COMPANY TAX: THE $65 BILLION QUESTION
What’s the impact of company tax cuts on Australian businesses? Do companies hire more workers, increase wages and boost investment after tax cuts?
Until now, the tax debate in Australia has been heavy on opinion but light on facts.
A new report by AlphaBeta and Xero released today answers these questions by directly observing how Australian businesses responded to recent company tax cuts, using the latest small business data from Xero, Australia’s leading cloud-based accounting software platform, which hosts the accounts of hundreds of thousands of Australian businesses.
This is the first time such data has been used and is the first evidence-based conclusion on the impact of tax cuts.
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TAX CUTS INCREASED JOBS BUT NOT WAGES
In 2015 corporate taxes were cut from 30% to 28.5% for Australian companies with turnover below $2 million (90% of all incorporated companies). Xero data allows us to observe what tens of thousands of firms did with their tax cut.
The most important finding is that firms that received the 2015 tax cuts hired slightly more workers than similar firms that did not, but had virtually no impact on wages.
The average benefit of the tax cut was $2,940 for firms near the turnover threshold, of which:
- 19% was used to hire more workers
- 3% was used to raise workers’ wages
- 27% was used to lift investment
- 51% was retained for boosting cash reserves, paying down debt, lifting dividends or other purposes.
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EVIDENCE-BASED POLICY
Xero supplied data for this research because it believes in informing and developing policies to promote small business in Australia.
And here's the good news. New data is becoming available every day that will improve our understanding of the economy and policy. With better data, more policy can be subjected to rigorous analysis, evaluation and informed debate.
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FIND OUT MORE
We look forward to hearing your feedback on this report. It is critical for policy debates to have evidence and data-driven findings. You can download the report here. You can also read today’s media coverage in The SMH, The Australian and the Financial Review.
Dr Andrew Charlton
Director | AlphaBeta
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