Event: Interview with Gareth Parker, 6PR
Speaker: Jennifer Westacott
Date: 19 February 2018
Topics: Company tax, wages, employment and education and skills
E&OE

Gareth Parker, host: I welcome another guest to the studio, the boss of the Business Council of Australia. Jennifer Westacott joins us. Jennifer, good morning.

Jennifer Westacott, chief executive Business Council of Australia: Good morning.

Gareth:  Thanks for joining us again on 6PR. We had you in late last year and we are glad that you are back in Perth and glad that you are joining us again. The central debate, if you set aside people's sexual relations, the central economic debate in Canberra at the moment is about tax. Specifically it’s about whether companies are paying enough tax, too much tax, or just the right amount. How do you think the debate is going as far as the voters are concerned?

Jennifer: Well I think, you know, it is a very complex debate. Last time I checked a popularity poll on this, it was still more popular than either of the political parties. Look, I think there is a lot of complexity. But if you take it back to its absolutely simple level, business employs ten of the twelve million working Australians. They make decisions based on after tax returns and if they are paying one of the highest tax rates in the world, which they are. In Australia, thirty percent, compared to Asia at twenty-two, the Americans now going to twenty, the British at seventeen, then they are not attractive for investment and Australian companies, when they are thinking about “what am I going to do next”? They might do it somewhere else or they might not do it at all. It's all about getting companies the incentive to invest, to grow, to go to other markets and obviously to pay people more and employ more people. It is that simple. Now, lots of people want to make mischief with this because they hate business, they've got this anti-business agenda, they forget that it is business that is the driver of the economy and I want people to get back to basics. If you want to be successful in this country, business has got to thrive and to thrive it's got to be able to compete. If it can't compete we will see companies going somewhere else. We will see multinational companies not coming here or not putting the same investment here. We will see companies not doing those extra things. Buying extra plant equipment, going offshore, bringing more exports, and our economy will just muddle along.

Gareth:  Is it the consequence of the argument that says that capital is mobile, that it can be deployed right around the world. Is it the consequence of, that effectively, a race to the bottom? As various countries all cut their corporate tax rate to be the most competitive. If we eventually do enough rounds of that, someone will cut them to zero and the entire corporate tax base globally will collapse including here in Australia.

Jennifer: Yeah look it's a very important point you're making here. That's why the Business Council has only ever advocated that we go to twenty-five per cent because you know you don't want to see a race to the bottom. It's important that companies contribute to the revenue of countries.

Gareth:  We think that some tax, including personal income tax, is important in this country because we believe in a society that provides services to the people that live here.

Jennifer: Spot on. It's about being competitive and that's a very important point you've made because you're right. You don't want to be in a system where companies don't pay tax. Of course you want them to pay tax. You want them to pay the right tax. But if they are not competitive, they will do something else. They won't be here or they won't do that next bit of investment that's going to drive, to use the economic jargon, greater productivity. It's productivity that drives wages. When productivity was high, in this country, wages went up by twenty-four percent after ten years. That's just the economics of it. Is that easy to explain to everybody? Well, no of course it's not. My bottom line is this, we want companies to be successful. If they can't compete, if they are not competitive, we are holding them back, we are way behind the rest of the world. So that's where we want to be, in line with the rest of the world.

Gareth:  One of the arguments that the government’s prosecuted in trying to convince the broad middle of the Australian community, that a business tax cut is an important thing to do. By cutting taxes on business, they will end up either employing more Australians or employing more Australians on more profitable, that the word, returns. That pay rises will go up. If the goal is to pay people more, wouldn't the government be better just cutting personal income tax rates?

Jennifer: Yeah, look, you know, we've always argued that you've got to do both. You've particularly, on the personal income tax side, you've got to make sure that you deal with the bracket creep, the people that are about to go into the next tax bracket. But if you don't do both, if you just cut income tax and you don't do something to make the economy more competitive. You can't sustain those income tax cuts over time. Cutting the company tax, which the bulk of economists say, that's the worst tax, the company tax, that's the most harmful tax to the economy. If you don't touch that and you just touch income tax, you don't get the growth. Therefore sustaining those income tax cuts, sustaining the employment, sustaining their wages is very difficult to do. On the wages front, wages go up when companies are more productive, when they are more profitable, when they can expand and export and that all requires investment. What makes investment? After tax returns, the incentives that encourage companies to invest.

