Media & Speeches

Fairness is a Growing Economy

This opinion article by Jennifer Westacott, Chief Executive of the Business Council of Australia was published in the Weekend Australian on 30 April 2016.

On the eve of the federal Budget, and more likely an election, the issue of fairness is becoming a central theme against which policies will be measured, and on which some are seeking to claim the moral ground.

This is the argument that any policy that seeks to address the budget deficit or spur faster economic growth should be delayed in preference to raising taxes for growing spending on welfare and public services.  This, it is claimed, is the fair thing to do.

No-one disagrees that all Australians should enjoy high living standards including access to good healthcare and education, and that as a society we should look after the most vulnerable.

But what is important is we keep the debate focused on how fairness is best achieved.

Fairness has many dimensions, including impacts over people’s lifetimes and on future generations, so equating fairness with more government spending today is simplistic and risky.

First, it’s not fair on the community if we keep spending more on services when those services aren’t delivered efficiently. Spending on social welfare, health and education across the Federation totals over $300 billion. As an example, it has been estimated that a genuine program that seeks to remove waste and duplication and focuses on improving efficiency in the health system by only 5 per cent over time would deliver around $8 billion of savings. This is not just about costs, it’s also about making sure there is a stronger link between better spending and better outcomes.

Second, it’s not fair on the community to ask them to pay more taxes when the hard work of ensuring spending is not wasted or targeted to those who need it most hasn’t been done. The reality is that in order to raise any significant amount of additional revenue requires taxing middle income earners more. Bracket creep is a major source of revenue growth. It is estimated that within the next 10 years bracket creep will increase the average tax rate for a person on average earnings of $75,000 from 23 per cent to 28 per cent. Bracket creep is regressive and it is not fair.

Third, it’s not fair to let national debt keep mounting up to pay for ever growing spending. Deficits and debt must be paid for by future taxpayers who may not benefit from spending today. Australia’s net debt of $280 billion already requires interest payments of $11 billion annually, or one third of the education budget.

Finally, and most importantly, it’s not fair to increase taxes today because in future this will inevitably impose costs on our economy and reduce the size of the economic ‘pie’.  Australia’s uncompetitive tax settings are already hindering wealth and job creation and slowing the necessary transitions underway in the economy.  We have a once in a generation opportunity to change the tax system for the better. If we get it wrong then changing the tax system again in future may be that much harder.

The reality is that economic growth is the bedrock of our living standards and our fair and equitable society. And the other reality is that the contribution of the private sector to the economy – businesses, large and small and the 10 million Australians who work in them – is 80 per cent of the economy. Helping that 80 per cent to be as competitive and productive as possible will do a lot for growth which is shared by everyone.

Yet the Australian economy is now at a critical junction. Our remarkable run of economic growth is slowing. The economy is facing significant challenges – with the end of the mining boom, intense global competition and economic uncertainty, disruptive technology, and an ageing population all occurring at a time when our Budget is under strain. Creating an environment where the country’s businesses can grow by investing more and becoming more innovative will be central to the nation’s future success.  Ultimately it is individuals and enterprises that drive economic growth through the decisions they make and risks they take, year in year out.

Unless we can get our economy to grow faster again, the future will mean lower real wages growth, lower revenue growth and less money available to be spent on social services.  There are of course a number of things that need to be addressed to turn around this decline.  But at the heart is a tax system that better rewards people for effort and risk taking, and enables businesses of all sizes to be more innovative and to invest in growing their businesses and making them more productive and competitive.  The simple fact is that Australia’s current company tax rate is uncompetitive and that is driving investment dollars offshore.  Even a modest reduction in corporate tax rate can make projects that are currently unviable, viable. A company tax rate reduction is about sending a clear and unambiguous signal that we want more investment in our agricultural businesses, infrastructure projects, tourist attractions, resource projects, biotech opportunities, service providers, advanced manufacturing sector and the like.

The challenge for the next government is not only about ensuring that we have a fair society now, but also one that is fair into the future.  There is nothing fair about spending more now and leaving the bill for future generations.  There is nothing fair about not having a well-paid job in the future, having inadequate and poorly maintained infrastructure or having a second rate health and education system. 

So rather than pitting economic growth and fairness as opposites, we need government action that encourages growth because it is an enabler of fairness in our society. 

What should be clear from the last 30 years of Australia’s history is that it is growth which pays for the living standards we enjoy today. Failing to confront the Australian people about what is required to continue that growth into the future is perhaps the greatest unfairness of all.