Discuss burying the lede. Hidden in an appendix to the Productiveness Fee’s draft proposal to overtake firm tax, launched yesterday, is the publicity of what ought to (however received’t) be the main target of the productiveness roundtable later this month — the dearth of competitors in Australia.
Others can parse the convoluted pitch to chop taxes for firms incomes under $1 billion whereas imposing a cashflow tax and rapid writing-off of funding. The actual curiosity lies within the PC’s justification, other than the necessity for income neutrality, for maintaining the edge for a 30% firm tax charge at $1 billion. It’s as a result of much more of the income of these massive corporations are “financial rents”, i.e. income extracted by corporations exploiting their sturdy aggressive place to carry costs.
“Enduring financial rents, these which are sustained over a protracted time frame, can scale back residing requirements and scale back financial effectivity, to the extent that they’re related to decrease portions and/or larger costs for items or companies than is required for that good or service to be supplied.”
The PC notes, as regards to work performed by economist Chris Murphy for the fee and others:
Financial lease has attracted rising coverage consideration over current years, with varied estimates claiming that they’ve grown each globally and in Australia, have change into extra persistent, and have arisen in sure sectors or asset courses … Modelling undertaken by the PC for this inquiry (Murphy 2025) estimates that that 54% of the corporate earnings tax base takes the type of financial rents, a rise from Murphy (2018) which estimated the determine to be 41% on the time.
That seems to resolve a big a part of the talk over the causes of the post-pandemic inflation spike. Those that argued that firms exploiting Australia’s extremely concentrated markets to carry costs didn’t play a big position in inflation — such because the Reserve Financial institution, the Monetary Assessment, right-wing economists and the enterprise group — now seem flawed. We all know that, in comparison with 2018, there was a considerable rise in income extracted as financial rents by large firms.
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These “financial rents” had been by way of larger costs that all of us paid. Increased costs in supermarkets. Increased airfares to a gouging Qantas. Increased costs for constructing supplies. Increased energy costs. Increased childcare costs. And better banking charges — aided and abetted by a Reserve Financial institution that denied all proof of company profiteering and as an alternative insisted inflation was solely brought on by extreme client demand that required larger rates of interest.
Because the PC notes, a differential tax regime isn’t the one doable response to this drawback — competitors coverage is likely to be a greater one. However whereas competitors regulation reforms undertaken by Jim Chalmers within the final parliamentary time period had been aimed toward making it more durable for additional market focus to happen, reversing the extent of focus that has delivered the surge in financial rents requires divestment powers. And nonetheless a lot the Nationals would possibly encourage the thought, divestment seems to be to have died with Peter Dutton’s profession.
Whereas it’s unlikely the federal government will embrace the PC’s tax adjustments — partly as a result of large enterprise foyer teams just like the Enterprise Council will probably be opposed, except they’ll see a option to recreation the $1 billion threshold — Chalmers completely ought to embrace the PC’s concept that a great way to cope with financial rents is to tax them. It doesn’t matter what tax adjustments come up from the productiveness roundtable, if the federal government received’t embrace divestment that may minimize financial rents, it ought to slap a tax on them. At the least taxpayers will probably be getting again what shoppers are giving up.