Gareth:  Don't wages really go up when there's more competition for workers? So it's actually about reducing the unemployment rate. Unemployment at the moment is not brilliant but it's pretty good in terms of our historical averages. It's not quite at full employment but it's close. Yet people haven't seen their wages grow for four or five years now.

Jennifer: We've called this out. That wages need to go up. But again this comes back, to get wages to go up companies have to be more profitable. They have to be expanding so to your point - they have to get more customers in the door and to do that they have to offer new products, new services, that means they've got to invest. They can't do this just by standing still. Of course we want wages to go up but you need the conditions so that they go up in a kind of permanent way. You don't want just a sugar hit wage rise and then it goes away or companies end up employing less people or they put their prices up to their customers. You've got to have those circumstances of better productivity, better capacity to export, better capacity to get into new markets and that is what drives companies to employ more people and pay them more. Ken Henry when he was doing his big tax review said two thirds of the benefit of a company tax cut will go to workers not to just the corporate sector, the sort of corporate entities. Very important we remember that. I say to people, how else? What is the other plan where you are going to get companies to invest more? Where they can stay competitive with the rest of the world. There isn't one. There isn't one on the table.

Gareth:  There's been a lot of discussion in the debate around this in the past, probably four or five days as a result of one particular piece that appeared on the ABCs website. It was written by their economics correspondent, Emma Alberici, and it purported to show that one in five large companies in Australia don't pay any tax. The argument was therefore put that if you are not paying tax, how can you benefit from a tax cut? Now that piece has become, without boring people on the details, it has since been pulled. There's a lot of discussion about it, you can read all about it in the newspapers but that fundamental question that I think is in the mind of people who are engaged in this debate but are not convinced one way or the other. It is, are big companies paying an appropriate amount of tax or are they benefiting from loopholes?

Jennifer: Well of course they are paying an appropriate amount of tax. I mean that story was tremendously misleading and misrepresentation of tax arrangements. Not just in Australia but around the world but let's break it down. Companies in Australia pay seventy billion dollars of tax. That's money paid not money owed. It's the second highest rate in the OECD. It's one of the highest in the world and you know of course they need to meet their tax obligations. When companies don't pay tax, they don't pay tax because they aren't making any profits. So if you take Qantas as an example, which is one of the examples given in that story, they haven't paid company tax because they haven't made profits. They made big losses. They made big losses because they were in a very different competitive environment but at the same time they were investing, they were saving their line, they were employing people, they are still employing thirty thousand Australians. Is the ABC seriously suggesting that the better thing to happen to Qantas was that it went the way of Ansett. It's this anti business agenda that our country will be really poorer for letting this thing take hold and I've made those comments in the paper today.

Gareth:  Yeah I'll ask more about that in a moment because I think it's very interesting. But a lot of people believe that big companies can engineer profits and losses. Well they can shift them offshore so as to avoid paying their full wack of tax. Do big companies do that?

Jennifer: By and large they don't.

Gareth:  By and large they don't?

Jennifer: Well because the tax office is very very ruthless on these things. As they should be. But if you listen to what the tax commissioner says. He says that Australia has one of the highest rates of compliance in the world. When he is asked do you need better laws? He says no, I've got the rules I need. You can see him, he cracks down when he thinks people are not doing the right thing and we encourage him to do that but that story misrepresented the corporate sector doing the wrong thing and got it all wrong. Starting to infuse profits and revenue. Are people seriously suggesting, Gareth, that people pay tax on their revenue? Before they've paid their staff? Before they've paid their suppliers? Before they've put up their buildings and leased their equipment? Because if they are then a lot of people will be working for the government and not many people will be working in the private sector and the unemployment rate will be very very high in this country. Are people seriously suggesting that when companies don't make any profits, they pay tax and we see what happens to those companies? Are people seriously suggesting that big mining companies, you know, shouldn't be able to claim losses while they are digging stuff up which often takes two or three years to get to it before they can put it on a boat and sell it? These are legitimate tax arrangements. The tax commissioner, when that story appeared in the ABC, came out and said, corrected some of the misrepresentations. By all means let’s have a debate about the merit of company tax but let’s not misrepresent legitimate tax arrangements.

