Flowing up not down
I have been watching our federal politicians argue over tax cuts for businesses, with the Coalition arguing that it will create jobs. As a former businessman, I know that a business only pays tax on profits, and that any increase in profits is more likely to be distributed to shareholders rather than put back into the business. The trickle-down effect of tax cuts on jobs is not proven and is most unlikely.
If the Government is serious about creating jobs, growing the economy and increasing business profits, then there is only one way to do it - large tax cuts for workers.
Every extra dollar that workers have is more disposable income. Spending increases. And if spending increases, the economy and demand increases. This means that business are selling more, and this creates jobs. It also means that a business is turning over more money, and will have larger profits, and therefore a greater return to shareholders. Business is more likely to put more money into the business as the increases are likely to be continuing, and not limited to once a year.
Economic theory dictates says that money flows up, not down. Those at the top benefit most when those at the bottom are prosperous. Wage cuts only create short term profits, as spending and demand decrease. I acknowledge that due to the rapid pace of technology that business is struggling to adapt. Large tax cuts for workers will allow wages to remain at current levels for a while, thus giving them some breathing space. Tax cuts for businesses is a short term fix for the short-sighted, and I urge our leaders to give workers tax cuts instead.
There has also been a discussion about lost taxes on multinational companies. Perhaps it's time we abandon the way the currently raise money from business taxes. Australia could totally eliminate tax on business profits, and replace it with a low turnover tax. This would save in administration costs, and the figure would likely be an extremely low rate to match the income that Government currently receives. I doubt any business would notice the difference, and if implemented correctly would make no real difference to business. Where we would see a benefit would be that every sale from a multinational company would mean that the government receives the taxes that are currently being lost. Businesses would have upfront knowledge of the taxes and they could plan easier than they can at present. The government could collect the taxes monthly or quarterly with the GST, and would therefore have funds all throughout the year rather than all at once. This also allows business to spread the payments throughout the year.
Australia would then have no tax on business profits and would see a net influx of businesses wanting to locate here. This would create jobs as well. As technology advances, we will also have to look at the concept of a living wage. If we are to prosper as a nation, our middle and lower class must be prosperous. It's time to think outside the box.
Andrew Collins, Mt Helen