Event Jennifer Westacott interview with Kieran Gilbert and Laura Jayes, Sky News

Speaker Jennifer Westacott

Date Wednesday, 3 April 2019

Topics Budget 2019, tax and energy

E&OE

Kieran Gilbert, Sky News host: Joining us now live here in the Canberra studio is the Business Council of Australia chief Jennifer Westacott. Thanks very much for your time. What's your overarching view of the budget? Do you give it a thumbs up?

Jennifer Westacott, chief executive Business Council: Yeah, look it's a good budget. It's a responsible budget. It's got us getting back to surplus and I think people forget just how important that really is. I mean, if things go wrong, you know last time we had a big economic downturn in the GFC – $70 billion got wiped off government revenues. Now in those days we had a surplus. You know, you've got to create the headroom so that, you know, a balanced budget means we can do more things but also gives us that resilience. And secondly, there is a lot of good pro-growth spending there. The $100 billion on infrastructure, particularly in regional communities, there's a lot of jobs that go with that. The tax package, which is going to put money into the hands of low and moderate income earners who are struggling with slow wage growth, who are struggling with cost of living. It's got some structural reform with those tax brackets. You've got the small business package, you've got the beginnings of a good skills package – at least a discussion about apprentices and VET again. So look, you know, are there things missing? Yes, the thing that's missing for us, of course, is that big economy-wide activity to get investment up. And it's investment that is going to drive higher wages, higher productivity, it's investment that's going to create more jobs, particularly, in a more complicated, more difficult world.

Laura Jayes, Sky News host: Are you talking in particular about the radio silence on any, kind of, substantial tax cuts for companies? Because we see that being brought forward [crosstalk].

Jennifer Westacott, chief executive, Business Council: Or an investment allowance.

Laura: Okay, so what would you have liked? Do you accept the politics that what Malcolm Turnbull and Scott Morrison proposed were too hard but there's been nothing really to replace that?

Jennifer: Yeah, and look, I understand the politics of this. It's very difficult. But at some point, whoever wins government, they've got to face up to the fact that we have, you know, one of the highest company tax rates in the world. We've got now this bizarre two-tier company tax system. And meanwhile, countries all over the world are lowering their taxes.

Kieran: What about the investment guarantee though from Labor?

Jennifer: Yeah, we thought that was a good idea. We thought an economy-wide tax cut is better because it gives companies more discretion. It's not about, sort of, governments choosing which assets. Look, it's a good thing, it's a small thing, you know, and it's now being put back to 2020-21, so let's hope it happens. But, you know look, I'm not naive, I think it's very difficult but at some point, somebody is going to have to revisit this. Because when I talk to companies and they say, you know, Australia is not as attractive a place to do business – it's not just the tax cuts, it's the regulation, it's all the things we've talked about. Someone is going to have to come to terms with this and people-

Kieran: Is it also hard politically at the moment because there has been a divergence between company profits and wage growth?

Jennifer: Well, let's look at the data on that. If you look at the data that was put out as part of the ABS data last year, in the non-mining sector, the wage bill grew faster than profits. And people have got to be very careful about tying profits and wages. Profits are very volatile, wages tend to stick. In the GFC, profits went down by eight per cent, wages went up by three. So, you know, I understand the debate here but we've got to get the data right. And of course, I am always perplexed by people who think it's great when companies don't make, aren't successful. I mean look at this budget, $104 billion over the forward estimates, that's at the end of the forward estimates, $104 billion in receipts from companies. Half a trillion across the forward estimates of receipts from companies. If you start, you know, killing the goose that lays the golden egg, and it moves to another lake, you know, see how hard budgets get in the next 10 years. So you know, I understand all the politics but there's just simply a reality of the world we are living in.

Kieran: And in terms of the broader message from the Shorten government, they say they are going to have a better buffer against any rainy day with their surpluses. Is that a good thing?

