A centrepiece of the budget — the so-called "enterprise tax plan" — is a big con.

Everybody loves a hard-working small business person, and the Government wants you to believe that cutting company tax for small and medium-sized businesses will create a surge in jobs and economic growth.

Not true; the Treasurer is exploiting widespread ignorance of how the company tax system actually works.

It's all to do with our all-but unique system of dividend imputation.

Under our system, the more the company pays in tax, the less tax the owners pay on their dividends — and vice versa.

So if you cut the company tax rate for small business, business owners will simply pay more tax on the profits they take out of the business.

The Government reckons the tax cuts will "boost investment"? How?

Logically, the tax cuts are likely to encourage companies to retain profits in the business, rather than pay it out or spend the money on new investment. Hard to see how that helps the economy.

Indeed, we used to have taxes aimed at discouraging companies from retaining profits because retained profits are a drag on jobs and growth.

Small business benefits 'years away'

The Government's argument seems to be that SMEs (small and medium enterprises) will be more "confident" as a result of its measures and they'll hire new people; the state of the economy and the market will drive those decisions.

Yes, we all love the battler small business.

But it's actually only after the tax cut flows on to big business many years down the track that there will be any likely economic benefit.

The benefit comes because the lower company tax rate makes Australia a more attractive destination for foreign investment, the foreign investment leads to more investment in plant and equipment and that boosts productivity and wages. At least, that's the theory.

But the Treasury's own modelling shows that the gains are pretty modest.

A 1 per cent cut to the company tax rate, on Treasury's estimates, only boosts economic growth by a mere 0.15 to 0.2 per cent.

The gains for jobs and wages are so small they are trivial.

'In the long run we're all dead'

The budget papers refer to a 1 per cent boost to economic growth from the company tax cut "in the long term" and — while Treasury doesn't state this — that estimate appears to be based entirely on the theoretical benefits flowing, eventually, from an increase in direct foreign investment.

Any gains to jobs and growth will be offset by a loss of tax revenue and the public goods and benefits that revenue could provide.

The lost tax revenue is significant and certain; the potential benefits are small and uncertain.

Plus, any benefits to growth that a lower company tax rate might provide will be offset by the likelihood that profits from the investment will flow offshore.

Here's the clincher. All the potential gains come way in the future — many long years after the tax cut is scheduled to flow on to big business, in 2026-27.

That, undeniably, is in the long run. And as Keynes observed: In the long run we're all dead.