Canada changed my mind about lowering the corporate tax rate

14 February 2018

Canada changed my mind about lowering the corporate tax rate

If there’s one thing corporations dislike, it’s tax. No one really likes paying tax regardless of which way they lean — there are those who feel it is a societal duty and those who feel it is a burdensome waste, but neither actually enjoy giving their money away.

When the Government announced plans to lower the corporate tax rate, I was slightly sceptical but largely in support of the move. My reading of the global economic environment led me to believe the corporate tax rate definitely needed to be lowered — after the US and several European countries unveiled plans to lower taxes for big businesses, it seemed only logical that Australia would need to follow suit to remain competitive.

The part I was sceptical of was the Government’s confidence that this would translate into wage growth. In theory, if the employer has more money, they can pay the employee more. I was not sure that’s how it would play out in reality.

So, in my mind, the corportate tax rate needed to be lowered, but at the same time, there was no way of knowing how it would turn out in practice, which was not helped by the lack of adequate comparative examples — or so I thought.

report by the ABC’s chief economics correspondent Emma Alberici enlightened me. Canada’s economy shares a great likeness to Australia’s, and what’s more, our maple syrup-making cousins enjoy similar quality of life and political stability, which makes Canada the best guinea pig we have.

In 2008, Canada’s corporate tax rate stood at 31.4%. It was lowered to 26.1% in 2012 before settling on 26.5% in 2014.

Canada Corporate Tax Rate

So, how much investment has Canada seen since the tax cuts were introduced? Surprisingly little.

And how about wages growth? Well, between 2005 and 2015, Canadians’ income grew by 10.8%, a little higher than that of the previous decade. Coming out of the Global Financial Crisis, from 2010 to 2016, Canada saw an average annual wage growth of 2.3%. In 2017, Australians’ wages grew by 2.01% — not a whole heap less than than our Canadian counterparts, which means tax cuts or no tax cuts, income growth remains underwhelming.

Furthermore, Alberici revealed that Australia’s largest corporations across all sectors have not paid a cent in taxes in the last decade despite making record profits. And due to our generous tax concessions, depreciation provisions and the ability to offset company losses against past and future profits indefinitely, they are enitrely in compliance with Australian tax law.

I do not blame corporations for minimalising taxable income — as I said before, nobody wants to give away their money. I do, however, take issue with governments past and present for allowing such a ridiculous loophole. But I have to ask: if the same corporations that are to be given a tax cut are not currently paying taxes anyway, what is the point? And since they are not paying taxes, why is wage growth flatlining if the money is supposed to trickle down?