Event: Jennifer Westacott, Innes Willox and Andrew McKellar interview with Ross Greenwood, Business Now, Sky News
Speakers: Ross Greenwood host, Business Now; Jennifer Westacott chief executive, Business Council of Australia; Innes Willox chief executive, Australian Industry Group; Andrew McKellar chief executive, Australian Chamber of Commerce and Industry
Topics: 2023-2024 Federal Budget; migration; business investment; unemployment rate; debt; surplus; skills; Petroleum Resource Rent Tax
Ross Greenwood host, Business Now: Andrew McKellar, Jennifer Westacott and Innes Willox, many thanks for your time. Andrew, the budget, we're going to see the details in the next couple of hours. From your members’ point of view, many of the small and medium sized businesses in Australia. What do you get the sense of what they would really like to see? There's going to be a budget surplus, potentially, it's going to disappear, times getting tougher for them. What’s your sense of what they want to see?
Andrew McKellar chief executive, Australian Chamber of Commerce and Industry: Well, I do put small business at the top of the agenda – 2.4 million businesses around Australia. At the moment, many of them are doing it very tough. They're facing an environment where energy costs have been going up, they're facing higher interest rates, debt is costing them more. Many of them, when they get into that situation they're facing tighter margins, many of them can't afford to pay themselves a proper wage or their own superannuation. They're having to cut back hours. In those circumstances, obviously, anything that takes the pressure off small business that builds capacity that gives them the opportunity to invest, that will be very welcome.
Ross: Just one thing, tax deductions to try and electrify their systems that's been leaked already. Is that helpful? Because they've actually got to shell out cash to be able to get a tax deduction.
Andrew: I think with a measure like that, from our calculations, at most, it can benefit maybe 30,000 businesses. So, 2.4 million small businesses, that's a much bigger issue. So, I think those sorts of things are very valuable. But as you say, one of the biggest issues with incentives like that is you've got to be making a profit, you've got to be investing in the first place. It's much more limited. So clearly, anything that affects the cost of doing business, that will be very welcome.
Ross: Okay, Jennifer Westacott, if I can go to you. The framing of this budget, it's going to be in surplus, the number is said to be $4 billion, which is wafer thin. I mean, let's be honest, if you have 3.5 per cent unemployment rate. If you've got commodity prices booming. If you've got the dollar at 0.66 US cents, if you can’t produce a surplus then, you're never going to produce a surplus.
Jennifer Westacott chief executive, Business Council of Australia: The surplus is great, but it goes to your point, how is it getting produced? It's getting produced by commodity prices, it's getting produced by record low unemployment, more people working, more people paying tax. What I think we have to be cautious of is that we don't build in structural, permanent expenses off the back of temporary increases to revenue. That's what we'll be looking for. What's the plan for growth? What's the plan to get that GDP number with a two or three in front of it? Because without that, how do you sustain higher wages? How do you sustain revenues to government? How do you sustain better living standards? That's the conundrum. Obviously, some of the cost-of-living stuff is really important, and it's good and it is needed. But if we don't put our foot on the pedal of growth, how can we sustain that over the long term?
Ross: Okay, are some of your members spooked by the changes to the Petroleum Resource Rent Tax? Because many of your members, the top 100 companies in Australia, are also very big profit producers. Now times are going to get tougher, the government is going to come chasing revenue. That's a pretty obvious place to look.
Jennifer: Sure, and the government looks like it's taken a middle road on the PRRT, but it's kind of the accumulation of things Ross. It's the message it sends around investor certainty. At a time when we need the same companies driving the clean energy changes, investing, making huge investments. Now obviously, they’ve exempted, from what we understand, new projects and that’s good. But it's all these things added together that make companies nervous about investing. It's not just the PRRT, it's the gas price capping, it's the IR changes and people keep saying what's next? We need to turn around that perception that Australia is a riskier place to invest and do things. Because the Americans through the Inflation Reduction Act are eating our lunch. They're taking these big investments away, the Europeans are priming their economy. All those things are what we're competing against, and our companies, global facing companies, that’s what we’re up against.
Ross: Okay, so Innes Willox. Australia right now has a government, which quite clearly has big expenditures in front of it. In defence, in the National Disability Insurance Scheme, there’s two for example. But there's also going to be more into health and aged care. So, does the government right now have a revenue problem or a spending problem do you think?
Innes Willox chief executive, Australian Industry Group: Well, Ross, we probably have this year what you could almost call the accidental surplus. It is sort of alarming how bad Treasury isn’t forecasting into the future. So, this will be the one-off. You've got to think about this. The Treasurer himself has conceded that we have a debt bomb essentially - $700 a second in debt repayments that we are paying. We have to get on top of that. So, you've got to look at the issues around what the government’s spending, how it is spending, the efficiency in the way it is spent. That's the important thing here. We need to look at that. Sure, there is going to be a lot of one-off measures because of this almost accidental surplus. Do we bake those into the system? The big issue business will look at is are these going to be inflationary? Are they going to perpetuate the problems that we've had for the past 12 months? So, you've got to get on top of the debt. Yes, households are hurting, but yes businesses are also hurting. So, we're going to look at some of those measures for support that Andrew referred to. Around energy support, they'll help them around the margins, perhaps, but they won't fundamentally change things for businesses which are struggling with labour. Which are struggling with costs. Which are struggling with input costs and struggling with customer and consumer confidence. That's where they have to look.
