Tax holidays for multinationals (letter)by Michael NelmsNews Weekly
, May 4, 2002
In an April 4 Melbourne speech the Governor of the Reserve Bank suggested that the demise of manufacturing in high wage countries such as Australia may be inevitable.
He sees this as due to the proliferation of new manufacturing plants in developing and low wage economies, resulting in our home-based industries being unable to compete in the global marketplace.
An implied corollary of this logic is that developed economies should move from the lower to the higher value-added end of manufacturing.
With these third world manufacturing plants, multinational corporations (MNCs) are appropriating the wage differential between low labour cost and high labour cost countries. Also, it has been suggested they frequently abuse the environment, exploit the local working force, take advantage of "tax holidays" from host countries and utilise offshore tax havens.
Successive neo-liberal governments around the world have perceived an obligation to jump on the global treadmill of attracting overseas investment and thus maintain the competitiveness of their local economy.
On this treadmill, governments have lost much of their ability to decide tax levels on resident MNCs.
The effective tax rate on large corporations throughout the West is reported as 13 per cent by reputable sources. If the MNCs don't get the sweetheart deals from governments they'll leave town.
So taxation levels that were set by governments are now increasingly set by the global economy.
Once on the treadmill, governments are faced with a decline in real tax revenue, with an increasing burden needing to be imposed on the middle and lower classes, especially through regressive taxation systems such as the GST.
Along with this, government debt increases, thus necessitating the cutting of public programs (such as in public education and health).
Thus, allowing MNCs to decide world tax levels through the global economy can be like putting the rabbits in charge of the vegetable garden.
The global economy has enhanced our society in many ways, especially through a proliferation in the use of high technology in developed economies. However, one must be prudent in freely embracing unencumbered competition as a universal economic panacea.Michael Nelms,
East Malvern, Vic