This analysis of data from Australia and OECD countries, finds no support for claims that reduced company tax leads to improved economic performance.

Summary
A feature of Australia’s tax debate is the question of whether to change company tax. Claims from business leaders include :

• Uncompetitive rates of corporate and individual income tax are a recipe for lower economic growth, lower incomes...
• Instinctively, it is really worth looking at .. . If you increase the GST and reduce corporate tax, you are undoubtedly going to stimulate some business investment. That is a clear phenomenon.

But these claims rely on assertions rather than data and analysis. In contrast, this paper, which analyses data from Australia and OECD countries, finds no support for claims that reduced company tax leads to improved economic performance. Specifically it show s that:

• There is no correlation between corporate tax rates and economic growth in OECD countries.
• Countries with lower company tax rates have lower standards of living, measured as purchasing power of GDP per capita.

While Australia’s corporate tax rate was as high as 49 per cent throughout the 1960s and 70s, it was gradually lowered to 30 percent by the start of the new millennium’. But contrary to the claims above, business investment as a share of GDP has also declined. Small recent increases are due t o the privatisation of publicly owned businesses and the mining boom, not lower corporate taxes. As corporate taxes have declined, Australia’s rates of growth in real GDP and GDP per capita have also declined.

Some commentators claim corporate tax cut s will lead to higher wages, more jobs and more foreign investment. But on the contrary , Australia’s historical data shows:

• Wages and mixed income has declined as a share of GDP as corporate taxes have been lowered.
• Average unemployment rates have risen as company tax rates have lowered.
• Growth in foreign investment as a share of GDP was strongest when Australia’s company taxes were highest.

Changes to macroeconomic indicators are driven by many factors, not just corporate tax rates. Across many indicators, however, there is no support for the idea that cutting the company tax rate will lead to tangible benefits in the wider economy.