Corporate tax reform to increase wages, but it won’t happen overnight

THE proposed $65 billion cut in corporate tax rates will lead to increased wages, but the trickle-down effect will take a while.

TREASURER Scott Morrison says “lived experience” shows his tax policy would increase wages, but his own department warns workers would have to be really, really patient.

Any extra pep in your pay packet is at least seven years away, should Parliament pass the tax scheme.

And don’t think you’ll be taking the family for a holiday in Paris once the pay raise does arrive. It’s likely to be on the tiny side.

However, official modelling shows you are likely to spend it rather than save.

The Treasurer today said the Government’s proposed $65 billion cut in corporate tax rates would end stagnant pay growth and cited outcomes in other countries such as the US, the UK, Singapore and France.

He said “economic history; lived experience over a very long period of time as recently as what we’ve seen in the United States” proved the beneficial impact on pay packets of corporate tax cuts.

Treasurer Scott Morrison has said Australian wages will increase, but not for about seven years. Picture: Kym Smith

A Treasury analysis, The Case For A Cut In The Company Tax Rate,

supports the projection. But it said the wage growth will appear “in the long run”. And it won’t come as a big bonus.

Instead, workers might expect a pay improvement of around 0.2 per cent, according to the Treasury predictions.

“The productivity of labour increases with the increase in the size of the capital stock and this flows through to an increase in after-tax real wages of 0.2 per cent and a small increase in labour supply of around 0.1 per cent,” said the document.

“Overall, the modelling shows that cutting the company tax rate can deliver an improvement in consumption by Australian households of around 0.05 per cent.”

The Government is promoting the expected business investment boost from tax cuts as the source of job growth and wage rises.

Mr Morrison has also painted a brighter picture of the current economy and employment.

“Yesterday, the jobs survey showed 178,000 or thereabouts jobs had been advertised every week in January,” he said.

“That is another very strong result and continues the strong economic data we saw over the summer.

“That takes us into 2018 with a lot of optimism, a lot of strong belief in where the economy can go this year, how Australian businesses can realise significant opportunities.

“More and better paid jobs, that’s what this means.”