This essay by Business Council chief executive Jennifer Westacott and National Farmers Federation chief executive Tony Mahar was published in The Weekend Australian on 11 February 2017. It was the second in a series exploring the challenges to Australian prosperity.
Farmers across Australia are justifiably excited about the prices now available for premium Australian produce among the burgeoning Asian middle classes. However, it will take much more than enthusiasm and goodwill to ensure Australians get their fair share of the action.
If we’re going to make the most of the opportunities on our doorstep, we will need to pull every lever to support our nation’s dynamic environment of small and large businesses and ensure they have every opportunity to thrive.
For many Australian farm businesses, about 60 per cent of which are small businesses, their future prosperity will rely on partnerships with larger companies who can help them access new export markets and transform their raw produce into value-added products with a clean, green image that can compete with cheaper, lower quality products from elsewhere.
Increased investment and activity along each link of the chain — from the family farm that yields the produce, to the factory workers who boosts its value, to the exporters who carry it to market — contributes to new jobs, higher wages and profits that can be reinvested to keep driving economic growth.
Businesses of all kinds invest to expand their operations, to build new factories and plants, to buy state-of-the-art machinery and equipment and to develop and adopt cutting-edge technologies. Investment drives higher output, greater efficiency and leads to more employment. This is what will allow working Australians, city and country, to realise greater prosperity for their families, delivering better jobs with higher wages while providing the tax base that funds essential social services.
However, fulfilling our country’s massive potential to supply Asian markets won’t happen automatically. To remain competitive in a busy global playing field our agribusiness sector needs much more investment so it can develop the necessary scale.
We cannot underestimate the magnitude of this challenge. It is estimated by ANZ that Australia’s agribusiness sector will need a massive $1 trillion in investment between now and 2050. This comes at a time when new business investment in Australia is falling at its fastest rate since the 1990s recession.
In an age where investors — domestic and international — can choose to invest in any corner of the globe, we must fight for every single dollar. The alternative is to instead watch opportunities for better jobs, higher wages and increased investment flow through our fingers.
The National Farmers’ Federation and the Business Council represent the smallest and largest players in the fresh produce supply chain. We share a vision for Australia’s prosperity, developing regional communities and advancing our exports into new markets.
We won’t always agree on everything but, when it comes to the pressing need to cut company tax, we are united. Today we are joining together to call on the parliament to cut Australia’s globally uncompetitive company tax rate which, at 30 per cent, is among the highest in the developed world.
Moves by some senators to limit tax relief to only small businesses would hurt our value-added export industries – – think of cheesemakers and vegetable canneries – and ultimately narrow the door to premium markets for Australian farmers.
Overseas consumers continue to want raw produce, but also value-added, manufactured goods such as processed meats, jams, cheeses, canned goods and health foods.
The story is the same for other sectors. Small, medium and big businesses form integrated supply chains in almost every industry, and putting up roadblocks upstream or downstream will impede all enterprises along the chain.
The reality is most small businesses won’t be able to reach their full potential on their own. The notion that we can have a more prosperous economy with higher wages, and better living standards, and hold our own in the global economy by only supporting small enterprises is a mirage.
If Australia really believes in maintaining a serious manufacturing base, it will require huge amounts of private capital – big companies putting in huge amounts of money with advanced equipment, the best supply chains and the most efficient freight links – and the current tax rate is making this harder.
The need to cut company tax has become even more pressing in recent months. As Australian politicians agonise over the Turnbull government’s modest plan to cut company tax from 30 to 25 per cent in a decade’s time, the US has voted to slash its federal company tax rate from 35 to 15 per cent overnight.
If the first few weeks of Donald Trump’s presidency have taught us anything, it’s that he’s determined to move aggressively to fulfil the promises he made during the election. Like him or not, there’s no disputing that the world’s biggest economy more than halving its company tax rate will dramatically reshape global capital flows and limit opportunity for Australian workers.
The higher end estimates are that Mr Trump's tax plan could lift US investment by more than 20 per cent, or US$400 billion ($524bn). Even if the investment uplift were 5 per cent, this represents about US$100bn ($131bn) of extra investment, most of which will be drawn from global capital markets.
