It is beguiling even Labor types. "It is a Labor thing to have the ambition of reducing company tax, because it promotes investment, creates jobs and drives growth," Labor's Chris Bowen wrote while in government. Wage rises aren't actually good for everyone, according to Janine Dixon. Credit:Patrick Hamilton But the benefits are nowhere near as certain as Turnbull and others think. And the costs? They're scarcely talked about, except in the Treasury's fine print. One of the costs of cutting company tax is that government would have to push up other taxes to get back the billions it would give away. The Treasury says this could be done by lifting income tax rates, by allowing bracket creep to run, or by an extra lump-sum tax on households. It could also be done by cutting government spending, but here Treasury issues a health warning: "The implicit assumption is that all government spending that is cut is wasteful. While this is a common modelling assumption, it ignores the fact that: government spending provides goods and services that would otherwise not be provided by the market sector; households derive direct utility from government spending; and infrastructure spending can improve market sector productivity."

In other words, it's not easy to find the billions needed by cutting government spending, a point Turnbull himself acknowledged in 2005 when he said, "given the demographic challenges we face it would be rash to assume that overall the expenditures of the federal government can be materially reduced". Which leaves tax hikes, ones that aren't yet specified. It'll cost about $11.3 billion per year to cut the company tax rate from 30 to 25 per cent. That's an independent estimate, from Independent Economics, the consulting firm hired by Treasury to provide a check on its numbers. It's about the sum the government spends each year on the Pharmaceutical Benefits Scheme. The government will get a chunk of it back straight away ($3.1 billion) in higher income tax collections from shareholders who will miss out on imputation credits, leaving it an initial $8.2 billion per year out of pocket. A word about imputation. It's a peculiarly Australian innovation that effectively ensures Australian companies don't pay tax. That's right, most of the benefits of cutting company tax flow to foreigners. Australian companies are indeed charged tax, but when they pay out dividends, their Australian shareholders get a " credit" which they can use to offset other tax. It net terms their dividends aren't taxed. It means most of the $8.2 billion per year tax cut goes offshore, as a gift. The gift is retrospective, in the limited sense that people complaining about the budget's superannuation changes use when they point out retirees had been planning for something different. Janine Dixon and Jason Nassios of Victoria University put it this way: the foreign capital that's in Australia now "was willingly installed by non-resident investors when the rate of company tax was 30 per cent". A cut to 25 per cent will will be a bonus. The Treasury's belief is that it will encourage them to invest more. Projects that weren't viable at 30 per cent will become viable at 25 per cent. The extra projects will lift GDP (a measure of the amount produced) and probably lift wages as the newly-installed machines and processes make workers more valuable.

It's not like cutting personal income tax where the money is still going round Janine Dixon, Victoria University It won't do it enough to restore the tax the government loses (there's not a single modeller who thinks it will). It might do it enough to make up for the money the tax cut sends offshore. Dixon makes the point that once the money leaves Australia, it's gone. "It's not like cutting personal income tax where the money is still going round." Her estimate is that GDP will indeed be higher after a lag, but that GNP (the more relevant measure of national income) will be lower. Using her method and slightly different assumptions the Treasury concludes that GNP will eventually be a higher, although its hard to tell whether that will be higher enough to compensate for all the years when it was lower. There's a timing problem. National income drops immediately each time the company tax rate is cut, and might later rise to compensate, perhaps after decades. And there are other problems.

Wage increases aren't good for everyone. Dixon points out and the Treasury acknowledges that local businesses will suffer as a result of the forecast wage increases without proper compensation. Many of Australia's tax treaties will ensure that the company tax that's lost never makes it to the investors concerned, because their final tax bills are determined by the tax rate in their country of residence. We will be helping foreign tax offices, not foreign investors. And earlier plans to cut company tax were to be at least partly funded by the companies themselves (Wayne Swan wanted to do it by removing loopholes, the Henry review by a mining super-profit tax). Turnbull's plan is different. It's give, without the take. On the plus side he is cracking down on multinational tax avoidance, and to some extent a lower company tax rate might itself make avoidance less attractive. The centrepiece of his election campaign is far more than a thought bubble. It derives from serious economic modelling. But it might not yet have been completely thought through.