Do Australian banks have double the return on equity of banks in other developed economies?

Jim Minifie (Grattan Institute) checks, and Rodney Maddock (Monash University) reviews the Treasurer's claims that Australian banks have a return on equity about twice that of overseas banks. While they find that claim is true, its not because Australian banks are earning super profits - it's because the banks of the US and Europe were affected badly by the Global Financial Crisis and are still under-performing.

Tax on ‘unearned gains’ is the missing piece of the affordable housing puzzle

Extending capital gains taxation to cover annual improvements in land value would improve discourage housing speculation and improve housing affordability. Brian Feeney (University of Queensland) explains.

Business investment is weak, but an unfunded company tax cut won’t fix it

The overwhelming reason why companies undertake investment is to exploit market opportunities for the goods and services that the investment supports. Cutting the rate of company tax can lead to a marginal increase in the after-tax rate of return of an investment - but only if the project is profitable in the first place, and that depends on demand and broader economic growth. 

Because of dividend imputation in Australia, the role of company tax in influencing investment decision is even more marginal than in other countries - it is mostly only foreign shareholders that would benefit from a cut in Australia's company tax rate.

Jim Minifie (Grattan Institute) explains the importance of economic growth for investment decisions.

What economists and tax experts think of the company tax cut

In a perfectly stylised model of the economy, a company tax rate reduction to 25% could be expected to deliver modest economic gains. But the evidence overwhelmingly rejects such a notion. Jenni Henderson (The Conversation) explains why Australia's leading economists disagree with the Government's economic justifications for a company tax rate cut.

More equal societies perform better

Australia is not the egalitarian nation that many people think it is. Rather, in terms of wealth inequalities, we’re mid-ranking on the international league table and we’re becoming more unequal. Frank Stilwell (University of Sydney) explains why that matters and the role that reintroduction of an inheritance tax might play.

The superannuation myth: why it’s a mistake to increase contributions to 12% of earnings

John Daley, Brendan Coates and Hugh Parsonage (Grattan Institute) argue that powerful vested interests are pushing the idea that super equals retirement savings. Yet such a view is inconsistent with the facts. Super’s importance to retirement savings has been overblown for far too long.

Company tax cuts are not a knight in shining armour to save the Australian economy

John Daley and Brendan Coates of the Grattan Institute (writing in The Conversation) demonstrate that the Government's signature company tax reduction policy reduces Australia's income over the short term, has a very small (almost negligible) positive impact over 25 years, and that foreigners are the overwhelming beneficiaries of the policy at the expense of Australians. None of this should be a surprise to anyone who understands how Australia's company tax system works—clearly the Government doesn't, otherwise it would have realised there are much more important reforms to focus on.

Good reform of housing taxation should encapsulate the full spectrum of housing market distortions

Danika Wright (University of Sydney) provides an excellent overview of negative gearing in The Conversation and argues that it should not be analysed in isolation from capital gains and other special treatments of housing, such as stamp duty, land taxes and first-home-buyer exemptions.

The way Australia taxes housing is manifestly unfair

Anthony Asher (University of NSW) describes in The Conversation the incoherent application of principles to housing provision and taxation in Australia.

Company tax cut only advantages foreign investors!

Janine Dixon (Centre of Policy Studies, Victoria University) writes in The Conversation that it’s easy to see why a company tax cut polarises opinion, as it generates clear winners and losers. Foreign investors will receive a windfall gain at the expense of Australian residents.

Editor's note: Finally, an economic modeller who understands how Australia's company tax system works! My only quibble is the analysis seems to ignore the effect of company tax on retained earnings and also double taxation agreements. Retained earnings complicate the imputation credit story. DTAs work a little bit like the imputation system, so foreign investors from most countries who pay their taxes will likely be worse off, similar to Australian investors. Foreign investors who avoid paying taxes through sophisticated offshore arrangements are the big winners from a company tax cut.

The Very Fast Train proposal

Peter Newton (Swinburne University of Technology) explains in The Conversation the previous proposal to build a Very Fast Train.

Editor note: Back in the 1990s the Howard Government called for VFT proposals and shortlisted four—the preferred proposal was for a tilt train. None of the proposals were economic in either cost or time—that is, a VFT would be slower and more expensive than air travel. The VFT would likely still be more expensive than air travel even if all of the infrastructure was written off once constructed.

Removing negative gearing on property would hurt low income renters

Ross Guest (Griffith University) explains in The Conversation that if we restricted the tax advantages of negative gearing we would dampen investor demand for housing which would slow house price growth in Sydney and everywhere else. But at what cost? It would be tougher to rent a property, hurting low income households. We need to be clear about what problem we are trying to fix and consider whether there are better ways of doing it.

Untangling the debate on bracket creep, corporate tax rates and negative gearing

Kevin Davis (Australian Centre for Financial Studies) does an excellent job in The Conversation of explaining simply some of the key issues in the very poor quality public tax debate.

Why levying GST on banking has been in the ‘too hard’ basket

Kevin Davis (Australian Centre for Financial Studies) explains in The Conversation the complexities in levying GST on money lending. The relevant tax base is the sum of profit and wages paid (i.e. the value added) of banks, which is a very large sum and largely not subject to GST. In addition, the banks currently pay large amounts of GST (on their purchased inputs), much of which they cannot claim as input tax credits. Consequently, the cost of financial services is lower for consumers (around $3.5b) and higher for businesses (around $1b) than if GST applied similarly to other services. Also, the GST revenues for the States are also much lower, as money lending is a large segment of the economy.

Lazy tax reform - increasing GST to cut income tax - would likely be a zero sum game

Flavio Menezes (University of Queensland) writes in The Conversation that tax reform will certainly be challenging, but we should go beyond lazy reform – increasing the GST as part of a tax mix switch strategy that is likely to have limited impact on growth – and instead be innovative and bold.

Australia’s plantation boom has gone bust, so let’s make them carbon farms

Jason Alexandra (Policy Partners and Charles Darwin University) argues that the boom and bust cycle for Australian plantations', with its focus on using fast money for fast-growing eucalypts, mostly for pulpwood, has obscured other important opportunities.

What ‘fair’ superannuation would look like

Rodney Maddock (Monash University) writes in The Conversation that many of the perceived problems with concessional superannuation taxation arrangements would be resolved by removing the ability and requirement to make contributions from before-tax income. Governments compel us to do lots of things without any incentive payments, and combining compulsion and concessions in the treatment of superannuation unnecessarily complicates the system and leads to unfairness.

The case for removing dividend imputation is not substantiated by evidence

Kevin Davis (Australian Centre for Financial Studies) comments in The Conversation on the lack of evidence to substantiate the case for removing dividend imputation in Australia.

Simplistic notions of tax reform are flawed

Graham White (University of Sydney) writes in The Conversation that the Treasurer's call for tax cuts to fuel growth is a flawed argument. While income tax reform may well be a noble policy objective, the Treasurer's simplistic notion of tax cuts, and how to fund them, reveals more about his conservative dogma than does it boost his reform credentials.

Is Australia really over-reliant on income taxes?

Writing in The Conversation, Ian McAuley (University of Canberra) challenges the Treasurer's opinion that Australia is over-reliant on income tax. While the author's analysis and key points are generally sound, and the Treasurer's analysis is shown to be too simplistic, readers should also be aware that Australia does have a unique private superannuation based retirement-incomes policy whereas most other countries fund a public system through income taxes (but the Treasurer doesn't use this point to reinforce his argument) - this is just one example of why international comparisons of taxation are fraught.