Peter Martin reveals that Labor is planning to tax any company that makes better returns than average and not tax those companies that make worse returns than average.
When I previously suggested that once the government had taxed mining “super profits” they might tax other companies’ “super profits” I thought I was making a debating point. This was a reductio ad absurdum. An example which proved how wrong the particular case was by taking it to its logical but extreme conclusion.
Little could I have known that this government, and its public service advisors, are so absurd that they would actually take the idea to its extreme and propose arranging the whole company tax structure on the same basis as my satirical rhetoric.
Under the government proposal companies that earn a return on assets the same as, or worse than, the government bond rate will pay no tax. Those companies smart enough to earn more on their assets than they would by putting them in the bank will be taxed.
Way to go – penalise those people who know what they are doing by taking the money they might invest in doing more of the same and hand it to those people who are incapable of earning their own living. That’s how you make a country rich.
What are the consequences of this proposal?
I don’t have time to make a comprehensive list, but here are a few. Please feel free to add to them in the comments below.
It skewers the idea that the mining resource rental tax is about sharing an asset that we all own. If the tax is on “super profits” then all companies will pay the same amount, irrrespective of whether they are mining minerals or ideas.
Productivity growth will grind to a halt (and those who claim to know say it isn’t high enough at the moment). Nothing measures productivity better than return on assets. It has its faults, but it is the best method. Tax good return on assets higher than low return and you redistribute income from the most productive parts of the private sector to the government – the least productive part of the public sector.
Australia’s growth will grind to a halt. The incentive to put assets into growth industries and companies will be curtailed. Instead people will invest in manufacturing plants in Victoria providing low paid drudgery instead of jobs, and returns less than bank interest because the tax system will reward them for it.
Capital outflows will increase. The only way Australians will be able to get the fruits of innovation will be by investing overseas in companies in countries where high rates of return are rewarded.
Flexible finance structures where risk is diversified will be unwound making returns from companies more volatile. One of those structures is leasing real estate. If you rent property you will be taxed at a higher rate than someone who owns the same property. For tax reasons companies will want to own their own premises because it will make no immediate cash flow difference, but it will lower the return on assets. It will also lock them into a long term ownership structure that mitigates against corporate efficiency.
I can think of a slew of other reasons, but open to you. It is a reminder of why we need an election as soon as possible. This government is full of do-nothing, know-nothing opportunists who have no idea what they want to do, or what their ideas might do to what we have.