dr Dixon, who undertook modelling for last year’s National Reform Summit, said a company tax rate cut amounted to a transfer of government revenue to foreign investors – but that those investors were expected to invest more in Australia, making workers more productive and driving up wages.

Any new investment, however, would take time and a large share of future company profits would accrue to the same foreign investors.

“Our modelling results for the impact on national production, as measured by GDP, are similar to Treasury’s, but this is not a suitable measure of national benefit,” she said.

“The right indicator of national benefit is the impact of a company tax rate cut on national income and that’s clearly negative.”

Leading economists Professors John Freebairn, Ross Garnaut, Beth Webster and John Daley from the Grattan Institute also presented on the day/

The Melbourne Economic Forum is a joint collaboration between Victoria University and the University of Melbourne. It is run in association with the Australian Financial Review.

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