A cut in company tax will deliver little benefit at best
COPS modeling results are similar in some angles. A 0.6 percent smaller increase in business investments expects a smaller increase, but although GDP increases by only 0.2 percent, almost too much productivity and pre -tax wages await the same increase.
Does the modeling provide reasonable strong support to cut the company tax to make the economy bigger and better? Well, no, it’s not really. These results are surprisingly small.
Economists have allowed the results of the modeling results for years, in this case, the rest of our remaining 1.4 percent, 0.4 percent and 0.6 percent represented the estimated increases. annual Increases in business investment, productivity, GDP and pre -tax wages.
Wrong. People who shake the modeling, rarely uncomfortable to ensure that bettors understand, is that they only increase once. levels Investment, efficiency, GDP and pre -tax fees. Moreover, they will only appear in the “long term ..
And how long does it take in the long run? They rarely bother to tell us – especially because it may vary especially compared to the model. But you can learn if you dig deep. The cops set him up in five years, I have been told, but it is considered more about 10 years. The Commission says that the comparison of two modeling exercises with two modeling exercises is what they predict will be a story in 2050.
Understand? We are considering a very expensive deduction in the company tax rate with the belief that the real GDP will lead to 0.2 to 0.4 percent larger in five to 25 years.
Really? The modeling shows the benefit of reducing the company tax rate, and it will still be insignificant, but the commission still thinks we have to do it.
The sad fact is that modeling is not used to help us, not to develop our understanding of what works and what it does not work, but to help someone who thinks we should do.
Did you see what this said? Even economists who assign this modeling do not take their results seriously. From where? Initially, they know how primitive and extremely simplified these modeling exercises. It is as if the economy they can model is not people, but an economy in which stick figures live.
Since modeling is a very dangerous exercise, economists know that they do not have to believe in the results they do not decorate – because in reality the economy is based on religious beliefs than scientific questioning. The biggest figures in the thought of economists are the model of the economy they have carried in their heads since the second year.
The model in their beginning tells them that taxes encourage and disrupt economic activity, that is, lower taxes are always better. If econometric modeling tells them that a ratio deduction will make a little difference, they are the poor.
While we mentioned taxes, one reason for the effects of a deduction in the company tax is that it is so modest that the loss government income should be covered by tax increases elsewhere. The models here assumed that “non-distorting collective-total tax” (non-existent in the real world) or bracket creeping (a permanent, permanent increase in personal income tax).
The change proposed by the Productivity Commission in the company tax does not help workers. Credit: Matt Davidson
Significantly, under Murphy, a real wage increase of 0.6 percent before the tax becomes a zero increase after tax. Really? We want to increase productivity to raise our material living standard, but after real tax wages will not change under Murphy-or or not under the policemen will actually drop 0.5 percent. Great idea, huh?
Finally, the economists at the Australian Institute reveal that the commission chose to call “productivity olur is actually the same thing that is not the same.
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According to the modeling, the national output per worker, not because any worker has become more productive, but the decrease in post -tax capital costs in the capital cost of capital, the capital intensive mining industry (with a higher output per worker), leads to expansion at the expense of labor intensive health and education sectors.
And this would be progress, right? The sad fact is that modeling is not used to help us, not to develop our understanding of what works and what it does not work, but to help someone who thinks we should do.
Ross Gitins is an economic editor.
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