What business will do with tax cut

We have had modelling, supposition, and (by the left) outright fabrication on what businesses will do with a tax cut. But now we have the results of a survey conducted for CIS. And it bolsters the cast for the tax cut.

According to the survey, 53% of businesses said more investment is their first, second or third most likely response to a company tax cut (out of seven options).

Around  43% of businesses said they were likely to increase wages, while 45% were likely to hire new staff — again as their first, second or third highest priority. This shows that the gain to employment from the tax cut is likely to be larger than in the Treasury modelling, which finds only a small gain to employment.

Another likely response, particularly from small businesses, is the retention of funds. In practice this means reduced borrowing or increased saving, which will increase business resilience, reduce Australia’s need to borrow from overseas, and ease constraints on future business investment.

Higher non-investment spending is also probable, which means an increase in revenue for other Australian businesses, giving a further boost to GDP and employment.

The survey also indicates that the least likely responses to a tax cut are increases in dividends, and investment in other businesses. The lower rating placed on dividends is another argument against the contention that foreign shareholders will gain a large windfall from the tax cut — in addition to the refutation detailed in the CIS research report Fix it or fail: Why we must cut company tax now.

More than 640 businesses responded to the survey which was conducted in collaboration with the New South Wales Business Chamber in September and October 2016.

This additional support for a cut in the company tax rate follows recent analysis by the CIS that potential US tax cuts will make Australia’s company tax rate seriously uncompetitive.