Event Jennifer Westacott interview with Brian Carlton, Tasmania Talks 7AD
Speaker Jennifer Westacott
Date Wednesday, 3 April 2019
Topics Budget 2019, tax and small business
Brian Carlton, host: As you know, Josh Frydenberg delivered his first budget as federal Treasurer last night. Projecting surpluses out for the next four years as I mentioned in the intro. Didn't fudge this year, he could have, he could have easily fudged $4 billion and come up with a surplus for this year. But he would have been called out for what it was, a cynical attempt to create a surplus where there perhaps wasn't one actually. But there will be over the next four years. There's a whole bunch of detail buried in the budget that is going to affect businesses, particularly small and medium businesses. On that basis, let me bring in here if I can, Jennifer Westacott, the chief executive of the Business Council of Australia. Jennifer, good morning. How are you?
Jennifer Westacott, chief executive, Business Council: Good morning Brian. Well thank you.
Brian: In a couple or three words. How would you sum up the first Frydenberg budget?
Jennifer: I think it's a strong response budget. It's got a very, very strong path back to surplus and we can come back to why that's important. And it's also got a lot of very strong pro-growth spending initiatives, which are going to benefit small business, taxpayers across the economy. There's a lot of stuff there for Tasmania, in terms of infrastructure spend. So, this is as good, strong, responsible budget.
Brian: Strong and responsible and I guess with a focus on paying off that net government debt too which is something that we rarely talk about and we should.
Jennifer: Absolutely. I mean, I think people forget that, you know, people say 'oh it doesn't matter if we're not in surplus. It doesn't matter if we've got these debts'. But, you know, if you take the net debt, last year we paid $11 billion on the interest bill. Imagine what we could have spent that money on in terms of things that people need. We've got to stay on track to get that debt down and we've got to be in surplus. Because people forget, you know, you need to be in surplus for two reasons. So you can balance the budget and then afford all the things you want. But also so you've got a bit of a buffer if things go wrong.
Brian: Yeah indeed, which is one of the things that Frydenberg has even flagged in the budget address last night. He said look there are some softening conditions overseas that we need to be aware of and we need to develop policies that can effectively buffer the Australian economy from too much of the flack that would come our way otherwise. Jennifer, as you know, most of the businesses that operate here in Tasmania are small, medium, many are family owned. Let's talk through a couple of the features. So, there is the asset write-off. Just talk us through exactly how that's likely to work for a small business?
Jennifer: Okay, so a couple of things that have changed in the instant asset write-off. It's gone from assets less than $25,000 to assets less than $30,000 – so $5,000 increase.
Jennifer: And then most importantly, I think this is the really important change, it's now including companies with a turnover at $50 million rather than companies with a turnover at 10. That's a big change.
Brian: Okay, so that will bring in a whole bunch of potentially medium sized manufacturers, some farming operations – those sorts of things here in Tassie.
Jennifer: Absolutely. People wanting to get new plant and equipment, new machinery that helps them, kind of, export more, expand. That's a big win. The other really important thing is that we'll see the finalisation of moving the tax rate for companies with a turnover of $50 million to 25 per cent from 30 per cent, one of the highest tax rates in the world for companies, by 2021-22. Now again, big impact on companies in Tasmania, big impact on companies across the economy. The other things, Brian that are really important for small business, the 80,000 extra apprentices.
Brian: I was going to get to that. This is critical and one of the really important issues here in Tassie as we go through the, sort of, infrastructure and building boom that is going on. We just don't have the skilled trades people on tap to build these things. Especially all at once. This will go some way to helping that, won't it?
Jennifer: Someway to help it. I think it's targeted to the employer incentives, making it easier for employers to put apprentices on. That's really important, that's good. I mean, I would like to see, as you and I have talked about before, big reforms for VET. So that kids get a different pathway. There's some good stuff there around career counselling. You know, I've been on about this for years – that kids have got to get better career counselling about the, sort of, options that are available to them. Channelling them into the VET system not just into the university system. Channelling them into the apprentices system. There's an initiative in the budget for that. So that's all good for small business because that's their employer base. You know, the thing that's not there, and I understand the politics of this, but at some point as a country we have to confront our high company tax rate. Because if you take Huon Aquaculture in Tasmania, it's got to compete in the world with one of the highest tax rates in the world. And at some point, some politician has got to get their head around this and the Senate gave up on Australia's competitiveness and, of course, have been helping big businesses in America, Asia and Europe. But at some point we're going to have to come back to this and that's the bit that's missing. Investment is very low in our economy. Investment drives productivity, that's what drives higher wages. We're going to have to come back to that at some point in the political cycle.