Gareth:  My guest on the program is Jennifer Westacott, the chief executive of the of the Business Council of Australia. You mentioned some remarks you made in the papers this morning, the headline on the Sydney Morning Herald piece is 'we have become a business bashing country'.

Jennifer: We have. And so much of the debate is an anti business agenda. You know, we don't like multinationals - well, you know, really? This country depends on foreign companies, on foreign capital, on money we get from overseas. I don't think well liked very much if they go away. We've forgotten who business is. Business is the people working in Bunnings. The people in the supermarket serving you. People are business. Business is not some kind of abstract entity. It's made up on shareholders, of the people who work there, of the customers, the suppliers. That's business. It's the engine of our country and I get very depressed when I see people just bashing it all the time. Saying, you know, business shouldn't get a tax cut when other countries, they are clambering for business. When I go to the US this week, they want to be open for business. Not just Donald Trump but the Congress, half the Governors. They want business. They will do anything. Because they know it's business that gives somebody a job. Someone some hope and someone a prospect of a better life.

Gareth:  Are you worried about the prospect of a Bill Shorten prime ministership in that context?

Jennifer: Well I'm worried about anything that's an anti business agenda and I want to see the Labor Party...

Gareth:  He's certainly made it pretty clear that he's not feeling particularly warm towards business, he's going to take it up to big business.

Jennifer: Well that's fine to have that rhetoric. People have to govern. They can say whatever they want in opposition but they have to remember that they have to govern the country. In governing the country, to back to my point, they have to remember that ten million of the twelve million working Australians are employed by a business and if we want to bash up on business, we are going to bash our future. Other countries are getting on and doing stuff while we are nitpicking, while we are engaging in this rhetoric that is so unhelpful and we are basically forgetting the future of the people we are talking about is not the future of the people sitting around those board tables, it's the future of the person working in the hardware store, working in the supermarket, working on the airline, serving you in a restaurant and running their corner store.

Gareth:  Are you happy to take one quick call?

Jennifer: Sure.

Gareth:  Lydia, good morning.

Caller: Oh good morning guys. Now look there's a lot of talk about tax cuts but I'm curious to know whether these tax cuts are going to equate to jobs? Because personally I don't think so. I think business is moving towards outsourcing most of their work to overseas countries. I think business is heading towards more technology and robotics so I think there will be less humans in the workforce in the future.

Gareth:  Thanks Lydia. Now I suspect Lydia probably speaks for a lot of listeners today.

Jennifer: Sure. Look, you know, it's true that there is a lot of automation. But what we are seeing is that jobs are being changed. Not just taken away. So tasks are changing in jobs, so the estimate I've seen is that five percent of jobs themselves are getting very severely disrupted but the bulk of tasks changed. Now, of course they changed because of technology and you know that of course requires investment. The reason that people will employ more people is this - if you can't make those investments, if you can't compete, then you don't do that extra thing. You don't buy that extra plan, you don't do that extra thing that allows you to export to another country. You don't stay competitive, you muddle through and you employ the same number of people. The best way to get employment happening in this country is to give companies the chance to compete so that they can make those investments and of course Australian companies have to manage the transition that is underway because of technology. But, you know, we've got to remember that technology is actually going to be a very good thing. It will take away some very bad tasks and allow people to actually do higher value, higher paid jobs. There's a woman who works in Coles, she's worked there for fifty years, fantastic woman on the check out. She says, technology has allowed me to keep working because I couldn't do, physically, the job if I had to work in the way that I had to work thirty years ago. We have got to remember that technology will be very, very positive for a lot of very bad jobs that people are doing now. Where they are not properly rewarded, technology will take those tasks out. We've got to make sure that we skills people, we train them and that's why I'm obsessed with getting the VET system back in order.

Gareth:  The thing about debates like this is that they don't work unless both sides make the case so I appreciate you making the case on behalf of business on program this morning.

Jennifer: Thanks very much.

Gareth:  Jennifer Westacott the CEO of the Business Council of Australia. Very shortly to head to the United States with the Prime Minister's big delegation. We will take a break, when we come back, a big breakthrough, potentially, in figuring out what causes cancer, we will talk about it right after this