Event Interview with Fran Kelly, ABC RN Breakfast
Speaker Jennifer Westacott
Date 3 May 2018
Topics Budget, company tax rate, banking royal commission and advocacy
E&OE

Fran Kelly, host: Australia could face annual deficit topping 50 billion dollars unless next week’s budget includes measures to boost economic growth, that’s the warning from the Business Council of Australia, which has used its pre-budget submission to insist that the proposed cut in the company tax rate should be the government's top economic priority. Big business is fending off Labor claims that it's doing the government's dirty work in launching a well funded grassroots campaign in support of these tax cuts. Jennifer Westacott is the chief executive of the BCA, she joins me in the breakfast studio, Jennifer Westacott welcome back to breakfast.

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

Fran: Tuesday's budget will benefit from one of the strongest increases in revenue in nearly 20-years helped by a big lift in commodity prices, it's already been dubbed the rivers of gold budget. Do you see those rivers continuing to flow?

Jennifer: Well, that's the whole point we're making, that this is still very dependent on external factors like commodity prices. But it does show that there is a very strong correlation between increase business activity and increased revenue to government, that's why we're saying in our budget submission we've got to do three things. We've got to go for higher growth, go for faster growth, go for stronger growth, go for more sustained growth. And that's about productivity, that's about the things we can control. We've got to make sure we keep that fiscal discipline, 2 per cent spending cap, tax as a percentage of GDP at 23 per cent, got to maintain that discipline. And the third thing, is make sure we're getting better value for money for the spending that we're doing in education, health and so on. But there is no doubt we have got to face up to the fact that we're not growing at the rate we should be and that we are still very reliant on these external factors.

Fran: Okay, talking value for money and productivity, your submission warns of bigger deficits unless we lift the productivity rate.

Jennifer: Correct.

Fran: The Reserve Bank Governor Philip Lowe has warned this week that low wages growth of around 2 per cent will be with us for some time to come. I mean doesn't that suggest that we must be getting good productivity out of our workforce because people are working as they always have, hard and long hours, for not much extra money. Isn't that strong productivity?

Jennifer: Well, but the only way you get wages growth, sustained income growth, is productivity. I mean labour productivity.

Fran: But I am saying the workers are doing their bit, they're working with no wage growth.

Jennifer: Well, I think that's not the correct understanding of productivity. I mean labour productivity has accounted for 80 per cent of the lift in income per capita over 40 years. And our productivity numbers are very low, actually. They're very low. So if we want to get sustained productivity and sustained wages growth, real income growth not just a sugar hit – a one off wage rise, we actually have to lift our multi-factor and our labour productivity, that's about investment. That's why we're so, you know, determined to see those tax cuts go through. But it's also other things, it's infrastructure, it's regulation, it's investing in skills.

Fran: I understand all those things but talking about wages growth because the workforce is focused on that at the moment, there's no doubt about it, and Labor's campaign is predicated on that. But in terms of investment, I mean, the businesses are awash with cash at the moment, I mean the profits are up, that's why the budget is going to have rivers of gold.

Jennifer: But why are the profits up? That's because activity is up. This is the confusion that people always make.   

Fran: And because people aren't getting wages growth.

Jennifer: But wages growth has actually clocked up a bit 4.8 per cent versus profits at 5. So we've got to make sure we're very careful here not to confuse some things. The only way people can get higher incomes is if they get paid more, and that's because their company is more successful, they're doing more, they're investing more. If people who are unemployed get a job, if people who are working less hours get more hours, all of that relies on a successful business community. All of that investment, and that's why we make the point about driving investment, driving investment harder. And of course we want higher wages, we want higher sustained incomes but that is about taking control of the thing we can control our own destiny, and that's productivity. Relying on the terms of trade doesn't wash with whole economy and it is very vulnerable to external forces.

Fran: So, are you saying that workers have to wait for the government's company tax cut to kick in before they can hope for a wages boost? Because we saw that AlphaBeta research this morning that showed a very small amount of the wages boost, I mean it's a very small sample, but it's real-time evidence based, but very a small of it going into wages.

Jennifer: But he's very clear in his report about two things. A, companies invested more, B, they hired more people and, C, they started to put money into ages and he says, but he says very clearly that that will, that will start to increase over time. That will build out over time. Our own survey showed that 30 per cent of our large corporations would start to pay people more. Now, if 30 per cent of Australian companies pay people more, that's actually a lot. So, everyone's been very clear that you've got to drive the investment signal first. You've got to drive the productivity and the sustained income growth will follow. Now I want people to have high wages, but I don't want to pretend that that can just come by companies giving people an instant wage hit because that will not be sustainable. That will just lead to higher prices and less jobs.

Fran: Okay, what about people getting income tax cuts? If they're not getting wages, growth is a fair enough that they get the personal income tax cuts that both parties are supporting.

