Event: Interview with Ticky Fullerton, Sky Business
Speaker: Jennifer Westacott
Date: 28 February 2018
Topics: Company tax, tax reform, regulation and US delegation
Ticky Fullerton, Sky Business: Well, let's start tonight though, by launching back into the controversial company tax debate. One person has been spearheading the issue for big business, not an easy job. The CEO of the Business Council of Australia, Jennifer Westacott, just back from the Prime Minister's makeshift tour of the US, and she joins me in the studio. Jennifer, welcome back.
Jennifer Westacott, chief executive Business Council of Australia: Thanks very much.
Ticky: Good tour?
Jennifer: Fantastic, absolutely amazing. You know, a few years ago when I was in the US, you talked to people in business, they were depressed. They felt that the economy didn't have a direction, they didn't know where it was going, animal spirits were very low. This time…
Ticky: Have you actually managed to talk to businesses?
Jennifer: Absolutely. So we had a business to business meeting, we had a round table of senior business leaders from the US, senior Australian business leaders, and the Prime Minister, who stayed in that meeting. You've got a real sense, in the briefings from Treasury officials, and the briefings from the White House, in the discussions with the US business people, this was an economy that was starting to boom again. And the confidence levels, the effect of the tax cut, the effect of the regulation change, the effect of the commitment on infrastructure, it was driving a renewed sense of energy. Of course, it's appearing in results. Two million jobs created, low unemployment, business investment starting to really pick up. Companies making really crucial decisions.
Ticky: Is this the Trump tax cuts, or is it the economy just kicking back into gear? Because the tax cuts have only been here since January.
Jennifer: But it's the signal it sends. So, a lot of it is the tax cuts, but don't underestimate the regulation changes they've done. They've really got stuck into the regulations. A lot of business people said, "look, it's asset write off, it's regulation, it's the fact that the successive governments before Mr Trump had done something on energy". I don't think you can underestimate the impact that the tax cut has had on confidence.
Ticky: What about ... Because it's such an important message you're trying to send here, obviously, is that you do this for business, and it will deliver jobs, it will deliver wages growth. To what extent is that story playing out?
Jennifer: The people who want to make mischief with this, always contest. But, it's not just me saying it. The International Monetary Fund revises the growth figures. The OECD says this will flow through to jobs and wages. Ken Henry, when he did his tax review, two thirds of the benefit will flow to workers and wages. This is not just me saying it, it's leading economists. In the US, they talked about 70 per cent of the benefit of the tax cut flowing through to wages.
I mean, the simple reality is this. For wages to go up, and people to get more jobs and better jobs, you have to increase productivity. Of course, terms of trade is one thing, and you can't control that. You can control productivity, it's the absolute key here.
Ticky: But if productivity is about investment, what is hard for you to argue, it seems to me, and indeed I spoke to Peter Coleman at Woodside, Alan Joyce at Qantas, both on the BCA. They were saying, Peter in particular, that the connection between company tax cuts and jobs is a good one. Connecting it with wages increases, particularly in this low inflation environment, is really hard.
Jennifer: Yeah, but you've got to come back to the stuff you understand better than anyone. To get wages to go up, and be sustained over time, you've got to have more productivity. The only way to drive more productivity, and I'm talking efficiency here, and access to better markets, and improved rate of return, is to improve the investment environment. If people want to invest in new equipment, if they want to invest in an expansion, you've got to make that return on investment.
Ticky: The other argument is, if you start giving tax cuts to the big end of town in particular, how can we trust that they will actually deliver those increases to wages, rather than ... there is an argument for example, especially with Jerome Powell having said this stuff overnight, that we might get four interest rates, that the Trump tax cuts have put fuel on the fire, as a result of this, business is looking at this and saying, "oh gosh, maybe we'll have a recession by 2020. We're just going to do lots of buybacks and pay out dividends with this tax cut, we're not actually going to invest and deliver for wages increases".
Jennifer: But, again it comes back to this. We all want wages to go up. We want people to have better jobs. And Rob Scott was on your program a couple of weeks ago, made a really good point. Is it fair for me to ask my employees to work for a company that can't compete? I think we've just got to keep coming back to that reality. How are we going to get wages to increase, if we've got an unattractive destination for investment? If Australia companies won't invest? If international companies won't invest?
