In brief
Be sure your dodgy modelling will find you out. I’m starting to think economists have become so used to pretending to know more about the economy than they really do that they don’t notice the way they mislead the rest of us.
The Productivity Commission has proposed a radical change in the way companies are taxed which, it tells us, would improve the economy’s productivity and leave us better off. It has commissioned modelling that, it implies, supports its case for change.
Its modelling shows the benefit from cutting the rate of company tax would take years to materialise, and still be trivial, but the commission thinks we should do it anyway.
It’s almost like all companies are already charging whatever they believe the market can bare.
And not reinvesting in productivity. Another recent Gittins piece pointed out the reinvesting in plant and research(which increases productivity) is tax deductible, all other things being equal increasing company tax on large companies should increase incentive to increase productivity.
How about the ‘radical change in the way companies are taxed’ prevents companies from shifting profits overseas, so that they pay the tax they should?
One of the recommendations of the commission has been a tax on cash flow rather than profits for the largest 500 companies for exactly this reason. You can predict what the response of the business council was and therefore its chance of ever becoming policy…
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