If Australia lags rather than leads, then everyone suffers

This opinion article by Grant King appeared in The Australian Financial Review on 8 March 2017.

Treasury Secretary John Fraser hit the nail on the head when he warned senators recently of the "missing link" that imperils our economy.

"Business investment has been the missing link in Australia's growth over the past few years," he told them.

"It is critical that we get the settings right in our tax system to promote business investment and ensure Australia is internationally competitive."It is unambiguously good news that business investment rose in the December quarter, the first quarterly rise in more than three years. Economic growth is now up 2.4 per cent for the year.

Yet, just as last quarter's contraction didn't herald a recession, this growth hardly signals a boom. Amid all the back-slapping, we must not fall into the trap of thinking our problems are solved.

Our current prosperity is built on growth that averaged 3.4 per cent a year in the two decades leading up to the global financial crisis.

We are still well short of what's necessary to ensure people feel part of a prosperous nation. We must strive for every skerrick of growth because it is the only means of sustaining higher living standards, greater opportunity and support for those in need.Australia's growth relies on foreign capital.

As the global race for investment heats up, the essential challenge is to ensure our policy settings attract capital.

What is going to encourage people to put their dollars at risk in Australia, rather than elsewhere?

Australia must nurture the competitive advantages that derive from our ambitious, educated workforce and wealth of natural resources, and minimise the "own goals" where we lag our competitors in areas such as tax competitiveness, regulatory culture and flexible workplaces.

Economic reform is always a tough sell because those disadvantaged by change are obvious, the beneficiaries are harder to see and benefits are often in the future. The impacts of company tax cuts are a prime example.

It might seem counter-intuitive, but Treasury estimates that more than half of the burden of company tax is borne by workers through lower wages. On closer analysis, it's not so surprising; more investment means higher growth, and economic growth and wages growth are two sides of the same coin.

Nominal wages have doubled over our 26-year period of uninterrupted annual growth.

When profits go up, so do wages.

The national accounts illustrate how past investment and ongoing productivity gains in the resources sector have amplified the benefit to Australia from the recent upswing in prices.
Although higher resource prices are always welcome, they are volatile and outside our control. Investment and productivity growth are therefore central to delivering prosperity, with business playing the central role.

As well as lending our real-world experience and problem-solving expertise to policy development and implementation, we must be effective and unashamed advocates for change.

We will speak out against the ill-informed populism that appears to drive opposition to policies that will benefit Australians.For those who oppose boosting our corporate tax competitiveness, what is their Plan B?

What are their economy-wide solutions to restore the missing link and encourage greater investment in Australia?

We know what they are against, but not what they are for. It's true that tax competitiveness isn't everything, but we don't hear opponents of the government's corporate tax plan calling for less regulation on business or more flexible workplaces as an alternative.

They typically want to impose more regulation, strangling investment further.We must pull every lever to boost our competitiveness and attract new investment.

The alternative is to accept low growth and forgo improvements in our living standards. The real victims would be the poorest Australians, not the wealthiest.

The importance of boosting our attractiveness to investors has rarely been starker. As countries such as Britain and America move decisively to reduce their company tax rates, our gridlocked Parliament is wringing its hands over a modest cut to 25 per cent by 2026.

Far from "slashing" the corporate rate, the plan before Parliament is the bare minimum needed to keep us in the game. By 2026, we're likely to find ourselves again languishing at the back of the pack.Businesses know they cannot ignore changing circumstances.

If we are laggards in responding to change, our businesses wither and die. Similarly, if Australia is a laggard rather than a leader, then the truly disadvantaged will be all of us.

Grant King is president of the Business Council of Australia. He is a speaker at The Australian Financial Review Business Summit.