The government argues its plan to cut company tax will drive investment and create jobs, but a new report by progressive think tank, the Australia Institute, questions that assumption. The report’s authors argue that 15 of Australia’s largest companies – which would receive around a third of the cost of the tax cuts – are unlikely to invest in areas that would drive either economic growth or employment.

The government’s case for why we need company tax cuts has always rather struggled to match rhetoric with evidence.

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The primary argument for why we need the tax cut is that because other nations have been cutting rates, we need to follow suit. The governor of the Reserve Bank of Australia, Phillip Lowe, alluded to this point in a speech last week when he noted that Australia needs “to make sure that our tax system is internationally competitive. One example of this complication is in the area of corporate tax”.

And certainly our company tax rate is now among the highest in the OECD:

But we need to be careful when comparing tax rates across nations.

Scott Morrison, for example, last week tweeted a graphic suggesting that Australia’s company tax rate was uncompetitive because, for example, Canada’s company tax rate was 15%. But Morrison’s tweet incorrectly failed to include the company tax levied by the Canadian provincial governments. The company tax rate in Canada that includes all company tax is really 26.8% – rather closer to Australia’s 30% than our treasurer would have you believe.

Scott Morrison (@ScottMorrisonMP) There are 100,000 businesses, employing 2.2 million Aussies we want to give a tax cut to this year to boost jobs and wages #auspol pic.twitter.com/BSPFivjxij

Australia, unlike most other nations, also has dividend imputation. This allows individual investors in Australia avoid taxation on their dividends – and means that just comparing company tax rates is rather misleading.

And while it sounds like common sense, the reality is there is also not a great deal of evidence that cutting company tax drives economic growth.

While Australia has kept tax rates steady, it has outperformed most other nations in the OECD. Of the 10 best performing economies since 2011, none had cut company tax rates, and only four had cut rates in the five years prior:

But putting that to one side, if the main argument is that we need to cut rates because we’ve fallen behind other nations, why then is the government waiting till 2025-26 to do it for all companies?

The reason, of course, is the cost – estimated at $48.3bn over 10 years – and that is with the biggest cuts only happening in the last four years.

The problem for the government is that the expected benefits from this expensive policy only kick in once big businesses (with annual turnovers of more than $1bn) receive the cut. But the first cut to such businesses is scheduled only to occur in 2022-23, and the final rate of 25% is only reached in 2026-27.

The Treasury department’s analysis of the long-term impact of the tax cuts found that the main benefits occur only after that point. And the benefits are tenuous at best.

The treasurer may tweet that the tax cuts “will boost Australian wages and secure jobs”, but his own department’s analysis suggests the tax cut will lead to an increase in jobs after 2026-27 of just 0.1%.

And while the analysis suggests the tax cuts would lead to a 1.1% long-term increase in wages, that increase is dependent upon improved labour productivity as a result of increased investment.

However, a new paper by the Australia Institute argues that the tax cut will be unlikely to cause the largest businesses in Australia to generate such investment.

The report, “Oligopoly Money”, released on Tuesday, notes that the 15 of the largest Australian businesses, which stand to receive around a third of the benefit of the tax cut, operate within oligarchies – where a small number of companies dominate the market share.

Companies within oligopolies are less inclined to invest in areas which will see them expand or increase employment, because a large driver of their profitability is the oligopoly itself.

The report’s authors argue that the key investments by these firms are most often about “maintaining the barriers to entry that give them extensive market power” – ie, doing things that prevent new companies entering into the market.

Think of the retail business, which is dominated by Woolworths and Wesfarmers. Investment by these two companies is mostly directed at gaining a strategic advantage over the other by property purchases – which can drive out smaller competition and establish dominance in a geographical area.

The paper argues that when those companies do invest to improve productivity, largely it is aimed at reducing workforce, as anyone who has seen the proliferation of self-service checkouts can attest.

Another sector dominated by a small number of players is the banking and insurance industry. The paper estimates that the big four banks, Macquarie Group and QBE Insurance would be the beneficiaries of around $3.7bn in tax cuts in 2026-27, and yet that sector, while very profitable, is an investment pauper.

The paper found that while those six companies earn 9% of total company taxable income, they account for just 1.2% of all private investment.

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And again, such investment is generally not driven towards employment expansion, but instead on areas such as ATMs and internet banking – useful certainly for consumers, but hardly likely to lead to a boost to jobs or wages.

The paper also notes that while the telecommunications industry would be expected to see great investment, the largest player, Telstra, invests almost as much in property, plant and equipment as it claims in depreciation in those same areas.

As paper’s authors archly note, “if Telstra was a serious investor in innovation, there would be no need for NBN Co”.

And of course the biggest driver of investment over the past 15 years has been mining, and yet such investment is completely unlinked to our company tax rate, but rather “is dependent on where minerals are and their price”:

The Australia Institute’s paper notes that “none of the top 15 listed companies are likely to engage in significant additional investment or innovation despite getting a third of the proposed company tax cut when it is fully implemented”. And yet such investment is the key foundation for a majority of the supposed benefits of the tax cuts.

The government’s tax cut policy suffers from two problems. First, if the cuts are so good and urgent, why are they waiting nearly 10 years until instituting them? And second, if the benefits for workers is to come from increased investment, where is the evidence that investment will occur given a third of the cost of tax cuts will go to businesses unlikely to increase investment in areas that will drive either jobs or growth?