Jennifer: I think if we can have a bigger stronger surplus, great. The question is how you do these things. You know, if you are doing it by taxing people more, well you know you are taking incentive out of the economy. Let's see what they come up with, let's see what they propose tomorrow night. I mean some of the things they're proposing around closing some of the loopholes, they'd find they would be better if they were done as part of a bigger tax reform agenda. I understand the politics of that. But the focus has got to be, you've got to grow the size of the economy, faster.

Laura: What's the argument for, and Labor's against this, removing that tax bracket essentially, 37 down to 32, just having it at 30, if you look at the data, you know, that's a difference between at the very low end a $250 tax cut compared to 11,000. On the face of that, when you look at the numbers, it doesn't seem fair. But what is the argument from your perspective?

Jennifer: But if you take the other side of this, how much are people paying? Like you know, if I'm earning $200,000, I'm paying $56,000 in tax. If I'm earning 45, I'm paying $5,000. I mean, it's still a progressive system. The flattening of it you know removes the, I think, the incentive-sucking brackets. Because you know I've talked to a lot of people, particularly people in regional Australia and they just feel they can't get ahead. They take a bit of part-time work, they do a bit more, they get a new job, and suddenly what they see is the cost of living hasn't changed but their tax bill has gone up.

Laura: Given that how worried are you about Labor keeping the deficit levy from being [crosstalk]-

Jennifer: It's hard to call something a deficit levy if you're in surplus. Look you know, it's always tempting to say let's just get stuck into the high income earners, let's get stuck into the corporations. The corporations have given us the headroom by their success. But that success is built off investments they took a long time ago. Now we've got to make sure they make the next [crosstalk] of the investments.

Kieran: As part of this you know this climate we're in at the moment, an uncertainty ahead of the election. This is an election budget, we're on the eve of the campaign. Do you feel that business one way or the other will be pleased with certainty after the poll in May?

Jennifer: Well, let's hope it is certainty. I mean, in 2013 we didn't get certainty. You know, we got a big electoral change but you know within 18 months we didn't have certainty. So I'm not sure just having an election gives you the certainty that people look for. What we want is policy stability – in energy, in tax, in regulation. But what businesses say to me is you know it's just this movable feast that if you're making decisions about do I go to North America, do I go to Asia, and you're looking at the Australian system with high company tax rates, high cost of regulation, difficulty of doing business and you see the opportunity somewhere else, and you're a global company, you've got to answer to your shareholders, well it would be pretty clear what kind of decisions people are going to make. So look you know I think it's naive to assume in an election year both the budget and the budget reply aren't going to be orientated towards an election. I mean that would be seriously naive. But to be fair to the government, they've had a pattern over the last few budgets, lower taxes on the personal front, big infrastructure spending, small business initiatives. You know, I don't think that is just an election play.

Laura: How frustrated are you at where the government has landed at the end of two cycles on energy? I mean, in the Treasurer Josh Frydenberg's speech, it was reduced to a paragraph in terms of emissions reduction. And really no new measures in the budget.

Jennifer: Well, you know we have to have a comprehensive energy and climate change policy. We just can't go on like this. But it's also got to work.

Laura: When was the last time we had one of those? 

Jennifer: Well, you know, but the problem is and the problem with Labor's announcement this week is: what is the impact? what is the cost? what is the mechanism? If we're going to do electricity, we're going to do the NEG. Are we going to do the NEG that Malcolm Turnbull proposed? What NEG? I mean these are the things that companies really worry about. Where is the proportion of the effort going to sit in the sectors? What impact will that have? What impact will that have on jobs?  What impact will that have on regions? And I think just asking people, both sides of politics, to just before work it out. That's what we've done for the last decade. We've tried to work it out on the run and then people say, oops, that's that sector gone, well we better have a compensation package on that, oops, that's another sector gone, we better do something about that. And then you know, the fiasco starts again.

Kieran: Jennifer Westacott, BCA chief, great to see you.

Jennifer: Thanks very much.