The Reserve Bank assistant governor Luci Ellis this week suggested lowering the company tax rate was not as important for driving investment as is argued by the government and business groups. It brought into sharp relief how talk about the need to cut company tax rates is based on a pretty simplistic view of why our investment has fallen and what we can do to improve it.

I think we sometimes forget just how massive the mining investment boom was.

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From the depth of the 1990s recession to 2004, mining investment grew by an average of 8.7% each year; but from 2005 through to the end of 2012 it grew by 32.4% each year:

Such was the size of the boom that even with the recent falls, total new capital expenditure has us still tracking above where we would have expected to be, had the trend from 1992 to 2004 held:

The boom was so large the iron ore industry grew from an equivalent of 0.75% of Australia’s GDP to 2.7%:

And while various governments like to take the credit and pass the blame for the boom and its end, overwhelmingly it occurred because of factors outside our control – namely China’s entry into the world economy at the end of 2001 and the subsequent surge in iron ore prices.

So it actually should not be that surprising to hear Ellis on Tuesday tell the Citi Australia and New Zealand Investment Conference that the level of the company tax rate was not as important a driver of investment as was argued by the head of the Business Council of Australia, Jennifer Westacott, on the same panel.

Ellis said about the 10-year phase of the “incredible” investment mining boom: “Guess what – multinational resource companies are not going to put that investment in a country which doesn’t have those resources just because they have a lower tax rate.”

She noted that they “will invest where the LNG and the iron ore and the coal and – as it turns out – the lithium actually are”. Ellis concluded that “the real reason we attract foreign capital rather than rely on foreign capital is precisely because we have these resources that are available and they aren’t going anywhere.”

This of course is in stark opposition to the position put forward by the Business Council of Australia and the government, which remains determined to cut the company tax rate from 30% to 25% – citing moves by other nations and proposals by Donald Trump to cut the US company tax rate.

The issue is that the 30% rate is one of the highest in the OECD – only the US, France, Belgium and Germany have higher rates than our 30%. And yet as Ellis and other commentators such as the ABC’s Ian Verrender have noted, would that it were so easy to just think cutting the tax rate will spur investment.

The most obvious problem is that given our dividend imputation system, changing the company tax rate doesn’t have much of an impact for Australian investors as Australians get a credit against the amount of company tax they pay.

As Ellis noted, this means from the perspective of the domestic investor “the corporate tax rate is irrelevant”. It also means any benefit from lowering the company tax rate effectively goes to foreign investors.

Now that is not necessarily a bad thing – but it depends on the type of investment that is being driven and also whether a lower tax rate would actually do much except lower the amount of revenue collected by the government.

Ellis had broached this topic in February before the parliamentary economics committee.

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She told the committee then that what we need to think about is “what is the nature of the investment that we are getting from foreign investors and how much of it is foreign direct investment, which builds new things versus, say, purchasing of existing securities or purchasing of existing assets?”

So even if we assume that a lower company tax rate will bring in foreign investment we can’t just assume the type of investment is going to automatically drive economic growth and employment. Foreign direct investment is the type we are really after – where a foreign company sets up shop in Australia, employs people, builds factories and invests in equipment.

But the company tax rate is just one of very many other considerations that drive that investment – considerations that include location of resources (both natural and people), regulatory framework, security of investment, skills, macroeconomic conditions and stability of policy.

On this front, having a long-term energy policy would be potentially more important than a possible lowering of the tax rate.

And it is worth noting that just looking at the tax rate is a bit of a simplistic way of comparing taxation.

This March the Congressional Budget Office, in response to Trump’s proposal to slash the US tax rate, compared the corporate tax rates of the G20 nations.

But instead of just looking at the nominal rate, it also looked at the average rate paid and the effective rate, which measures a corporation’s tax burden on returns from an investment that is expected to earn just enough, after taxes, to attract investors.

And on this score, against the biggest economies in the world, Australia is nowhere near the top:

The desire to cut the company tax rate is founded on the belief that we are uncompetitive with other nations and that we need to do something to arrest the fall in investment. And yet when looking at the actualities of our company tax system, we are not a high-taxing nation, and overwhelmingly the fall in investment is due to the end of the mining boom, not because other nations have lowered their tax rates and taken investment away.

As Ellis noted, “I’m not sure I buy the idea that we have a great drought of non-mining investment”. Indeed the latest GDP figures have seen the third consecutive growth of new business investment, and Ellis saw “some synergies” with a pick-up in public infrastructure investment.

But while we may not actually have as high a corporate tax rate as business groups might argue, we are much more reliant upon company tax revenue than other nations:

This means that if we cut company tax, then we need to get that revenue from somewhere, or we need to cut spending to balance it out.

And that’s the ultimate problem of the desire to cut company tax rate – it is unlikely to lead to the benefits those proposing it insist will occur but it will reduce revenue – and that will need to be paid by someone. And as the Parliamentary Budget Office showed last week, right now that someone is people on middle incomes.