Why ‘taking on big business’ is a poor idea

Dropping tax is an effective but underappreciated revenue maker

‘Some regard private enterprise as if it were a predatory tiger to be shot,’ said Winston Churchill. ‘Others look upon it as a cow that they can milk. Only a handful see it for what it really is – the strong horse that pulls the whole cart.’

Thirty-one year old ALP Senator Sam Dastyari is clearly not one of the handful. A recent profile of Dastyari exposes not only an alarming ignorance of tax and economic growth but everything that is slowly becoming wrong with Australian politics, which catapults people with little knowledge of the wider world (and commerce) into positions of power and responsibility.

Dastyari is currently Chair of the federal Senate Economics Committee, and has used his position not to generate ideas on economic growth but to attack companies like BHP and Leighton while leading the so-called Coalition of Common Sense that has blocked much-needed reforms to reduce Australia’s debt.

He wants to talk about ‘tax avoidance’ in Australia as a priority issue. But this is at a time when the list of more urgent economic reforms is getting longer – unemployment and debt are becoming fused parts of the Australian landscape, regulation and compliance is increasing, productivity is dropping and China’s internal attributes, upon which Australia heavily relies, aren’t showing the same enchanting metrics of dynamism. This is on top of an older Australian population that is increasingly evacuating the workforce.

I feel that Australians, especially future Australians, need to reacquaint with the pivotal role that business plays not just in a free market economy but a free society. Australian companies, both small and large, already pay tax. They also provide capital and jobs, while adding to innovation, lowering costs, enhancing productivity and stimulating economic growth. The government does not do this – business does. And the penalty of higher taxes simply makes these great outcomes harder.

We also forget that some companies take years to be successful. McDonalds and Amazon, for example, operated at a loss and teetered on bankruptcy for years before turning a profit. ‘We have learned that true rising standards of living are the product of progressive enterprise,’ said Robert Menzies, ‘the acceptance of risks, the encouragement of adventure, the prospect of rewards.’

If companies do not pay tax, or operate outside the rule of law, they face obvious penalties. Ensuring compliance with the law is good and decent. But enforcing show trials and shaking down business, all in the service of public awareness campaigning or shock value, is not the best way to either grow the economy or collect more revenue.

So-called big businesses, just like wealthy individuals, respond when tax rates shoot up. The volume, timing and nature of income can be shifted to ultimately pay less tax and, when it’s time to actually collect any money, leave the government empty-handed.

This is basically what has happened between the high spending days of Rudd’s 2008 stimulus spree and current reality – future income was overstated and now a wider gap exists between spending and revenue. Now unsurprisingly, on top of debt payments and an expanding social welfare system, more money is required and someone needs to pay more tax.

Constantly changing legislation, in an attempt to keep up or get ahead of private enterprise, is actually a blunt and rarely optimal revenue tactic. The government, quite simply, cannot keep up. Australia, instead, should actually lower taxes. Seemingly counterintuitive, reduced tax rates have long been proven to stoke dynamic growth and greater revenue in other meritocratic and like-minded economies. Going back to 1920s America, for example, the United States Treasury Secretary Andrew Mellon was surprised to observe that ‘a decrease in taxes causes an inspiration to trade and commerce, which increases the prosperity of the country so that revenues of the government, even on a lower basis of tax, are increased.’

Even the great Adam Smith, from the mid-to-late eighteenth century, simply observed that ‘high taxes, sometimes by diminishing the consumption of the taxed commodities, and sometimes by encouraging smuggling, frequently afford a smaller revenue to government than what might be drawn from more modest taxes.’

Economists will argue tooth and nail about the validity of tables, formulas and data. But if there’s any common sense allowed into the public discussion on Australian tax reform it most certainly lies in this approach – drop taxes and create jobs, growth and opportunities. More revenue and a growing economy awaits.

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