The G20’s Most Taxing Issue



Professor Sinclair Davidson, a member of the Australian Taxpayers’ Alliance Board of Advisers,  recently discussed the issue of international tax competition in International Banker:
In Australia, at least, big business pays a very fair share of income tax. According to OECD figures, Australian businesses paid 19.7 percent of total tax revenue in company income tax in 2011, compared to an average of 8.7 percent for the OECD as a whole. In short, there is no reason for the Australian government to believe that it is being short-changed in its company-tax receipts.

Nonetheless the issue is on the agenda, and many governments are keen to be seen to be doing something. The European Union-a member of the G20 in its own right-and the OECD, in particular, have been very vocal in this area.

Big-government advocates, including government itself, have been able to generate a campaign of misinformation around company tax through anti-business prejudice and rational ignorance. All this has combined to create a series of tax myths-those beliefs that the public “knows” to be true, yet are entirely misleading, if not false. One of those tax myths is that business doesn’t pay a “fair share” of tax. Another myth is that declining company-tax rates result in reduced company-tax revenue. Between the early 1990s and 2006-immediately before the Great Recession-company-tax revenue within the OECD had increased as a percentage of total tax revenue.

Anti-business sentiment is cyclical. Rational ignorance is a bigger problem for business. Many voters find taxation to be boring and highly complex. In this environment it becomes easy to propagate the fiscal illusion that the tax burden is lower than it actually is or that government adds more value than it actually does.

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