So ACT – party of liberating the poor, don’t you know – has a new plan to liberate the poor by slashing taxes on company owners. Sure, company owners tend not to be poor themselves but, you know, trickle down.
Naturally, National-backer David Farrar is delighted. Could this be the softening up for a post-election “ACT only gets one thing, although it is quite large”?
But, surprise of surprises, the devil is in the detail and the numbers don’t stack up.
1. The numbers lie
The current company tax rate is 28%. As DPF points out, Treasury estimates each 1% cut in the rate costs the government around $220 million a year. So the total cost of this policy is in the region of ($220 million * (28-12.5)), which is $3.4 billion a year. That is a little over a third of the total company tax take, gone.1
So how will ACT fund this $3.4 billion hole? Here’s Andrew Vance:
He would fund the tax cut by slashing “corporate welfare,” worth about $1.5bn a year, and carbon trading, worth $164m.
Oops! $1.5 billion + $164 million doesn’t so much add to $3.4 billion.
2. The End of Corporate Welfare? Yeah, right.
We have all seen this movie before. “We are opposed to corporate welfare!” intones every politician, ever.
But then a company sidles up and says “Hey, nice scenery you’ve got here. We’d love to make a movie but your labour laws are too tight?” OK, OK, make an exception for them. But only them!
Then another says “You sure have a nice aluminium plant. Wonder what it would look like in mothballs? Profit margin just isn’t high enough.” Alright, just slip them a few bucks. Them, and no more!
“Who likes convention centres? You do? We’d build one, but only if these gambling laws over here kind of fall away.” You see the pattern.
Anyone who thinks ACT could hold National to “no corporate welfare” in exchange for a corporate tax cut is entirely dreaming. What you would have is less company tax coming in, and just about as much corporate welfare going out.
It’s all for the benefit of the poor, you see.
3. Attempted proof-by-academic-study-intimidation
Jamie Whyte is a former academic, so he waves academic studies around to try and silence his critics. But I am also a former academic, so I can spot this bullshit a mile off.
Whyte knows as well as I do that these are hugely contested areas of economics. I am sure the studies he cites saying “GDP growth will double!” or “almost all the money will go to wages!” actually exist. But he knows full well that there are other, just as reputable studies that find massively smaller impacts of company tax rates on GDP growth, and find massively smaller impact of company taxes on wage rates. As a self-styled pursuer of the unvarnished rational truth, Whyte must struggle with his reflection at times like these, when his financial backers force him into selective story-telling and obfuscation as a sans to line their pockets further.