Professor Joseph Stiglitz: 2018 Sydney Peace prize winner on tax cuts and Trump
Nobel prize-winning economist says the argument in favour of cutting company tax to increase wages is a spurious one
Ask Nobel prize-winning economist Joseph Stiglitz for his thoughts on the Turnbull government’s arguments that cutting the company tax will lead to strong investment and higher wages, and he doesn’t mince words: “I don’t think there’s any validity in it.
“Firms locate in countries because of the quality of the infrastructure, the quality of the educated labour force, a whole set of aspects of the society and economy, and the tax rate is well down the list of concerns.”
Rather than focus on company tax cuts, Stiglitz argues governments should seek to “increase the wellbeing of the majority of people in the country with growth that is sustainable inclusive and democratic”.
Stiglitz was speaking from his New York office on the eve of the announcement that he will receive this year’s Sydney Peace prize. Each year the Sydney Peace Foundation honours a nominee who has promoted “peace with justice”, human rights and non-violence. The Columbia University professor and former chief economist at the World Bank joins past recipients such as the activist movement Black Lives Matter, the journalist Naomi Klein, Prof Noam Chomsky, and the former Irish president, Mary Robinson.
Stiglitz is well-known for his criticism of trickle-down economics as well as his work on bridging the inequality gap. He says the argument in favour of cutting company tax to increase wages is a spurious one.
“In terms of economic analysis, there is very little evidence that [a company tax rate cut] actually even spurs investment,” he says.“Most investment at the margin is financed by debt, and the debt interest repayments are tax deductible. So while the tax rate affects the return, it also affects the cost of capital in exactly a symmetric way. And so at the margin there is essentially no effect on investment.”
In 2010 Stiglitz praised the stimulus measures put in place by the Rudd government during the GFC, describing it as “the best designed stimulus package of any … advanced industrial countries”.
Now he points to the response by companies in the United States after its recent company tax rate cut as evidence of the lack of impact on wages: “Corporations want people to believe that by cutting it that somehow workers are going to be better off.”
He calls the highly publicised wage rises that have followed the tax cuts in the US – and which have been lauded by the treasurer, Scott Morrison, as evidence that such cuts lead to higher wages – “a big joke”.
Earlier this year Morrison argued that companies would increase wages after a company tax cut, saying in an ABC interview: “We’ve already got businesses saying that’s what their behaviour would be.”
Stiglitz says companies pretended the tax cuts were a way to increase wages, but the reality was often very different. “You had a company like Walmart that said now we have enough money, we can raise the wage by a dollar an hour.
“Walmart were sitting on a lot of money. It’s not as though they could not afford it [before the tax cut]. They were using this in a very political way to persuade workers that the workers were the big beneficiaries of the tax cut. But the data since last year’s tax cut shows that most of that money went to share buy-backs, some went to investment and very little went to workers.”