‘No one in this debate is evil’: Economist weighs in on business tax discussion

Independent economist Chris Richardson has revealed his support for business tax reform, stating there are two different buckets of business profits needing to be taxed differently from how they are today.

At a Politics in the Pub event in Sydney’s east on Monday night (15 September) alongside independent MP Allegra Spender, Richardson said everything negative unions and the community said about big business tax was true.

Richardson also backed up this point in an opinion piece he wrote for The Australian Financial Review, in which he said: “Pretty much every complaint that big business makes about Australia’s uncompetitive company tax rate is true. And yet, pretty much every complaint made by the unions about the way we tax profits here is also true.”

“Welcome to the schemozzle that is business tax reform.”

To the attendees of the Politics in the Pub event, Richardson shared that he believed people being worried about business tax was not an unfair assessment, yet it was imperative that big businesses “spent money on the future for national prosperity”.

Richardson held a balanced view of the current taxation system, platforming the opinion that there had been things Australia had both executed well and things that Australia had “buggered up”.

“We have long had better conversations around economics and productivity than others. You can’t have a better nation, without a better conversation and we cannot underestimate how lucky the lucky country has been.”

“Sometimes, the politicians haven’t done well with our luck. Our system is starting to sink under the cement of no change and that will get really ugly.”

In addition to this, Richardson said in the past, tax reform had been hard, however, tax reform was harder now because spending had increased.

“The tax system needs to be in search of two things. Prosperity and fairness. Australia has been very successful on these fronts, but the challenges are building.”

This prosperity point was also echoed in the opinion piece towards the taxing of big business.

“How we tax business has cost Australians a bunch of prosperity: our system actively discourages business from spending on long-term projects, and it particularly discourages foreign investment,” the article said.

“The many opportunities for prosperity we’ve missed because of our dumb company tax means our wages are lower than they’d otherwise be. That discourages people, particularly women, from working.”

Despite the perspective shared on the “prosperity-sapping impact”, Richardson made clear that the high rate of company tax only applied to about half of all the profits that businesses made in Australia.

This referred to the money made by most businesses in their day-to-day trading and the other half, which depended more on government rules and regulations, or luck.

“There are two different buckets of business profits in Australia, and both need to be taxed rather differently to how we’re doing that today,” Richardson said.

“The problem is that while a lower company tax rate is great policy for businesses in the first bucket – “normal” businesses – it’s simply a windfall handout to businesses in the second bucket. For the latter, profits are more likely to be boosted by wining and dining behind closed doors than it is by hard yakka.”

To mitigate this, the Productivity Commission suggested bringing in the cashflow tax, which Richardson said wasn’t exactly what he would do but it was “comfortably better than what we have, and so it’s something [he’s] absolutely happy to back”.

In closing to both the attendees of Monday’s event and in his opinion piece, Richardson said the two different buckets of business profits in Australia needed to be taxed differently wasn’t a new concept to economists.

“We’ve been singing this song for a very long time. No one in this debate is evil, but they simply don’t realise the potential for some really smart compromises. So, as usual, there are great ideas, but not much hope that they’ll get off the ground.”