Despite the gushing headline, the AFR quoted the report’s author, economist and former adviser to Kevin Rudd Andrew Charlton, as stating that the findings ‘aren’t a slam dunk either way’ and that ’there’s not an immediate effect on workers pay‘. But when the Prime Minister and the Business Council of Australia are obsessed with showing that they can get something, anything, done even the weakest bits of evidence are hurled at the public with all the bluster that can be found. The idea that politicians can be trusted to interpret such modelling honestly is long long gone. While the government and the BCA might think that the headlines in friendly newspapers gave them some ‘momentum’ or helped them ‘win the news cycle’, in reality the public grew weary and mistrustful of economic modellers bearing gifts many years ago. And the idea that politicians can be trusted to interpret such modelling honestly is long long gone. Dr Charlton’s research drew on data from companies that used a particular brand of accounting software called Xero. It was an interesting use of the ‘big data’ that we hear so much about but it’s also an interesting example of how broken Australian public debate has become.

To be clear, it’s not the fault of the researcher that some in the media, and some in the parliament, grabbed the wrong end of the stick but, given that the headlines are now out there, it’s important for people to know a bit more about what lies behind them. The big picture finding from Dr Charlton’s research was that only 3 per cent of the small businesses that have already had a tax cut gave workers a pay rise as a result. Another important result was that firms in the study pocketed over half of the tax cuts rather than spend the windfall on their workers or new investment. If that ratio were applied to the proposed tax cuts for big business then that would deliver a gift of more than $32 billion - for no return. The Australian’s coverage of the report suggested that around 20 per cent of the small business tax cut went towards hired workers. But what they didn’t emphasise was that given the average tax cut for the small businesses in the survey was $2,900 that means the average wage increase, per business, was less than $600 per year, or around $12 per week. That’s about half an hours pay per week. No wonder Dr Charlton was more cautious about his results than some of the boosters in the media were. The idea that cutting taxes leads to such big increases in investment and wages that they pay for themselves has a long, and expensive, history in economics. The idea was first proposed by an American economist called Arthur Laffer. His research convinced Ronald Reagan to introduce massive tax cuts back in the 1980s, tax cuts that led to record budget deficits. Arthur Laffer convinced Ronald Reagan to introduce massive tax cuts in the 1980s.