A battle to shape the nature of the economic settlement that will follow the virus crisis is now underway. There’s a powerful push from business interests and their political and media agents to use the crisis to renew a push for company tax cuts, a return to WorkChoices and deregulation, despite many commentators suggesting a new era of government intervention will inevitably unfold in the wake of COVID-19.
Last week, Scott Morrison warned that the economic crisis engendered by the virus lockdown meant “the policy frameworks that we had prior to the election will need to be reconsidered”, and that meant “policy measures that are going to have to be very pro-growth, that are going to enable businesses to employ people, that will enable businesses to invest and businesses to move forward”.
Anonymous senior ministers then fleshed out that agenda: company tax cuts and an “aggressive” overhaul of industrial relations.
The Business Council’s (BCA) Jennifer Westacott claimed on the weekend that “once and for all we need to make it easier to do business and get rid of unnecessary red tape … we must strengthen our global competitiveness and efficiency”. Australian Industry Group’s Innes Willox also called for company tax cuts and “sufficient flexibility to change workplace arrangements”.
The BCA, which has sought to use first the bushfire crisis, and now the pandemic, as an opportunity to rehabilitate the reputation of big business, today launched its post-pandemic economy plan, demanding that the focus must be on regulatory relief and reform. “Governments have been working closely with industry over recent weeks to remove regulatory burdens and unnecessary red tape. This must continue … [and would include] removing barriers to industry commencing major employment-based projects”.
The Financial Review, which has been repeatedly demanding that the crisis be used to overhaul the economy (including reducing the wages and conditions of health workers), today called for “workplace, tax, and regulatory reform”, including “reducing the excessive tax burden on foreign capital” and “removing the pointless rigidities in the default workplace award system”.
While many progressives and even conservatives in different economies have been assuming that the world has changed forever and a new era of big government and less capitalism is inevitable, it’s clear that the crisis will provide the basis for a renewed push by corporations, the politicians they donate to and the media that advocates for them for the same “reform” agenda that they’ve long advocated.
Despite the pandemic, what hasn’t changed, certainly in Australia, are the power structures that give corporations sway over public policy: a virtually unregulated political donations system, an almost complete lack of transparency around influence-wielding, a revolving door between the political system and corporate appointments, a media sector dominated by partisan and ideological media outlets, a politicised public service and the absence of a federal anti-corruption body.
These structures will be critical to the shaping of the post-pandemic economic settlement, with business and conservative politicians arguing that a pro-corporate agenda is justified by the urgent need for faster economic growth and large government debt, and the need to “get Australia back to work”.
But what has changed is that we now have clearer evidence than ever that company tax cuts don’t deliver any benefits for the broader economy. Two years on from Donald Trump’s massive company tax cuts in the United States, the only tangible result is that the US budget deficit even before the crisis was headed to over $1 trillion and large US corporations engaged in an historic surge in share buybacks.
The claimed investment boom that was going to result from the tax cuts never materialised, according to the International Monetary Fund. US wages growth slowed noticeably after the tax cuts in 2018 and 2019, directly contrary to Trump administration predictions.
Even one-off bonuses, touted by outlets like the Financial Review as evidence of the tax cuts working, slumped below Obama-era levels after a brief, small increase in the aftermath of the cuts. Overall, according to independent economists last year, the cuts led to “a relatively small (if any) first-year effect on the economy”.
Any argument that the post-pandemic economy needs a company tax cut — which would of course, impose a greater burden of debt repayment on the rest of the community — thus needs to address the hard evidence that US company tax cuts delivered no benefits except to investors and corporate executives.
That can be coupled with the longstanding evidence that WorkChoices significantly damaged labour productivity growth, which only recovered once Labor removed WorkChoices, but which has, since the election of the Coalition and further anti-union legislation, stalled again, and now begun reversing.
As has long been clear, the “reform” agenda favoured by corporations, the politicians they donate to and media outlets like the Financial Review favours company shareholders and executives, and not the economy, workers or consumers. But the push to reframe the crisis as necessitating those “reforms” is on in earnest.
There’ll be no fundamental change of the kind many progressives are assuming without recognition that the power structure that will resist it needs to be addressed.
“needs to address the hard evidence that US company tax cuts delivered no benefits except to investors and corporate executives”
Maybe I’m cynical, but I thought these were the only groups that mattered as far the way our tax system is structured.
The proletarian rentier progressives are gonna be in a treadle mill rat race competition with their fellow Mums n Dads investment property port folio lab rats, all spinning their wheels trying to keep ahead of themselves & each other .. and then there’s the Corporations to contend with ..
It is said the Black Death pandemic brought about the demise of feudalism when the far fewer surviving workers used their market power to raise their wages. The feudal lords deplored their greed but broke ranks and paid. However, the COVID -19 pandemic may instigate a return to a modern feudalism. It kills mostly the unemployed elderly, while creating huge pools of vulnerable, desperate youth unemployment. Market forces will favour the employers this time and without a government committed to equity, the young seeking employment will be easy meat. Desperation will rule. Further, the suffering of the ‘impoverished young’ for the benefit of the ‘affluent old’ will result in festering resentment. We may see political schism based on age! Perhaps even storming of aged care facilities or its policy equivalent – attempts to abolish franking credits and to tax capital.
Have a look around the interwebs for a piece written by Jonathan Rochford (an ‘investment manager’ – “Narrow Road Capital”, no less), entitled;
“A Green Light For Corporate Theft”.
The article’s about the changes to solvency law, and begins like this;
“The substantial weakening of corporate insolvency protections announced by the Federal Government effectively gives companies a green light to steal from their employees, trade creditors and taxpayers. The vested interests of legal practitioners and company directors have again won the argument, with their payments and interests being prioritised over employees and suppliers. Employees and suppliers can no longer operate with confidence that their provision of goods and services will be paid for, with the most meaningful protections of their legal right to be paid having been stripped away.
To understand why the changes are so awful it helps to step back and review the foundations of corporate activity. Setting up a company allows individuals to separate their personal financial position from their business interests. However, without adequate safeguards setting up a corporation would be an opportunity for individuals to steal from employees, suppliers, financiers and taxpayers. If there is no personal liability attached to directors of companies for failing to pay creditors, there is little to discourage a business from continuing to acquire goods and services that it knows it won’t be able to pay for in a reasonable period.
Personal liability for insolvent trading is the bedrock of a general assumption that a company is solvent unless it says otherwise. The assumption of solvency underpins an employee providing their time and skills, and suppliers providing their goods and services………”
The business lobby should address a few glaring issues before launching into another round of corporate tax cuts. In any case, how many corporations already pay little or no tax under the current arrangements? And what use are tax cuts to the economy when many corporations are going to have carry forward losses from the economy wide lockdown which will see them paying no tax for many years in any case.
They should really look at the massive mis-investment that is property in Australia. Why would people invest their capital into real, employment creating and value producing businesses when they can put up a small deposit, borrow massively, and speculate on an existing asset – with the government and/or RBA providing a back-stop if it looks like values might start to plateau?
The leg-up that property “investors” receive massively skews investment away from productive investment towards passive property ownership, and until the government addresses this by removing the myriad incentives and support for property in Australia, tax cuts are at best a third order issue.
The skew towards property has resulted in a massive price bubble and the cost of property in Australia filters through to the price we pay for everything – rents business pay are hugely inflated, but when was the last time the BCA called for cuts in rents going to property owners? No, it is always labour costs that need cutting for them.