Brian: Jennifer is there a link between that phenomena and this increasing phenomena I'm seeing, you just read a report here 'this large Australian company has now relocated to the Netherlands' and 'another company here has not relocated to, say, the United States', that sort of thing. Is there cause and effect there? Or is it just a casual association? Genuine question.
Jennifer: There's absolute cause and effect, Brian. Absolute cause and effect. Because, you know, you've got to remember that, as you know better than anyone, people can put money anywhere now. I mean, you know, production is kind of done here, there and everywhere. It's not just, kind of, like in one place. You could use something end to end. You've got to kind of compete with the Americans who've got a 21 per cent tax rate, it's at 18 to 25 across Asia at 22, 23 on average. The British at 17 and ours at 30. And, you know, if you take some of the mid-sized companies in Tasmania, who are very export focussed as you know, they've got to compete with somebody else who has a lower tax rate. So it matters a lot. It will matter. The other thing we've got to fix is we've now got this bizarre two-tiered tax system that, sort of started from the Senate abandoning Australia's competitiveness. Now that means if you are a company on a $50 million turnover, when you get the first dollar above that $50 million, you're going to pay $125,000 on tax. Now, how's that for an incentive sucker? Like you know, we've got to fix this at some point. Look, I understand the politics of it but at some point we've got to come back to this.
Brian: It's such an easy smash though, isn't it Jennifer? You know because the counter-narrative goes something like 'oh we put some more money in the pockets of the people who are already rich and they just go and buy a new Ferrari, they don't employ anybody else or invest in the company', which you know is nonsense. But that's the narrative, right?
Jennifer: Of course it is, and people forget, what is a company? What is a business? It's the 11 million people who work in them. It's the mum and dad shareholders. It's everyone's superannuation. We are all invested in Australian companies, be they large, small or mid-sized, being successful. I'm astounded when I hear people say 'oh it's great that company made a loss or made less profit'. You think really? Tell that to the people who put their retirement income and need the dividends from that. You need that to pay for their day to day living expenses. So, I couldn't agree more. I just think we've got to stop this business bashing. Because to your point, you know, people just go somewhere else [crosstalk]-
Brian: It appears they are, Jennifer. If you move the corporate headquarters out of Australia and move it to, you know, the Netherlands or the Cayman Islands or Bahamas somewhere, wherever you want...
Jennifer: Or America.
Brian: Or America. The cost of business there is less than it is here. It's in their interest to do that. They're representing their shareholders appropriately by making that decision. We have to create the policy settings to keep them here and one of those is clearly the tax rate.
Jennifer: Spot on. And it's not just tax. I mean tax is a huge element of this. But, you know, it's regulation, it's how hard is it to do business? It's policy instability. It's all of those things. When I talk to companies they say 'boy, you know, I've got to answer to shareholders not just in Australia but across the world, I've got to go to my global board and get money off them and they look at the return on investment on projects in Australia and say no actually we're going to do this somewhere else'. If that keeps happening over the next decade, be the money that comes from company tax, which is the other big story in the budget. Over the forward estimates, the budget period, half a trillion dollars of revenue will be paid by Australian companies. Half a trillion. Now, you know, if that money goes somewhere else. We'll be having very different discussions about the budget.
Brian: Yeah, indeed. And also I guess the observation too, when you run down the cookie jar to the point where there's nothing in it and you have to go and borrow, which is what governments in the past have done. Just to fund normal operations. There is a time period, a lag, between finding the problem, isolating it, developing a set of policies that will hopefully fix it. It takes a couple of election cycles doesn't it really? We've sort of noticed this happen over the years, about six odd years to turn the economy around from a deficit position into a surplus position, so that we can start to afford many of the things that people observe are falling over. I mean, we need infrastructure, and hospitals and schools and all the other things that people talk about. But you've got to be able to pay for them and this is why a strong economy is really important.
Jennifer: You know, you're talking the language of absolute common sense. Which is unfortunately isn't common across Australia any more. But, you know, you are absolutely spot on. You cannot pay for all these things if the economy starts to shrink.
Brian: You kind of can, Jennifer. Here's the fudge though, the political fudge. You can actually do it but all you're doing is passing down the debt to kids and your grand-kids. I mean, that's the short version.
