Companies that pay less tax create fewer jobs, Labor research shows

https://www.theguardian.com/australia-news/2018/mar/26/companies-that-pay-less-tax-create-less-jobs-labor-research-shows

Version 0 of 1.

Companies paying a lower effective rate of tax have a worse record on job creation than those paying closer to the full 30% tax rate, new research by Andrew Leigh finds.

In a paper published in the Economic Analysis and Policy journal, Labor’s shadow assistant treasurer finds that companies paying an effective tax rate of less than 25% are shedding jobs while those paying 25% or more are growing their workforce at an annual rate of 2%.

Leigh has used the finding to reject the Turnbull government’s contention that lowering the company tax rate for companies earning more than $50m from 30% to 25% by 2026-27 will boost job creation.

Parliament resumes on Monday for a three-day sitting week, with the Coalition still furiously lobbying senators Derryn Hinch and Tim Storer for the last two votes to pass the big business element of its $65bn 10-year company tax cut package.

On Sunday a spokesman for Hinch told Guardian Australia the position had not changed since Thursday when the government rejected Hinch’s suggestion to exempt the big four banks from the tax cut.

“It’s not a red light or a green light yet, it’s a varying shade of amber,” the spokesman said. Storer’s position is unknown.

On Sunday the prime minister, Malcolm Turnbull, said the government was “working all the time to secure the support of the crossbench for our legislation in the Senate”.

“We must do everything we can to enable Australian businesses to compete,” he said. “So that we have a competitive business tax in Australia so we’ll get more investment, more employment, more jobs and better jobs.”

Leigh said the Turnbull government “claims that if big firms pay less company tax they’ll create more jobs but the numbers show exactly the opposite”.

Leigh’s paper compares the record of about 1,000 profitable Australian firms to test whether those with lower effective tax rates – due to offsets and deductions – created more jobs.

About one-third of firms had sufficient deductions and tax offsets to pay an effective tax rate of less than 25%. These firms were shedding 1.2% or 0.07% of jobs a year, depending on whether tax was measured as a share of taxable income or as a share of accounting profits.

Those paying 25% or more tax grew their workforces by 2.1% or 1.9%.

“Across a cross-section of profitable Australian firms, I find no evidence that those which pay a lower effective rate of tax create more jobs,” Leigh wrote.

The paper draws from the Australian Tax Office, companies’ annual reports and proprietary information on their jobs record from IBIS World, a private market research firm. Results are weighted by the average number of employees in a firm.

The Australia Institute has estimated that $7.4bn of the $65bn tax cut package will go to the big four banks.

On Friday the shadow finance minister, Jim Chalmers, said “much of the rest of it will be sprayed around offshore in the form of higher executive pay and share buybacks and puffed up dividends for foreign shareholders”.

Hinch has dismissed a Business Council of Australia promise to invest in Australia “as the tax cut takes effect”, suggesting it did nothing to commit to wage rises. He added that he was seeking “something” for pensioners in his negotiations.

On Sunday a report in News Corp Australia papers suggested Hinch had demanded the government abandon plans to abolish the clean energy supplement – worth $375 for singles and $550 for couples – for new welfare recipients.

“Senator Hinch is very concerned about the welfare of pensioners, those struggling to keep roof over their heads and low and middle-income earners,” his spokesman said.