Event Interview with Hamish Macdonald, ABC RN Breakfast
Speaker Jennifer Westacott
Date 21 February 2018
Topics US business delegation and company tax
Hamish Macdonald, host: At 8am this morning we spoke with the NSW Premier, Gladys Berejiklian. She's part of the large political and business delegation that is heading to Washington DC later today. It's the first official visit by Prime Minister Malcolm Turnbull to the White House since Donald Trump won office last year with the talks expected to centre on trade, national security and business tax cuts. As the Turnbull government struggles to deliver company tax cuts for big businesses here, the US is moving full steam ahead on that score. That's according to the Business Council of Australia, anyway. It says, while, the US has opened the door to business, Australia has become a nation of business bashing. The BCA’s chief executive is Jennifer Westcott. She'll join the delegation on Friday. Welcome back to RN breakfast.
Jennifer Westacott, Business Council chief executive: Thanks very much.
Hamish: The trip has been touted as the biggest and most senior delegation to visit the US. There's a lot of heavy hitters taking part. What tangibly are we hoping to get out of this?
Jennifer: Yeah, a couple of things. I mean, obviously, we want to drive a better relationship between the two countries. We obviously want to drive better business to business relationships, I mean the US is still the largest foreign direct investor in Australia. It's still the number one destination for Australian investment and we want businesses talking to each other about how we strengthen that. We also want to find out what they're doing in the US to kind of improve business conditions. Obviously, you've got the tax cuts. We're going to be meeting with the governors and really interested to see what they're doing on regulation, which is often the unsung hero of what's happening in the American economy, reducing their energy costs, but also deregulating their economy. So we want to come back with some practical examples of what companies are doing, what states are doing to drive investment and of course what the national government is doing.
Hamish: One of the things you will be looking at in the US is this idea of competitive federalism basically states competing against one another for business with different tax rates and different incentives. Are we genuinely thinking about the possibility of introducing that here?
Jennifer: Well, this will be a matter for government, but we are hoping that the premiers who will be joining us…
Hamish: Would you like to see that?
Jennifer: I think we would because we've tried the COAG process, which I think, you know, both sides of politics, say has not worked. It's not driven down business cost. It's not made the country more competitive. There are some areas where you need cooperation and there are some areas where you need competition. You know, what you see in the US is states competing for business. Why? Because they know that it’s business that is going to create jobs, business that's going to drive a more thriving economy. So yeah, I'd like to see the states kind of trying to compete a little bit harder for business. And you've had the kind of most successful example on your radio program this morning, the Premier of NSW, where they've been open for business and of course that is now flowing through to people in the state through high infrastructure spending to much better services. But that state’s been able to put back into the community because it's been open for business. And it's been thriving as a state, it's got a very, very high economic growth rate and that's because it's put business at the centre of the economy.
Hamish: There are some poor outcomes of that in the US where you get states literally next door to one another with very, very different outcomes and some of them left a long way behind.
Jennifer: Yeah, and you’ve got to get these things right. I mean we have a very well structured federation.
Hamish: If you're saying we had a well-structured federation, why mess with that system? Given that we've seen in the US the very, very undesirable outcomes you get with some very poor states.
Jennifer: But there are things that are not working. I mean we still have this tremendous regulation. Look at, look at shopping hours, I mean, you know, you can sell something in one state in one hour and something in another state at another. You can't sell something in another state. You can't open a shop in another state. That is, is crazy. But I think, I mean Amazon is going to be 24/7. They won’t be worried about retail trading hours. Those sorts of things, Hamish are holding us back. Planning approvals, getting consent for a major project is still taking an incredibly long time in Australia and that's holding back our capacity to get mining projects, energy resources projects, health projects, all these major infrastructure projects.
So we can, look at the good things, but of course you've got to protect those areas where cooperation on education, on health standards, those things are the things we want to keep, but there's no doubt there are some big clunky problems with our federation. They need fixing because they're holding us back as a country but of course you don't want to see some of the things that we see in the US and other parts of the world, but we do need our premiers to go and look at those states that are successfully thriving because they open for business.
Hamish: Let's talk about corporate tax cuts, as we know Donald Trump has cut the corporate tax rate, or he's cutting the corporate tax rate in America from 35 per cent to 21 per cent. Prime Minister, the Treasurer saying that means we do need to cut taxes for big businesses here in order to stay competitive. Interestingly, the other thing that Donald Trump has done is close a lot of tax loopholes for companies at the same time. Yesterday BHP announced it would take a short term hit as a result of those measures. Do you acknowledge that in Australia it's more than just introducing cuts but also broader reform to company taxes?
Jennifer: Yeah. That would be desirable, if governments wanted to do that. But let's go back to your point, the Americans have also introduced a major concession for businesses which is an accelerated depreciation concession and that's a huge impact. They have cut the rate, I don't think they removed a lot of the loopholes. They've also, one thing to have done is kind of repatriate the money that's been held offshore back to the United States, which was a big revenue boost. They have done some broader reform but not as much as I think your suggesting. If you look at effective rates, we are still uncompetitive to the US.
Hamish: The centre of is this question though, is that if we are going to have corporate tax cuts, would you accept that they should at the same time be some tightening up of the tax loopholes?