Jennifer: We've always been an advocate, we've always been an advocate for personal income tax cuts, as you know. We've always argued that the priorities for tax reform are fixing the bracket creep problems, particularly for very vulnerable people who are moving into higher tax brackets, giving people income tax relief and tackling the worst of the taxes in terms of economic damage, which is the company tax rate.

Fran: The, um, just before I leave your budget submission, the BCA is also pushing for a higher level of Newstart allowance as a, you and a number of other economists like Chris Richardson for a few years now have been pushing for this, um, you want the welfare sector, um, to get their wish, a boost to Newstart, which is as we've been hearing, now equates to less than $40 a day for a single person.

Jennifer: I mean, I, I've been on about this for years.

Fran: What level would you want it boosted by?

Jennifer: I think it's a bigger set of issues. I don't know. And I think this is the work that needs to be done. I mean, let me make a few points about Newstart. It is, is I've been talking about this for years now.

Fran: Yeah, I know.

Jennifer: That you cannot live on $39 a day. I said in 2011, you can't live on 35. Well, you know, we really have to get our head around this, but not just in terms of tinkering with the allowance. We've got to make sure that allowance is adequate, but we're also going to do other things, Fran, like this effective rate, marginal tax rate. Perhaps when people go from an employee to working, we've got to make sure that the programs are there, the literacy programs, the numeracy programs, that the job services networks are doing their job properly. I mean a lot of these people, are shockingly disadvantaged.

Fran: So where should the priority be? The government's looking at these rivers of gold, it’s going to give something back to us as income tax cuts before the government does that. Should it be boosting Newstart? It's a choice, isn't it?

Jennifer: Well, these things are all choices, but they're all part of packages too. If you don't get the growth to happen, two things are a consequence. A, the jobs aren't there. The jobs aren't there for people to get, the wages growth can’t happen. If you don't get the economy to grow, you can't sustain the rivers of gold. You can't sustain the revenues that are now pouring in. Why are they pouring in because companies have been more successful, but as I said, they're vulnerable to these terms of trade movements. I want to see that those rivers of gold are driven by productivity, by investment, by more competitive Australian companies. I want to see people have lower taxes, but all of these things are mutually dependent and this is the problem with public policy. People want to pick one thing and hope that in and of itself will solve all of the problems and this is a package and we've always argued, do income tax, do relief at bracket creep. Do the company tax stuff as a first pillar of bigger tax reform because it's the most damaging tax and we've got to drive the productivity harder.

Fran: That’s it, isn't it? That's your message on company tax cuts and it often gets stopped there that that's the first pillar of it and the BCA, we all know is becoming much more politically active right now. You've got this Australia at Work campaign, which is going to have TV ads, town hall meetings, campaigning in marginal seats. I think you're even buying your own TV show, aren’t you on Sky?

Jennifer: Well, let's go through all of that. First thing is we're not raising money to do a campaign on company tax, as mischievously represented by Bill Shorten. We are raising money to do a campaign called Australia at Work and Australia at Work doesn't even mention tax. It's about reminding people that it's business that generates 86 per cent of all jobs. It's business that generates 80 per cent of economic activity. It's big and small business working together that drives Australia's prosperity. That's that campaign. We're doing a Strong Australia campaign with Sky News, which is about going out to the regional communities of Australia and for CEOs to have a conversation with people in Townsville, in Broadmeadows, where I was a few weeks ago, and then we're doing a campaign unit called the Common Good, where we are going to do grassroots issue by issue campaigning in marginal seats in the broader electorate to try and make sure that that people are aware of these big policy issues. Now people say this is controversial. Why is it controversial when the centre says it wants to step up its campaigning. Why is it controversial when you say we want to do an issue by issue thing? Why is it not controversial when other groups, robocall people two days before an election to tell them Medicare has been privatised, which was absolutely not true.

Fran: It's controversial for a number of reasons. I think primarily because as you say, your first pillar of tax reform is company tax cut and so people see that as self-interest. Now Bill Shorten of course, says you're trying to buy the next election to get the Turnbull tax cuts. It's also controversial because of the moment we're in. You might be asking, are you wasting your money launching this campaign now?

Jennifer: Well, let's be clear. This is a campaign about reminding people about the role of business. Now this is exactly –

Fran: We've got another reminder of the role of business, which is the Banking Royal Commission right now.

Jennifer: And lets be super clear that the revelations in the Royal Commission are shocking, but the problem we've got Fran is that the anti-business forces, who have always been there, who've been given, who've been heartened by this, we should tackle the Banking Royal Commission findings, we should make sure we get to the bottom of the systemic issues that have caused this. We should punish the people who have done something wrong. But you should not use economic policy as a tool for punishing people. You should not punish the shareholders. You should not punish the, you know, the 10 million people who work for a business.