Ross: So, one of the things I'll be watching for tonight is the forecast for unemployment in particular. Because that shows the problem that the government will have in terms of its own revenues in the future, if there are fewer people working and paying tax. So, from that point of view, does there need to be more incentives to try and hire people, to train people, to get people with skills into the workplaces now?
Innes: Well Ross, the Reserve Bank is forecasting unemployment to creep up over the next year, to about 4.5 per cent from where it is now just under 3.5 per cent.
Ross: Which I’ve worked out to be about 160 – 170,000 jobs lost. That's a big number of people who are hurting and businesses that are laying off staff.
Innes: So, you've got this mismatch going on at the moment in the economy Ross, between businesses who are trying to find people with the right skills for the jobs of now and in the future. So, we're looking at the training systems, we're looking at migration as well. Don't be under any illusion, business is looking very hard at their workforces at the moment. Looking very hard at the efficiency and productivity of their workforces as their cost pressures bear down on them. That's something we need to be very mindful of. Businesses don't want to let people go but you're starting to see that occur within the economy, unfortunately, because of this mismatch. So, this budget is an opportunity to start to make some real inroads into that – training areas, the skills area, incentives for businesses to hire. IR legislation, that Jennifer mentioned, is a huge problem coming down the road for business and they are just on about it all the time. It's a big disincentive to hire. It's making businesses make some hard decisions now about the future of their workforce. That's one of the big challenges.
Ross: That's the issue of productivity that we always talk about it. Andrew, I want to go to you because of the leaks that we've seen so far. My observation is they look like Band-Aids. They're literally fixing a problem there, let's give it a few dollars there. Short term, not long term, as Innes said. So, it seems as though the big structural reforms, the things that are needed to drive Australia forward faster into the future to create the tax revenue that's required. It seems so far that that philosophical conversation is missing.
Andrew: I think that is a concern. I think one of the things we would say here is that fiscal policy and monetary policy have got to be pushing in the same direction. I think there is a real concern, as we approach this budget is, is that the case? So, if there are a series of Band-Aids, if there are a series of measures, which are around trying to offset the impact of a higher cost of living, of course, that's welcome. But we have to be careful the impact that that's having on the issues around demand in the economy. If we're simply fueling that back in at the same time that the Reserve Bank is tightening monetary policy, pushing interest rates up trying to keep that under control, take the pressure off inflation. Then there's a risk that fiscal policy is going in the opposite direction to monetary policy. That's bad news. That will mean in the future we could see higher interest rates again. That's not good for business. That's not good for households. That's not good for the Australian economy. We need to be focused on building capacity and supply in the economy, and on driving productivity. That's the only way we can solve these longer-term challenges.
Ross: And of course, some of those challenges, Jennifer, come through immigration. 400,000 net new migrants coming into Australia this year, adding pressure on housing, adding pressure on infrastructure. But at the same time that's partly the way in which the government sees itself, almost growing its way out of some of the looming problems that the budget has?
Jennifer: That's the conundrum, I think. That’s when you look at why we're going to get surplus. We're going to get it because of the success of companies. Because people are working, because the economy is active. If you don't then have things in the budget, or things beyond the budget, that drive investment, that drive productivity, how can you sustain that? If you don't, on the migration side, keep going with that. Because everywhere you go, people can't get workers, and that's holding businesses back from expanding and growing. But we've got to sort of separate the issues. We've got a housing problem, because we don't plan for housing, we’ve got a planning system that just takes too long to do anything. What we could have done during COVID, and everyone's wise after the event, is to sort of think well, okay, how do we start rezoning land. How do we release more land. How do we make housing get going again. How can you make all this stack up over the long term?
Ross: Because the one thing that's pretty obvious as the government has these mounting debts and interest bills, is that they're going to be looking for ways to increase tax. One way they're doing it is through bracket creep. That's the one way they've allowed inflation to push people's wages up. Now, you know, the reality is that they've got to have a better plan, long term to cope with this. To get the economy to grow faster when the global economy does recover.
Innes: Well absolutely Ross. So the Reserve Bank is forecasting, if you look at their data, a per capita recession this year that is growth that will be less than our population growth. Now, that's probably the polite way of saying, if I put words in their mouth that we’re quite likely to go into a recession later that year, quite possible and quite feasible. So this budget has been prepared with that as the backdrop and what we don't want to see is a series of shortcuts through this budget to try and sort of, as you said, Band-Aid things over. If you keep taking shortcuts you’re going to run into a cul-de-sac. So, at the moment, we don't have a taxation system that is fit-for-purpose. We don't have an education and training system that is fit-for-purpose. We don't have an energy system that is working for businesses, in fact a lot of businesses are seeing their energy costs quadruple. So we've got a whole range of sort of structural issues that there's no sign that this budget is going to address and that's the big problem business faces, as they sort of try to confirm that pretty difficult future.
Ross: Well, we're going to find out about this in a couple of hours’ time when the Treasurer stands up and speaks. But maybe the work is in front of them. To Innes Willis, to Jennifer Westacott, to Andrew McKellar, many thanks for your time today.