At the same time, the British government is moving its company tax rate to 17 per cent by 2020, the average rate across Asia is 22 per cent and Europe’s biggest economies, France and Germany, have flagged a corporate tax relief.
Where in 2005 Australia’s effective marginal tax rate on investment was the 10th highest among the OECD developed countries , it is now fourth, beaten only by France, Japan and –for now – the US.
Every time one of our competitors cuts their company tax rate, it is an effective tax increase on Australia. Without tax reform, Australian agribusinesses that once seemed like good investments will be much less attractive than other options overseas.
There is no guarantee that Australia will be a premium supplier of agricultural goods to Asia. That mantle could just as easily go to the United States or South America.
The Turnbull government’s Enterprise Tax Plan represents the bare minimum needed to maintain Australia’s international competitiveness. It reduces the company tax rate slowly over 10 years and is accompanied by measures to crack down on tax avoidance.
The plan starts with immediate tax relief for small businesses while sending a signal to larger companies that major investments will be taxed at a lower rate once they become profitable.
The alternative to maintaining Australia’s international competitiveness is an economy of very low growth with years of stagnant wages, collapsing industries and diminished social services. It won’t be the wealthiest Australians who suffer, but those who are already the most vulnerable.
The notion that investors will continue to choose Australia, regardless of how uncompetitive our tax regime, is blind. It fundamentally ignores the impact that phased reductions in the company tax rate have played a key role in shoring up Australia as a destination for investment since the 1980s with cuts under Bob Hawke, Paul Keating and John Howard.
The Gillard Labor government also acknowledged, in the words of then assistant treasurer Bill Shorten, that “corporate tax reform helps Australia’s private sector grow and it creates jobs right up and down the income ladder”.
Every new job requires someone to put their money at risk. If what we can produce increases because of investments in new machinery, equipment or technology, then we can pay our people more and create more jobs. It’s that simple.
Companies exist to seek new opportunities and boost returns for shareholders. Companies that sit on their money rather than reinvest it, will quickly find themselves at the mercy of angry shareholders threatening to withdraw their investments and go elsewhere. In business, if you’re not reinvesting, innovating and driving new efficiencies, you will be overtaken.
Addressing our uncompetitive company tax rate is not the only step needed to ensure the prosperity of the agricultural sector.
Australia must continue to demonstrate international leadership when it comes to knocking down trade barriers that hurt our exporters and reduce the purchasing power of every Australian.
We have made significant leaps on trade in recent years – sealing bilateral trade agreements with China, Japan and South Korea – but President Trump’s withdrawal from the Trans-Pacific Partnership last month was a tremendous disappointment.
Even as the Trump administration walks away, it is worth returning to the basic principles of the TPP to pursue further bilateral and multilateral trade agreements across the Asia-Pacific region.
Australia simply cannot afford inward-looking protectionist policies. While on the surface they might seem to offer greater economic control, the reality is that our future prosperity relies on Australia being a dynamic, confident player in a growing global economy.
We must champion a mobile and agile workforce, as well as freer movement around the globe. We must resist the temptation of shutting ourselves away from the world, counting us all out of future prosperity and growth.
Business, government and civil society leaders must resist pressure by activists who brand fuel tax credits as a “subsidy” when, by any objective measure, they clearly are not. The credit exists so that fuel tax is only levied on businesses when they use public roads. It makes no sense to tax farmers or manufacturers for fuel used off road in a tractor or machinery.
Australia’s ecosystem of small and large businesses is the engine by which Australians have seen their average real wage double over 40 years, with a quarter-century of uninterrupted annual growth and a tax base that has delivered record spending on health and education.
No Australian business wants to rely on subsidies for their livelihood, not least in agriculture. Australian agriculture is among the least subsidised in the world – something we are fiercely proud of. Only 1.34 per cent of our income comes from government support, compared with 9.44 per cent for the US and over 60 per cent for some European countries.
Farmers need a business environment that draws in investment and encourages them to reach for the stars. Their supply chain partners need the right settings to help them get there – making the most of our unique partnership in export markets. Together, we can do it but we need the Parliament to act swiftly on this critical issue.
Jennifer Westacott is chief executive of the Business Council of Australia.
Tony Mahar is chief executive of the National Farmers’ Federation.