Business Council Jennifer Westacott
Business Council of Australia chief executive Jennifer Westacott.

In a dramatic moment last Tuesday, Jennifer Westacott of the Business Council of Australia (BCA) baulked at a simple question from Senator Lee Rhiannon: “Can you give us an example of another country where tax cuts have resulted in wage rises?”

As Bernard Keane reported at the time, her reply — “Ah, we will take that on notice” — revealed that the BCA knows there is none. Just to be sure, Crikey emailed the BCA’s media unit for its answer to the question on notice. While we wait, here is the actual data.

The Organisation for Economic Cooperation and Development (OECD) consists of 35 rich, developed economies. Of these, nine made significant cuts to the corporate tax rates between 2013 and 2017.*

Crikey showed last month that no OECD country which had cut corporate taxes since the end of the global recession had seen an improvement in jobs and growth. We can now do the same with wages.

[Have other countries created jobs by cutting company tax?]

Between 2013 and 2017, Norway cut corporate taxes from 28% to 24%. The rate of wage rises then slowed substantially, slumping to the lowest point on record in the first quarter of 2017. It had recovered only marginally by year end.

Finland during the same period cut the impost from 24.5% to 20%. Wages have declined dramatically over that period. Low-skilled wages slipped from an average of €2000 per month in 2015 to €1970 in 2016, then plummeted to €1760 in 2017. High-skilled wages dropped from €4250 per month in 2015 to €4170 in 2016, then collapsed to €3660 in 2017. That’s a 13.9% wage drop in two years.

Between 2013 and 2017, Italy slashed company tax from 31.4% to 24% for no gain for workers. Wage growth averaged 4.07% from 1983 until 2018. Over the last three years, it has averaged an abysmal 0.75%. That included a new record low of 0.3% in February 2017.

Japan cut the company rate from 38% in 2013 to 31% in 2016. Wages have grown well below normal rates since. The growth averaged 3.31% from 1972 until 2018, but just 0.4% over the last three years.

Denmark cut the tax rate progressively between 2013 and 2016 from 25% to 22%. We have wage data only from 2009 to 2016, which shows that from 2009 to 2013, wages rose by an average of 2.15%. From 2014 to 2016, the average was a dismal 1.35%.

The United Kingdom cut the corporate rate from 23% in 2013 to 19% in 2017. Wage growth averaged 2.85% from 2001 until 2018. Over the last three years, it averaged just 2.46%. For 11 of the last 13 months, wage rises have been below inflation.

Spain reduced its corporate rate from 30% to 28% in 2015 and then down to 25% in 2016 — pretty close to the Turnbull plan. Wages have fallen since. In December 2015, the average monthly wage was €2026.14. This slipped to €2010.73 in December 2016, then recovered slightly to €2020.14 last December — still slightly below the level two years earlier.

Portugal reduced its rate from 25% to 23% in 2014, and then to 21% in 2015. Wage data is inconclusive, as figures are only available for the service sector. This shows wage declines through calendar 2013, an increase of 1.7% through 2014, a minuscule rise of 0.4% through 2015, a rise of 4.3% through 2016 and a similar lift — 4.9% — through 2017.

So Portugal might offer the Business Council a faint glimmer of hope — until we note its personal tax rate of 48%, sales tax at 23%, the social security rate for companies at 23.7% and government debt to GDP at 126%…

This leaves just Hungary which no one should regard as instructive of anything to anyone. Yes, its company tax rate was slashed from 19% in 2015 to 9%. And yes, the minimum wage shot up from €328 per month in 2014 to €351 in 2016 and to €445 in 2018. But these were decreed by the repressive regime, not the outcomes of free enterprise.

We might also note that Hungary has the OECD’s highest sales tax rate at 27% and the worst ranking on corruption.

Any other starters? Well, should the BCA respond with an example or two, we will revisit the issue. Meanwhile, as Crikey and others have argued consistently, the evidence strongly suggests Turnbull’s proposed tax cuts are actually an exercise in shifting economic power away from workers and consumers to corporations and investors.

 

*Notes: (i) 2013 was the year the last developed countries emerged from the global financial crisis (GFC). (ii) Tax rates include direct corporate tax and social security levies. (iii) Significant means greater than 2.5%.