Across the western world, we’ve recently seen a drive to reduce the rate of corporation tax facing small and large businesses alike. The UK Chancellor has already pledged to reduce the base rate to 17% from 2020 onwards, for example, while Donald Trump’s controversial Tax Cuts and Jobs Act has recently slashed corporation tax in America from 35% to just 21%.
These measures are encouraging other nations to follow suit, with Canada being urged to reduce tax rates in order to remain competitive with the U.S. and the Australian government also committing to cut corporation tax to just 25% across the board.
Although this proposal has not proved popular among the Australian electorate, an overwhelming majority of citizens have claimed that they would want an immediate pay rise if large corporations benefited from a reduction in corporation tax. Here’s why:
What has Happened so Far?
The government has pledged to reduce corporate tax rates nationwide and is committed to pressing ahead with its plans in the near term. This would create a more beneficial tax rate of 25% for Australian-based businesses, and the government is hopeful that this will boost reinvestment into the economy and provide a shot in the arm for job creation.
While Australia’s army of employees have hardly welcomed the idea with open arms, many have suggested that they should benefit from such a measure in the form of a wage rise. From a poll of 1,026 respondents, 72% said that they would approve of a law that forced businesses to pass on a certain proportion of their tax cuts in the form of a pay increase for workers.
This sample was drawn across both full-time and part-time workers, while it also canvassed opinions across a host of different industries.
Will Businesses be Compelled or Encouraged to Offer Pay Rises?
With the desire to cap corporation driving the government forward, and employees keen to ensure that they benefit from such a measure, you would think that companies will be compelled to share their savings with workers. Reality may be a little more complex, however, particularly with treasurer Scott Morrison having ruled out implementing a conditional tax cut to businesses on the basis that wage increases would inevitably follow.
He has cited this is a highly interventionist and unnecessary measure, and one that is entirely at odds with the fundamental principles of the Liberal and National parties. So while the government are happy to offer tax breaks to firms, they will not insist on saved capital being invested into wage increases.
The Reserve Bank of Australia governor Philip Lowe has called for business wages to be increased, however, irrespective of whether or not corporation tax is lowered. His argument is based on the idea that wage increases would create a sense of shared prosperity among workers and institutions, particularly in an age where Aussies have seen their living standards decline for longer than at any point in the last 25 years. So, if companies were to benefit from reduced tax rates, there would be incredible pressure for savings to be shared directly with workers.
The Last Word
Whether you trade currencies, commodities or shares through your mt4 platform, there’s no doubt that a reduction in corporation tax would represent a huge boon for Australia’s economy and financial markets.
Still, the needs of workers must not be overlooked, and while the national government will not force private sector wage increases businesses would surely come under pressure to share their tax savings with the key stakeholders that drive them forward.