Monday, 11 September 2023
Private Members' Business
Taxation: Corporate Profits
On the weekend I watched The Wizard of Oz with my daughter. It's an absolutely classic film. I must say I feel as though I've returned to the Land of Oz during this motion, with the Greens' approach to economics. We need to impose an ill-thought-out thought-bubble $50-billion-plus tax so that everyone can lead a better life—free beer, free marshmallows for all, unlimited pensions, based on this thought bubble, with some footnote with a 'return to capital' in it that is completely unjustified!
Let's look at the Parliamentary Budget Office costing of the Greens policy. One of the first things noted in the costing is that the proposal put forward by the Greens has a very high degree of uncertainty. I think that's their euphemism for saying it's ill thought through. Specifically, they say the Greens proposal would be highly sensitive to both international and domestic conditions, that the revenue and costs associated with this massive new tax they're proposing would be highly volatile over time, and that the value of shareholder equity would also be highly volatile over time, which would affect the amount payable under this proposal. The Greens are saying: let's shift to a new massive tax—which is based, as I said, on a pamphlet they put out last year—with almost no justification for the key parameters and without justifying the fact that our pensions, our health system and our NDIS would now be based on a highly volatile new source of taxation, without thinking through the behavioural responses and all of the uncertainty. What are the super profits that they speak of, which we could tap into so easily? This, again, is where the Parliamentary Budget Office refers to the fact that there are inherent uncertainties in their methodology. Again, I think that's a polite way of saying they haven't thought through how this would apply.
Let's go to the footnote in their pamphlet which relates to how this would actually apply in practice. It talks about the fact that their super profits are going to kick in at the risk-free rate plus five per cent. As the previous speaker on this side talked about, what implications would that have in a raft of major sectors in our economy, such as retail? This tax would raise almost nothing. But where does the five per cent come from? It's not clear at all. If one goes to the literature, one finds the long-term equity premium in major economies is between five and eight per cent. It's not an easy number to pin down. What's the current equity premium in Australia? It's around six per cent. What's the equity premium that was identified over recent decades by the RBA? It's six per cent. The core parameter is just asserted in footnote 2 of some pamphlet, with zero justification or analysis.
Secondly, the equity premium changes over time. This five per cent equity premium is not a static figure. It's not at all clear how that would affect the revenue coming into some of our fundamental services.
Finally, it's absolutely unclear how this would apply across sectors. It is true that, with some resource sectors, there have been attempts, in Australia and in other countries, to tax revenue above a certain normal amount of profit to try to pin down revenue coming from the rents associated with those resources, which is particularly appropriate given that those resources are owned by the community. When one looks at the equity premium across the economy as a whole, however, it's far from clear that a standard figure across the economy is at all appropriate. The risk associated with investments and the risk associated with the returns to equity aren't the same across the economy as a whole. Are the Greens literally saying that they're going to apply the same super profits tax to retail, to financials and to high-risk, cutting-edge advanced manufacturing? This tax would have all sorts of unintended consequences—capital flight, behavioural responses—and, as I just mentioned, it would apply unevenly across sectors in ways that would potentially damage the investment that we need in new sectors. This is a thought bubble, and it won't provide the massive promises that the Greens are claiming.