Every few months the same story does the rounds. Business groups circulate charts showing Australia’s 30-per-cent company tax rate near the top of the developed world. Politicians warn we are pricing ourselves out of world capital markets. Commentators demand a cut before investment flees.

It is a tidy story. It is also nonsense.

Australia and New Zealand are the only two countries in the world that have abolished the double taxation of business income. Everywhere else, profits are taxed twice: once in the company’s hands, and again when they arrive as dividends. In America, profits are taxed at 21 per cent federally, around 6 per cent more in most states, and shareholders then pay personal tax on their dividends.

Australia does something quite different, and has done since the Hawke government introduced dividend imputation in 1987, building on reports I wrote for the Campbell Committee of Inquiry calling for an end to double taxation. When an Australian company pays tax, that tax is credited back to its Australian shareholders. These ‘franking credits’ attach to dividends. Shareholders use them to reduce their personal tax bill. If the credits exceed the tax they owe, they receive the difference as a cash refund.

The company tax is not really a tax on Australian shareholders at all. It is a prepayment of their personal tax. The Tax Office collects the money from the company first, then hands it back to the owners when profits are paid out. For the Australian shareholder, the 30-per-cent rate simply dissolves on contact.

This is why comparing headline rates across countries is meaningless. A chart showing Australia at 30 per cent and America at 21 per cent compares apples with oranges. The honest comparison is the total tax paid on a dollar of profit by the time it reaches the shareholder’s pocket. On that measure, Australia is a low-tax country, not a high-tax one.

Do not take my word for it. The US Congressional Budget Office examined what American companies actually paid in Australia. The answer was an average rate of 17 per cent, and just 11 per cent on new investment. That made Australia one of the lowest-taxed countries in the OECD.

My own research tells the same story from the sharemarket itself.

The market places a high value on franking credits, close to their full theoretical worth. Shares that deliver franking credits enjoy a lower cost of capital. Companies whose dividends carry no credits, typically because they earn their profits overseas, must offer much higher returns to attract Australian investors.

The clearest illustration was BHP. For years the company was listed twice, once in Australia and once in London. Same company, same assets, same dividends. Yet the Australian shares traded at a premium that peaked at 25 per cent. The only difference was franking credits. The market priced them in plain sight.

Who actually bears the tax, then? Only investors who cannot use the credits, mostly foreigners. Even many of them escape it. They routinely sell their shares to Australians around dividend time, passing the credits to people who can use them. Australia’s superannuation funds, sitting on more than two trillion dollars of compulsory savings, hoover up franked shares. Our banks borrow cheaply on world debt markets to fund local share ownership. The investor who sets the price of capital in Australia pays little or no Australian company tax.

So who would gain from cutting the rate? Not Australian companies. Not their Australian shareholders, whose credits would simply shrink along with the tax. The winners would be foreign investors, who would pocket a windfall on investments already made, and managers of companies that hoard profits rather than paying them out.

Company capital belongs to shareholders, not managers. Imputation reinforces this by rewarding companies that pay profits out as franked dividends. Shareholders can then decide where the money is best invested. A tax cut would tilt the game the other way, encouraging managers to retain earnings and spend them as they please. History suggests much of that money would fund empire building rather than productive growth.

And the cost would be enormous. The Turnbull government’s plan to cut the rate to 25 per cent carried a price tag of $65 billion over a decade, and about $13 billion a year once in place. What would it have bought? The government’s own modelling promised a long-run boost of just over one per cent. The Productivity Commission suggested a one-off lift of about 0.4 per cent. Small beer, at a very high price.

That is why, when a Senate inquiry examined the plan, I urged that it be blocked. The Senate agreed, and the cut died. Had it passed, those lost billions would have been clawed back from somewhere. Personal income taxes would have had to rise substantially. Wage earners would have paid more so that foreign shareholders could pay less.

If you doubt this, look at America. Donald Trump cut the US company rate from 35 to 21 per cent, a 40-per-cent reduction, in a system with genuine double taxation and therefore genuine room to gain. The promised surge in investment and hiring never arrived. If a cut that large achieved so little there, why would a smaller cut achieve more here, where most investors do not pay the tax in the first place?

There is a legitimate debate about attracting foreign capital. Perhaps Australia should tax foreign investors less. But let us have that debate honestly. Cutting the company tax rate is a decision to hand revenue to foreign shareholders. It should not be sold with scare stories about Australian businesses groaning under a burden that, for most of them, does not exist.

Australia’s 30-per-cent company tax is a phantom. It frightens only those who never look behind the curtain. For most Australian shareholders it evaporates the moment profits are paid out. Those who brandish it fall into two camps: people who do not understand our tax system, and people who understand it perfectly well and hope you do not. Neither deserves a hearing. The next time you see that chart of headline rates, ask the only question that matters: who actually pays? In Australia, for Australians, the answer is almost no one.