Fran: Well, Elizabeth Proust isn't anti-business. Obviously. She's the chair of the Australian Institute of Company Directors. Spoke to her yesterday, paraphrasing what she said, she thinks you might be basically doing your dough, given the revelations coming out of the Banking Royal Commission. She thinks public sentiment towards big business is unlikely to be swayed by the campaign. Let's have a listen.

Elizabeth Proust, chair, Australian Institute of Company Directors: I think that's highly unlikely. I think the lack of support is now obvious for that, but that hasn't been the AICD's position. The AICD's position has been tax reform, which includes GST, personal income tax and company tax. And we think that the focus on company tax reductions alone is, has been misguided. We've been saying that for some time.

Fran: Well the Business Council of Australia is about to unleash a multi-million dollar campaign for company tax cuts. Do you think they should give it a rest?

Elizabeth: I think it is highly likely to be unsuccessful. What we need is a debate about, especially in the, in the context where the community is hurting through low, no wage growth and high expenses including energy prices. We think we need wholesale tax reform, not focused on just one tax.

Fran: That's Elizabeth Proust speaking with us yesterday. Now you say it's not just a company tax cut campaign.

Jennifer: Let's unpack all of that. First of all, as I've said, we are not raising money to do an ad campaign on company tax. We are doing a campaign to remind people of the role of business because at this time, I'm not going to make any excuses for the banks in the Royal Commission, we cannot throw away years of good centre economic policy as a revenge for business and a revenge for what has happened in the Royal Commission. Punish it, deal with it, use the regulation, deal with the systemic issues, but don't punish the rest of the economy. Second point on company tax, we have never said company tax is the only thing to do. But if anyone believes that, if this doesn't get up, that suddenly governments, both political parties, will wake up tomorrow and say, well, let's have a look at the GST. Let's have a look at land tax. You've got to be kidding. I mean –

Fran: Well you first craft that. I mean, you could help direct that. You could be saying let's not talk, talk about company tax cuts.

Jennifer: But Fran, you and I have talked about this for years. We have tried to do that. We have tried to do. The Labor Party's instant political reaction to anything that's got the word GST anywhere near it is no, you have to reform –

Fran: When you were asked to do a review of taxes. When business was asked to do that, the number one priority that came up with was a cut to business tax cut. Now can you see that people look at that and go, you're only looking at yourselves.

Jennifer: But you've got to break these things down. So you say, but we haven't said that. We've said the top priority is to deal with bracket creep. If you look at our to 2016, big tax paper, we said deal with bracket creep and the government's done some of that in the Enterprise Tax Plan. We said in our 2016 paper, deal with multinational tax avoidance and we said gradually lower the company tax rate, which is what the government's doing. I mean this is a 10-year tax cut. It is not an instant tax cut. And look at any economic analysis, the OECD, the IMF, the Treasury. What is the most damaging tax? The company tax. The company tax drives that whole question of how we sustain economic growth.

Fran: But it's hard to see, especially with what's coming out from the banks at the moment that looks like anything other than self-interest. Can I just ask you finally about this campaign you're doing because you've already acknowledged that you went to the United States, to Washington, last year to meet with Cambridge Analytica.

Jennifer: We went to Washington to do a whole lot of things. And as part of that, people suggested to us.

Fran: You had some meetings with Cambridge Analytica.

Jennifer: To meet with. We have one meeting with Cambridge Analytica. I mean this is one of these things Fran, that people, you know, it's so interesting that nobody ever questions the left side. No one ever questions that ACTU is campaigning. 

Fran: No I don't think that's true Jennifer Westacott. The point is that Cambridge Analytica has been in the news. It's closed down today.

Jennifer: And we're not using them.

Fran: No, but, and so it is interesting, isn't it, that your executive director, Andrew Bragg, had meetings with Cambridge Analytica as I understand it. What is it, the question I was going to ask, what is it, what was it from Cambridge Analytica that you found useful, that you will include in your, you know, data harvesting, those kind of tools? Did you find anything or did they scare you off?

Jennifer: They were not our cup of tea, I'll be honest. And we decided that we didn't want to use them and we're not using them, but the idea that you wouldn't go to Washington after a very, very, unexpected, although I always thought Donald Trump would win, election result, and go and talk to a whole range of people about campaigning about modern polling. I mean people have been on our backs for years about getting, with modern campaigning. People can't have both ways. They can't be critical of business for not embracing modern campaigning. And then when you, when you, say we're going to do grassroots campaigning, they want to kind of create some sinister plot with a, an international organisation that's got some issues. I mean, you know, seriously, you know, no one ever questions the other side of this. When the centre pushes back and says, we actually want to play on the same field as, as these organisations, but we're not going to tell lies. We're not going to give people misinformation. We're not going to misrepresent data. Ours will be a campaign of policy and of integrity and people want to kind of conflate things. Yes. we met with Cambridge Analytica. We decided they weren't in our cup of tea and we're not using them.

Fran: Jennifer Westacott, thank you very much for joining us.

Jennifer: Thanks very much.