Ticky: See, I see this as a completely different argument, and in fact almost a more conniving for the sceptics on the other side. Which is, where is the investment money going to flow? Jean-Sebastien Jacques at Rio, made this point, didn’t he, BlueScope Steel’s the seller, when I spoke to him was saying the same sort of thing, it's not just the tax, it's also energy prices.
Jennifer: Energy, regulation. But, if you're an unattractive destination to invest, we've got to get over this sentimentality, that somehow people will just keep coming to Australia, because they love Australia. Well, they do. But if you're a company like Rio, where it has more shareholders in the US than it does in Australia, and you've got a responsibility to get the best rate of return for your shareholders, you will go to the place where you can get that best rate of return. The point he made in the US, which was absolutely crucial, is that companies, if they don't get the signal now from Australia, these big long run projects will be saying, "where am I going to get the best rate of return on this? The best of return, I'll start putting my money there". We'll take a long time to get that money back. So, that's my anxiety.
Ticky: But, Jennifer, you're not going to convince Sally McManus at the ACTU. She just won't, how are you going to convince Pauline Hanson? Because, she's the one that matters.
Jennifer: I respect her view, really interrogating whether this is really going to benefit the country, and I think she's right to ask those questions.
Ticky: She’s quoting Frank Calabria in her side in Origin.
Jennifer: At Orica, actually.
Ticky: At Orica, sorry.
Jennifer: Well, I think they've issued a clear…
Jennifer: Well, a challenge to that. That it's not what their view is and I know from talking to Orica that they're very supportive, because they're doing business in a global world. They need the tax cut, all they're saying is they need it along with other things. We've always made that point too.
Ticky: Back to Pauline Hanson.
Jennifer: I think she's got a very strong view about regional Australia, and here's the thing. If we want Australia’s regions to be successful, we need companies investing. Not just more business. We need to get those big mining projects that are sitting out there, waiting to get them to happen. We cannot afford to have big companies like Rio, like BHP, decide it's easier to do business somewhere else. You can't have Australian companies saying, "look, you know that the marginal dollar, we're not going to invest in Australia or we're going to do new things, because it's just not worth it”.
Ticky: So, what's the approach? Who goes and talks to her?
Jennifer: We will obviously encourage businesses to talk to her directly. I think she's right to say, "will companies do this with it”?
Ticky: She'll also get rid of payroll tax.
Jennifer: Well, let’s go back to payroll tax. But you've had company after company on this program, business person after business person in the media recently saying, "we will invest more". We did a survey last year, 70 per cent of our members said they would employ more people. My other point though, Ticky, is if not this, what? Are we going to allow the country to just fall further and further behind?
Ticky: Well, the other thing is, the broader tax reform.
Jennifer: Well, sure. We were big advocates of this. But, we can't even get this done. Our political culture will not allow us to do a big tax reform.
Ticky: I guess the challenge is, this first. That's what people are saying. Why should we do this first?
Jennifer: Because it's the worst tax, because it's the tax that's holding back our capacity to grow the economy faster. Every economist, you see that bubble chart that says, "what's the worst tax, in terms of scale and harm”? The company tax. Take that one first.
Ticky: And the art of the possible, maybe up to 100 million?
Jennifer: Well, let's see, we haven't really started the negotiations, it's just gone into the Senate earlier this year. Let's keeping trying, I mean I'm going to keep trying on this, because people keep forgetting what a company is. So people say, "oh, the benefit goes to companies". What's a company? Well, it’s people, it's workers and it’s shareholders.
Ticky: Originally the company was a person, there's a whole legal thing around that.
Jennifer: Exactly, but it's people on payroll tax. By all means, let's have a conversation about payroll tax, but that's a state tax. We should be looking at state tax reform, the harmful taxes like stamp duty. But, we have a plan on the table, right here, right now, that the Senate could pass. That would grow the economy, that will increase investment, that will go to workers, that will go to making our country more successful, our businesses more successful, and give them a chance to compete. It's not a race to the bottom, it will just keep us in touch. That plan is on the table right here, right now, from the government. We are really encouraging the Senate to take it seriously. Because if not this, what is the plan to keep this country competing with other countries? What is the plan to grow the economy faster? I can't see one.
Ticky: Okay, well we'll keep coming back at this, because it's going to be high in the agenda for all year I reckon.
Ticky: Jennifer Westacott, thank you very much.
Jennifer: Thanks very much.