Budget 2010–11: Pluses and Minuses

12 May 2010

Transcript of comments by BCA CEO Katie Lahey to the Sky Business ‘At the Open’ program

Presenter: Now, back to budget 2010 and a signal of a return to surplus by 2012–13.

The Business Council of Australia though, with its view on all of this, saying that indeed the aim introduces a big question mark when it comes to the flip side and that is future growth. Well, the Business Channel’s Bridie Barry is in Canberra and talking now with BCA chief executive Katie Lahey. Bridie, over to you.

Reporter: Thanks, Carson. Katie, thanks so much for joining us. We saw last night a return to surplus three years earlier than expected, GDP growth, pretty much full unemployment [sic] by the next financial year, spending restraint – I mean, are you happy with what you saw in that budget last night?

Katie Lahey: Look, I do think the Treasurer is to be congratulated in getting us back into a surplus much quicker than we anticipate and I think the rest of the world would have anticipated, so that’s a very good news story. And I think some of the initiatives around productivity in the skills area, in the infrastructure area, are also very positive news for the business community.

However, having said that, the Budget does rely on strong growth going down the track, and that strong growth is predicated on really strong investment in our mining sector. And that brings us back to the area of contention, this new resources tax, that may make some of that investment a bit more risky, and if that investment falters, then the Budget collapses.

Reporter: But certainly what we’re hearing, and not just from Treasury, from the RBA as well, is that the terms of trade are going to soar some 25, 20 per cent over the next few years. I mean, that’s extraordinary growth, isn’t it, in those commodity markets? I mean, surely that will continue for some time? And even if it does pull back, that is still strong growth for Australia.

Katie Lahey: It is strong growth, but I think you have always got to be cautious. Now we are seeing the market respond in a jittery way to what is happening in the resources area. We’re starting to see some question marks about whether China needs to pull back on some of that growth. I think all these factors just say confidence is so important. And once you tinker with that confidence, and that’s what we think this resources tax will do, then you’re looking at the underpinning of the Budget being pulled back.

Reporter: Looking though – some analysts, some economists and Treasury are saying that the combination of the resources tax is – it’s a good rethinking of that royalty system. That combined with the company rate cut is going to contribute growth to GDP of something like .7 per cent in the long run and also increase real wages by about 1.1 per cent. What do you say to that?

Katie Lahey: Well, I think on the resources rent tax, I think most miners were expecting something. What they weren’t expecting was a tax on existing projects. So we really are urging the government to look at both the design, the rate and the transition features for that tax, and really look at them very thoroughly, no holds barred. We want to have a look at this from whoa to go.

And on the company tax rate, yes, the government has promised us a reduction from 30 to 28 per cent but we’ve got to wait two election cycles for that. Now, in between two election cycles, there’s a lot of promises and non-core promises. You know, you would be a bit nervous about whether that is actually going to be a reality. We hope it is, but there is a long time, a lead time, into coming into that reduced company tax rate.

Reporter: And obviously tied to that resource super profits tax as well – I mean, we’ve seen the government, you know, dropping in the polls, policy backflips. Surely they’re going to stand their ground on this resources tax? That can’t be good, from your point of view.

Katie Lahey: Well, that’s where the consultation process needs to be very, very thorough. And deep thinking work needs to go on to look at this tax because it’s very complex. The fact that big mining companies will still have company tax, payroll tax, royalties from the states and this new tax on top of that. All right, they’ll get a refund on their state royalties. But this isn’t simplifying tax. It’s just adding another layer of complexity. And companies have got to factor that in, and that costs money.

Reporter: Where do you think that you would like to see the concession then in particular? Would it be the government pulling back that 40 per cent rate that they’re talking about or adding to the level at which super profits kicks in, the long term bond rate – that needs to see perhaps another five per cent added to it? I mean, what are we talking about here? What kind of concessions would you …

Katie Lahey: I think it’s a very complex tax and I think you’ve really got to look how all the factors interplay, and that’s what the consultation process needs to look at. It can’t put off one part of it and say that’s not to be looked at, we’re only going to look at the transition features.

We need to be looking at the rate. That’s clearly – the miners are saying that’s far too high, it’s going to make us uncompetitive. And we have already seen Canadians in here looking to see how they can pull some of our market share back to their country. So there is something happening with the rate that is not keeping us competitive with our overseas markets. And I think the design of the tax is far too complex. We’ve just been through two years of trying to get an emissions trading scheme to work. I hope we’re not going to have two years of trying to make this work.

I think we’ve really got to look at simplifying our tax system, and that was one of the initiatives out of the Henry tax review that really we haven’t taken on board yet.

Reporter: So just looking then too at some of the other issues as well. We have the spending – that cap of two per cent there. I mean, do you think that the Treasurer, as he was trying to paint a picture of himself last night, is a responsible economic manager?

Katie Lahey: Well, he did stick to that two per cent and they’re to be congratulated for that. People will say they could have gone in harder, but look they have stuck to their plans and their policies on that. And there are some very good initiatives in there that will add to productivity. And I think the fact that we’re looking down the barrel of full employment – that’s always a good sign for confidence. It may lead to wage break outs and may lead to inflation, but I think you’ve got to look at the full package. And the full package on the whole looks positive but we’re still concerned that it is underpinned by a very, very strong investment in the mining sector, and that’s not necessarily going to deliver the goods if we see this resources rent tax implemented.

Reporter: Looking though – I mean, some economists we were talking to last night were saying that perhaps the resources super profits tax would be a good thing in the fact that it would perhaps slow this two-speed economy that we’re seeing that is hurting a lot of businesses and sectors while benefiting others. What do you say to that?

Katie Lahey: I think it’s a fine line to walk between the two-speed economy, as it’s so called, and knocking confidence. I think the stock market has answered that question for us, that if you start to tinker with the mining sector, it does damage confidence, and it damages confidence in the whole stock market. So I really think we’ve got to be very, very cautious about this.

Reporter: What about the infrastructure spending, the skills training boost, that we’re seeing as well? Is that going to be enough to help address those capacity constraints that we will see as growth continues and we reach full employment?

Katie Lahey: Well, I think the infrastructure spend is particularly important, and some of the rail issues and some of the port issues are still holding us back. I’ve just recently come back from overseas and people are talking about the 200 odd ships sitting off Australian ports. So we’ve still got a lot of work to do in our port area. And we do know that the rail links to our ports need to be managed better. So I think the government’s initiatives in that area are to be applauded.

I think the skills area is to be applauded too because that is an area where we’re already noticing skills shortages, and we’ve only just come out of a downturn. So our skills capacity is still not where it should be.

Reporter: All right. It’s been great to talk to you and get your views on the Budget. Thanks so much for joining us. Business Council of Australia CEO Katie Lahey.

[ends]

The Business Council of Australia does not guarantee the accuracy of this transcript, which was supplied by an external transcription service.