Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Company tax is more than a political football

Robert Carling

17 August 2018 | Ideas@TheCentre

The company income tax rate is to be cut to 25% in 2022. You read that correctly — but it’s not happening in Australia. It is happening (of all places) in France — one of the most heavily taxed nations on earth and one whose politics we have come to think of as always being several degrees to the left of ours.

So if France can cut its company tax to 25% and Australia can’t, it makes one wonder what is going on here.

In fact, it’s not only France. There is a worldwide trend towards lower corporate income tax. The shift was in place even before the US federal rate was cut to 21% earlier this year, but that change has given the trend a new and massive push.

As the tax on internationally mobile capital goes down, Australia as a destination for global capital — far from being unable to afford a cut in its company tax rate — cannot afford not to.

The fact we have a dividend imputation system does not change that reality. Nor does the nauseating repetition of slogans pitting funding for schools and hospitals against tax cuts for banks.

The question is whether we wake up to the need for lower company tax now, based on conjecture, or wait for the consequences of not cutting company tax to become ever more apparent.

The consequence would be a continuation of the weakness in business investment we are already seeing. Investment is the lifeblood of growth in productivity, the economy, employment and real wages.  Growth can continue for a while without it — but not forever.

Company tax has become a political football; with the focus no longer on the economic case for a cut, but on the game of scoring points for the next federal election.

Right now the most likely outcome is that we are stuck indefinitely with a cumbersome, inefficient two-tier company tax rate; premised on the mistaken belief that the economic benefits of a lower rate depend on the size of the company.

Sooner or later — whether it happens under the current government or a future one — an across-the-board cut will be seen as an economic necessity.

Axing church charity status would hurt community

Peter Kurti

17 August 2018 | Ideas@TheCentre

Churches found by the Royal Commission to have failed to protect children from the scourge of sexual abuse should be stripped of their charitable status, according to a former tax commissioner. While understandable given the crimes uncovered by the Commission, such calls are mistaken. They would merely threaten the good work being done by many religious institutions today.

The advancement of religion has been a charitable purpose under the law since the Statute of Elizabeth in 1601. For a purpose to be charitable, it must be beneficial to the community. And many religious institutions — like hospitals, welfare agencies, and schools — continue to confer great benefits enjoyed by all Australians. Charitable status helps support them in this work.

Most cases of child abuse are historic, committed in an age when some church leaders — who should have known better — turned a blind eye, or even denied that offences had been committed. Community anger about the egregious breach of trust by the churches still rages, and victims continue to pursue the perpetrators of sexual abuse through the courts. Many face prison.

Redress for victims rightly focuses on the terrible suffering they endured long ago at the hands of people they trusted and respected. Past offences are being tried according to the criminal law. And the churches’ systems for dealing with sexual abuse have also been reformed and strengthened. The Anglican Church of Australia, to which I belong, has zero tolerance of any sexual misconduct.

If churches had failed to respond to the scandal of child sexual abuse and failed to establish systems for protecting children, stripping them of charitable status would have been entirely justified. But stripping away charitable tax status from all religious institutions would simply punish the good work being done by the churches today that benefits all Australians.

Let the churches continue to reform their structures, to put a stop to any abusive practices, and to punish perpetrators without fear or favour. And the let the churches be judged by the criminal law. Any failure by religious institutions to do these things will not — and must not — be tolerated by the community. Only then would it be fitting to review — and remove — the privilege of charitable status.

Pacific anxiety: Should we worry about China?

Hugh Morrison

17 August 2018 | Ideas@TheCentre

China’s increasing aid and infrastructure projects in the Pacific have stirred considerable media attention. But does Beijing’s growing reach pose a valid concern for regional security?

A lot of the criticism has been over unsustainable debt burdens for developing regions.

According to recent data, Australia leads in ‘spent’ aid to the Pacific, with contributions totalling US$6.5 billion ($8.76 billion) between 2011 and the start of 2017, exceeding China’s by more than 5:1.

But China is coming up fast behind us, with US$4 billion ($5.5 billion) worth of aid pledged in 2017.

However, to keep this in perspective, in 2015 alone Beijing pledged US$60 billion over three years in loans and assistance across Africa.

An estimated 67% of China’s aid to the Pacific is provided through concessional (low interest) loans — a hallmark of Beijing’s foreign aid policy.

But even with the lower rates, the loans saddle developing nations with unmanageable debts, pressuring them into debt equity swaps. Elsewhere, this has seen the handover of a Sri Lankan port to China in exchange for the wiping of US$1 billion worth of debt.

Pacific nations Tonga, Samoa and Vanuatu all face significant debt pressures, with foreign debt in Tonga reaching 41% of GDP — of which 2/3 is owed to China’s Exim Bank.

While their debt burdens are far from matching Sri Lanka’s, there is valid concern that this kind of ‘debt-trap diplomacy’ could lead to Chinese acquisition of strategically positioned ports and airports — with potential for military appropriation.

Earlier this year, reports of Chinese ambitions to build a military base on Vanuatu prompted Prime Minister Malcolm Turnbull to meet with, and seek assurance from, his Vanuatuan counterpart.

A Chinese base in the Pacific could compromise US dominance of the region and seed the kind of military brinksmanship ploys used in the South China Sea.

China and Australia are jostling for favour with the Pacific.  Australia is working towards a bilateral treaty with Vanuatu and just last week promised further funding for parliamentary buildings in Samoa.

But while China’s projects are fewer, they are generally larger and more headline-grabbing than Australia’s, hence its overall engagement in the Pacific can be overstated.

But as Beijing gears up its Belt and Road Initiative, there is growing potential for Pacific states to be subjected to further debt saddling and economic dependency — rendering some of our nearest neighbours vulnerable to instability and coercion.

And the unpredictable nature of US foreign policy in the Asia Pacific should simply provide more impetus for Australia to cement its role as the regional leader.

Hugh Morrison is a Bachelor of Journalism student majoring in international relations, and an intern at the Centre for Independent Studies.