International Business: Tax Policy Impact on Economic Growth

This essay examines the effects of international tax policies on economic growth, focusing on the complexities of tax reform, including tax rate cuts and base broadening. It analyzes the potential for economic expansion resulting from these changes, while acknowledging the uncertainties involved. The essay considers the perspectives of organizations like the Business Council of Australia regarding corporate tax cuts and their potential benefits, such as increased wages and employment. It also addresses concerns about the distribution of these benefits and the potential impact on government revenue and welfare programs. Furthermore, the essay identifies potential beneficiaries of corporate tax rate cuts, including foreign companies and corporate executives, while considering the implications for Australian investors. It concludes that while well-developed tax policies can promote economic growth, various barriers exist, and there is no guarantee of universal success.

International Business

Policy makers have long researched about the potential changes in taxation that impact the size
of the entire economy. Since tax reform is highly complex, it is engaged in the cutting of tax rate
and broadening of base changes (Crane & Matten, 2016). Such changes shall increase the entire
economic size in the long haul, although the impacts and the extent of these effects are subjected
to the substantial uncertainty.
Extending of the tax-base by making a reduction or elimination of tax expenses arouses the
effective tax rate that organizations and individuals experience and thereby will work on same, in
the same context in a way that is opposite to cuts in tax rates (Carson & Kerr, 2017). However,
the base extension has extra benefits of assigning resources that are presently preferred to tax and
have larger economic returns, which can lead to increase the economic size.
As there is cut in the tax rate of the company, then the advantages will move forward to
employees with higher wages and employment. In accordance with the viewpoints of the
Business Council of Australia, it has been indicated that government has the intention to make a
reduction in the tax rate in their next federal budget (Braithwaite, 2017). It is assumed that
certain gains of tax rate cut of the company would drain off by a company who take benefit of
abnormal high profits. In accordance with the in short and medium term, every benefit of the
income tax cut of corporate would be given to companies. In the long haul, the cut of income tax
to the company would result in a slight increase in the gross domestic product, as of the higher
inflow of foreign capital to finance projects that are not considered as viable as per the higher tax
rate (Abramovitz, 2017). However, it can be noticed there is an economic expectation of 0.15 to
0.2 percent (Long, 2016).
In addition, job growth has shown modesty between 0.05 and 0.09 percent. In the long run,
Treasury considers a cut to corporate tax will foster wages, but comparatively less with 0.2
percent in major situations (Long, 2016). With this modelling, in a situation where government
adopts the pith of BCA to cut company tax rate within the budget to 28.5% then it will change to
post-tax wages growth of below 0.3 per% in the long haul (Long, 2016). It is also likely that
wages gains would be balanced by deductions in wellbeing benefits and transferring of tax.
It is held by Treasury that regardless of a modest improvement economic growth; the tax cut will
make a reduction in the revenue of government. It is also assumed that to maintain the corporate

income tax rate cut that is neutralizing the review; the government will make a reduction in the
spending for welfare and transferring of tax to households (Leigh & Blakely, 2016). There are
certain positive assumptions underpinned by the Treasury modelling regarding the rise in ways
in regards to the company tax cut.
The assumption has been made by the Treasury that arrival of foreign capital results in
deepening of capital, thereby increasing workforce productivity and wages. However, cuts made
on welfare benefits to finance to finance the company incomes tax will be done in an immediate
manner.On the other hand, there would be a lot of groups who be exact beneficiaries with the
influx of company tax rate cuts (King, 2016). The beneficiaries would be foreign companies that
can have the benefit from greater returns while making investments in Australia. On the side of
Australian investors, a change would not be made, as with their dividend imputation tax system,
the tax payments of the company are balanced by reduced tax payments meant for investors over
their franked dividends.
One more group will be corporate executives who will be awarded bigger bonuses in case the
lower corporate tax rate raises company returns.
A viable assessment can make a conclusion that effectively developed tax policies have the
likelihood to increase the economic growth, but there are various barriers that can block the way
and there is no assurance that all the tax policies can make improvement in the economic growth
(Murphy, 2016). By considering the several channels by which the tax policies can impact the
growth can be inclusive of bigger positive incentive encouraging investments and savings,
income effects that are that are minor, direct or indirect inclusive of cautious targeting of cuts of
the tax rate to new economic activity.

References
Abramovitz, M. (2017). Regulating the lives of women: Social welfare policy from colonial
times to the present. Routledge.
Braithwaite, V. (Ed.). (2017). Taxing democracy: Understanding tax avoidance and evasion.
Routledge.
Carson, E., & Kerr, L. (2017). Australian social policy and the human services. Cambridge
University Press.
Crane, A., & Matten, D. (2016). Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
King, D. (2016). Fiscal tiers: The economics of multi-level government. Routledge.
Leigh, N. G., & Blakely, E. J. (2016). Planning local economic development: Theory and
practice. Sage Publications.
Long, S. (2016). Would the benefits of lower company tax trickle down to you? Don't count on it.
Retrieved on 25th May 2018 from < http://www.abc.net.au/news/2016-03-21/long-the-
flawed-trickle-down-economics-of-lower-company-tax/7264230>
Murphy, C. (2016). The effects on consumer welfare of a corporate tax cut. Arndt-Corden
Department of Economics Working Paper, (2016/10).