Former treasurer Wayne Swan has warned the Australian government not to follow US President Donald Trump in slashing corporation tax, saying such a move would be “an act of self-harm”.

On Wednesday, Mr Trump unveiled plans to slash federal corporation tax to 20 per cent – a massive drop from the current 35 per cent.

Treasurer Scott Morrison was quick to jump on this, saying Mr Trump had “laid down the challenge” for Australia to follow suit.

“The world is moving to lower taxes on corporate investment all around the world, and if you get out of step with that, the money will go elsewhere and so will the jobs,” he said.

The government’s Enterprise Tax Plan, a piece of legislation that would see corporation tax reduced from 30 per cent to 27.5 per cent for all companies by 2023, has so far been blocked in the Senate.

Australia’s two most powerful business lobby groups also backed a move to slash corporate tax rates.

Speaking on Thursday, Business Council of Australia chief executive Jennifer Westacott said: “Australia’s tax competitiveness is already woeful and our broader competitiveness ranking is mediocre at best. US company tax reductions of this magnitude will only push us further behind.”

Australian Chamber of Commerce and Industry chief executive James Pearson agreed, saying: “Other countries are moving faster and further in reducing their tax rates and if we stand still, we will be left behind.”

But Mr Swan, who was treasurer under two Labor prime ministers – Kevin Rudd and Julia Gillard – and is now a Labor backbencher, told The New Daily these calls were not backed up by fact.

Referring to Mr Trump’s plan, he said: “This is just an act of self-harm against working people, and also against the economic prosperity of the United States.

“There is not a shred of evidence that tax cuts to the wealthy stimulate growth. Corporate tax cuts will just end up in share buybacks and dividends to the wealthy,” he said.

He urged Australia to resist the global trend to cut corporation tax – he called it a “race to the bottom” – saying it would “impoverish the economy and society”.

“It’s an attempt by the powerful to concentrate wealth in their own hands,” he said.

Former treasurer Wayne Swan says there’s no argument to cut company tax. Photo: AAP

He dismissed the argument that low corporate tax rates stimulated economic growth.

“What will drive jobs and growth is investment, and investment will be driven by demand,” he said.

The global shift to low corporate tax explained

Beginning in the 1980s, the so-called ‘neoliberal’ era has seen a growing consensus among wealthy nations that high corporation tax is bad for economic growth.

This consensus has seen many countries progressively slash their corporation tax, turning to indirect taxes such as the goods and services tax (GST) to fill the hole.

The UK is the supreme example. In the early 1980s, UK companies paid more than 50 per cent corporation tax.

Now, they pay just 19 per cent. Corporation tax accounts for just 6 per cent of UK government tax revenue. In Australia it is closer to 20 per cent.

British consumers, meanwhile, pay as much as 20 per cent in value added tax (the UK version of GST), compared to the Australian GST of 10 per cent.

Unlike Australians, Brits also have to pay ‘national insurance’ on top of income tax.

Were Australia to slash its corporate tax rate, the government would need to find other means of making up the revenue if it wanted to maintain current spending. The likelihood is that ordinary Australians would foot the bill.

Proponents argue increased economic growth would offset this added expense. Opponents say there is no evidence that lower corporate tax rate increase economic growth.