Jennifer: Exactly. But every household knows, that if you cannot get the money in to pay for your costs and the bills keep going up and up and up and up, you have made your family very vulnerable and at some point you've got to do something that's quite dramatic and quite painful. That's the same for government, if you keep spending what you don't have. So the challenge post this budget, the challenge for the election, is whoever wins government, they have got to keep their focus on discipline, on good spending decisions, on pro-growth spending decisions, on not letting that surplus slip away again and paying down that debt because during the GFC, government revenue dropped by $70 billion. Now that was at a time we had a lot of money from the surplus of the Howard government, now we don't have that anymore, so you know, if something goes wrong, and things do go wrong we know that. We've got to make sure that we've got some resilience. And frankly, I think most Australians would be pretty grumpy that, you know, $11 billion, $9 billion on average over the last few years has been just going to pay interest. I think most Australians would say you've got to be kidding.
Brian: I think complacency is one of the things we'll need to try and overcome. If there's a sense that everything is going okay as we move into an election period, politicians will be tempted to promise the world and we're likely to sit back and go 'oh yeah they can do it because the economy is terrific'.
Jennifer: Absolutely. But I think there's two points to make of that Brian. One, the economy isn't terrific. It's growing at about 2.4 per cent now, the budget forecast is at 2.75. We have grown though, on average over the last 20 or 30 years at 3.5. That's what's put bigger wages into people's pocket. That's what's put high employment. That's what's put the kind of lifestyle we have. So, we're not growing as fast as we should be. That should be the top priority of any government. And secondly, we just cannot think that for 40 years, that's kind of the assumption people are making, for 40 years we're not going to have a sharp economic downturn. I hope we don't but I think to hope that it all goes well as opposed to making sure we absolutely protect ourselves, is a terrible risk to put the Australian people through.
Brian: Yeah it's quite naive thinking to. But then Jennifer, we're dealing with many people. There's a couple of generations now who have never been through a recession. They don't know what it's like. We've had what, 26 years now of continuous economic growth? 28 is it? Okay, alright well I suppose you factor in the budget and you might push through to 30. Look, the there are people alive listening to me now who just don't understand what it's like to have your hours reduced because the boss can't afford to keep production up at the rate you have or you get the sack completely. That's happened to me by the way. Sacked as a result of budgetary issues due to the financial collapse in 2008.
Jennifer: Absolutely. And you know, people know. Like I know so many small business people who tried during the last recession to hang on to their workers. They tried so hard but they couldn't. They just couldn't make it work and we don't want to see Australians go through that. Most Australians have never seen an economy strike ridden either. You know, when I say to young people, oh well you know you don't remember the sort of petrol strikes, where you had to queue for petrol based on the number plate of your car. Very few people kind of remember that. We are in a bit of complacency and I think it's a real risk. And I totally agree with you, I think the idea that nobody has seen what a recession looks like. It's somebody that's lost their job that shouldn't have.
Brian: Yeah, it's an actual contraction of economic activity. A contraction of economic activity means building less, making less, employing fewer people, less tax paid and you can see then that there's a cyclical effect that just, sort of, it becomes a thing unto itself. It drives its own destiny and recession builds on recession, builds on recession. To get out of that is incredibly difficult.
Brian: So let's make the economic settings as such so that we are immune as best we can [crosstalk].
Jennifer: And bashing business, it's business who's been through a lot of the stuff that we can afford now by being more successful. And you know, we don't want people to get tax cuts. Well I do, I want people who earn 50 or 60 thousand bucks to have more money in their pocket.
Brian: Absolutely, correct. This is the problem. This is the problem of the economic miracle Jennifer too that hasn't materialised from any people and why there's some cynicism around. The so called trickle-down hasn't quite worked as it was originally sold and people are sceptical about it now.
Jennifer: I think that's right but making stuff up is not the solution. You know, telling them that you can you don't have to make the economy more productive and more successful to get their wages up. That telling them that somehow it can just happen is not being honest with the Australian people. You've got to be honest with people. We cannot spend more than we have. We cannot get wages up if the economy is slowing, is unemployment is higher. We cannot get wages up if companies don't invest, if they're not more productive because they don't export more. If we look at the Tasmanian story. It's the story of people going into export markets with the fantastic products there. It's the story of [inaudible], it's the story of Huon Aquaculture, it's the story of those companies who put their money risk and at times, when I talked to them when I was down there a few weeks ago, you know, really wondering how they are going to pay their mortgage. We should be rewarding those people. We should be thanking them every day for the risks they've taken.
Brian: So get out and take advantage of this instant asset write-off the government has included and when you do, try and support your local businesses too. If you're buying new plant and equipment, you can buy a Tasmanian made product and please do that if you can. Jennifer, it's going to be an interesting, sort of, couple of three days in the fallout of all this. I appreciate your time this morning very much.
Jennifer: You're very welcome. Thanks a lot.