Jennifer: But there has been. You got to make sure that you do not make the economy uncompetitive. You know, by all means look at it. But people have looked at Hamish, they looked at things like accelerated depreciation, which is hugely important to our airlines, for our mining and resources companies. And don't forget, we had a major review in Australia, the Ralph Review many years ago, which really cut out a lot of the loopholes. So, you know, I'm always up for the debate, but when I looked at it when I was on Wayne Swan’s business tax working group, the general kind of view of that group, which was chaired by the tax commissioner, Chris Jordan, was that there wasn't a lot of room for any more changes to the business tax arrangements, that were not followed by a very substantial reduction in company taxes. Now the Business Council’s argued for a reduction to 25 per cent and makes it still higher than the US, but it allows us to stay in the game and allows us to compete. It allows us to be an attractive destination for investment and if we don't, we are just going to keep falling behind and that will actually harm the Australian economy. It will hold us back and that means we're holding back job creation, our capacity to create the conditions for higher wages.
Hamish: I mean, it is not the only factor though that attracts this international capital, is it?
Jennifer: Regulation is the other one.
Hamish: There’s also things like proximity market, where you're selling the things, AAA credit rating for example, stability as well. I mean, all of those things are factors aren’t they?
Jennifer: They are absolutely factors but you've got to remember that that people will invest where they make the best returns and if we are so far behind the rest of the world on our tax rates then we are not an attractive destination for investment.
Hamish: At 25 per cent, we'd still be quite a significant distance behind the US if it's all about the bottom-line.
Jennifer: It keeps us in line with the OECD which is often kind of seen as the benchmark.
Hamish: But if we accept your point that it is ultimately all about the bottom line, surely they will all go to the United States instead of here.
Jennifer: Well, as you say, there are many other reasons that people invest, proximity to markets and so on. Look, let's try and get the 25 per cent done. I mean, you know, we've got a very modest plan in this country for over a decade to get our taxes down to 25 per cent. That will just keep us competitive. It will, it will not give us a competitive edge. But you know, we have to kind of, take account of the fact that we've got, you know, a fiscal problem in this country, but let's try and get to 25 per cent, let's try and get the senate to pass this plan so that companies can look into those big projects in the future, which become more viable with a lower tax rate.
Hamish: So you would want it to go further after 25 per cent?
Jennifer: Well, let’s have a discussion about it.
Hamish: Let’s be clear about your position. Would you like it to go beyond that?
Jennifer: I think we would have to assess that and, we haven't argued for that because then I think you have to stop and say, well, okay, let’s not have a race to the bottom. Now let's see where we are. Let's see how we compete. Let's see what happens to investment. Let's do a proper analysis when we get to the 25 per cent and then you can look at the kind of broader tax reform. So we've always said, do bigger tax reform, but the political culture, Hamish, in our county is not up for that, I think you'd agree with that. So let's get the 25 per cent and then let's do the hard work on what else do we need to do to encourage investment. But boy, we can’t even have a sensible conversation in this country about getting back in to 25.
Hamish: Well, we are having a discussion about it right now. I don't know that there's anything not sensible about this.
Jennifer: No, I'm talking about you and I, I am talking about the broader debate which is full of mischief and misinformation and, of course this anti-business agenda. So, you and I having a sensible debate, but you know, my concern is that the broader debate has been misinformed, misrepresented and underpinned by this tremendous dislike of business, business which employs 10 of the 12 million workers.
Hamish: Do you really think there is hatred of business in Australia?
Jennifer: I do.
Hamish: What’s your evidence for that, I mean it just seems so overblown that people hate business. We're talking about significant changes to the tax code we're talking about, you know, significant changes to budget deficits over time. As a result of those changes.
Jennifer: But you listen to the language that people use. A gift to the millionaires, it’s not a gift to the millionaires, it's a gift to Australian workers, it's a gift to the people who depend on these large companies for their living. They talk about, you know, “it would be a gift to multinationals”, well Australia is very dependent on foreign capital and yet we want to demonise those companies that we need to come to Australia.
Hamish: Is it the headlines that upset you, is it?
Jennifer: It's the rhetoric that people use, it’s this impression that people try and create that business is somehow not a good force in this country, and yet people forget who business is. It’s Bunnings, it’s the supermarket, it’s the guy who runs the local shop. It's the woman who's running, you know, a small kind of outlet. It's the person whose kind of got the new manufacturing.
Hamish: Equally, if there was a tax cut for a middle income earners, the headline would equally be a gift to households, a gift to working families. So, it's pretty evenly spread, isn’t it?
Jennifer: No, it's not. I mean, you go and look at any of the media coverage and you look at the media coverage from the left side of politics. It is all about trying to demonise business as a way of arguing against these tax cuts. And it's a way of saying, well, business doesn't matter. Well, business matters enormously, Hamish. And you know, people want to be very careful what they wish for because without a strong business community we will be a weaker country. And when I hear people kind of demonising business, you know, demonising multinationals, using this careless language, you know, talking about a gift to this group, it's just simply not true. It's misrepresenting, it's confusing the community, it’s confusing the discussion, it’s not right and we will be very poorer country for not strengthening our business community, not allowing it to thrive.
Hamish: I think we could debate this all day, Jennifer Westacott, we’ll have to leave it there. Best wishes for your trip to the US.
Jennifer: Thanks very much. Good to talk to you.
Hamish: Jennifer Westacott is the chief executive of the Business Council of Australia.