Dangers in Scott Morrison’s corporate tax argument

Scott Morrison’s warning that as ns loaf about on their summer holidays, companies headquartered overseas would be fixing to scarper due to our uncompetitive company taxes, was either political hyperbole or a clear and present danger to prosperity.

Even if it was the former, it was pretty unhelpful – a wallet-closingly grim message from a government supposedly looking to lift confidence.

But if it was the latter, it must surely be justification by itself, for a snap election in the new year to be fought on company tax.

It is that fundamental. To businesses thinking of investing in , the Treasurer invited them to think again. To those already here, he seemed to say, you’re paying too much, wise up.

Either that or he thinks northern hemisphere industrialists won’t notice as a gridlocked shouting match over company tax merely emphasises that ‘s rate will remain fixed for the forseeable future. Perhaps it is only would-be people smugglers who follow our media that closely?

Not only did Morrison’s threat predictably provoke a hardening of Labor’s language, it read like an invitation to big capital to “do the math” as they say in the US, where Donald Trump has just slashed the corporate rate.

Trump’s cut was the catalyst for Morrison’s rhetorical rev-up but it’s worth noting it also prompted an important shift in rationale. Treasury modelling suggesting a gradual path to a 1 per cent GDP gain in 20 year’s time, took a back seat to a new imperative – the mortal danger of a capital flight unless we match Trump’s move.

This somewhat glosses over the fact that even under the government’s plan, top companies would not drop to the 25 cent rate for the best part of a decade – meaning many here would continue to view their situation as uncompetitive with Trump’s lower rate from next year.

In any event, the comparison is not as stark as the raw numbers suggest. Dividend imputation makes ‘s corporate rate lower in practice for many company owners than it appears and other vagaries may make America’s new rate functionally higher.