Spending on education will produce a bigger economic growth dividend in the long term than cutting corporate tax, according to a new survey of economists.
As Labor and the Coalition go head-to-head on their centrepiece economic policies, a survey of 31 economists by the Economic Society of Australia and Monash Business School has found almost two-thirds agreed with the statement that:
'Australia will receive a bigger economic growth dividend in the long-run by spending on education than offering an equivalent amount of money on a tax cut to business.'
The Coalition has budgeted, if elected, to spend $48 billion over 10 years to cut the corporate tax rate from 30 per cent to 25 per cent.
Labor opposes the measure, and would instead spend $37 billion more over 10 years to boost education.
Modelling by Treasury suggests the company tax cut will boost the economy by about 1 per cent over 30 years.
Labor has claimed its policy will do more to boost growth, referencing a paper for the Organisation for Economic Co-operation and Development by Stanford University Economist Eric Hanushek, which suggested a 11 per cent boost to the Australian economy by 2095 from lifting school results to a "basic" level.
Bruce Chapman, the founding father of the HECS system, was among the economists polled for the Economic Society of Australia's June 2016 National Economic Panel. Professor Chapman said literacy and numeracy skills were the most important contributors to long-run economic growth.
"So long as the additional education contributes importantly to these capacities there should be little doubt that expenditure in this area is of the most critical significance," he told the survey.
Former competition watchdog boss, Allan Fels, also agreed with the statement, along with UNSW economics professor James Morley, who said: "Estimates on returns to education are larger and more precise than estimates on the effects of tax cuts on investment and long-run growth."
However, many economists added the caveat that the quality of education spending was critical.
Of the economists surveyed, 29 per cent strongly agreed with the statement, 35.5 per cent agreed, 12.9 per cent were uncertain, 16.1 per cent disagreed and 6.5 per cent strongly disagreed.
Monash Business School adjunct professor, Rodney Maddock, who, as president of the Victorian branch of the Economic Society, helped to establish the monthly National Economic Panel, strongly disagreed the benefits of education spending would exceed that of company tax cuts.
"There has been no payoff from the very large increase in spending on education over recent decades. Putting more money into the system will not change that. I do not expect any payoff from increased educational spending unless there are very significant reforms to the system. By contrast, tax cuts to business are likely to have some impact on investment and growth though not a particularly large one - even in the absence of any other policy changes," Professor Maddock said.
Professor Tony Makin of Griffith University also disagreed, stressing the benefits of cutting corporate taxes.
"Cutting company tax is unequivocally expansionary in the long run. Lower company taxes, now high by international, especially Asian trading partner standards, would make domestic enterprises more globally competitive, encourage more domestic and foreign investment, and allow for higher wages and living standards."
Most economists agreed both policies in question would boost economic growth, but the majority came down in favour of education spending as producing the biggest economic growth dividend of the two policies.
