Speakers: AM Agenda, Host Laura Jayes; Business Council Chief Executive Bran Black
Topics: Federal Budget, research and development, tax
E&OE
Laura Jayes, AM Agenda Host: Joining me now is Business Council of Australia CEO Bran Black. He joins me here in the studio. You’ve read both The Australian and the AFR this morning, but let’s start with The Australian. It feels like we’re going back to this kind of Covid-era incentive. Is that good? It makes me kind of nervous.
Bran Black, Chief Executive: Well, we do see that there are important arrangements that are being proposed that would have a stimulatory impact on business investment, and that is really important. We’ve seen, of course, in the last couple of days, the Reserve Bank has delivered commentary to the effect that we are looking at a lower growth environment, a lower business investment environment.
And let’s remember that if we’re talking about productivity, it is at the end of the day, business investment that drives productivity. The challenge for us is that we know that business investment, or at least 75 per cent of business investment, comes from large companies.
So if we are intent on delivering productivity improvements, it’s those investments that are made by the largest companies that really count. So I can’t at this stage say definitively what those arrangements might look like with respect to what’s been announced this morning.
Laura: So are big business expecting this loss carry back that we had in Covid?
Bran: Well, if what we read this morning is anything to go by, that would be limited to $1 million which wouldn’t have an enormous impact by any stretch on big business. But it does emphasise the importance of those other initiatives that we have been calling for and which we hope to see in the Budget, particularly around red tape reduction with respect to research and development, and also more broadly, on productivity enhancement in areas like housing, that will make the big difference in terms of driving investment that ultimately, at the end of the day, this is what improves living standards.
Laura: Right, so I mean, even if we are going back to these Covid-era stimulatory measures, the timing of these things matter in a high-inflation environment, of course, but for big business, which you represent, research and development, seems to be the big incentive for you here in this Budget. Just explain to us how that would be a productivity measure for this country?
Bran: You only got to look at what other countries are doing in order to see how Australia could benefit. If you look at the United Kingdom, for instance, some of the programs that it has in terms of research and development, it’s injecting about £1 and delivering £5.50. That’s a lot.
And on our analysis for the type of reform that has been proposed through the Robyn Denholm review, we’d deliver the same sort of outcome, roughly $5 for every $1 that we invest. But you’ve got to get those settings right, with respect to business investment. There is actually a lot of research and development that happens in Australia.
Laura: So are you saying we are on part with the UK right now or we could do better?
Bran: No, we’re not by any stretch.
Laura: For every dollar of investment, what’s our return on it at the moment?
Bran: I couldn’t tell you that particular point right now, but what I can say is, if you look at business investment in R&D in Australia as a proportion of GDP, it’s about 0.9 of a per cent, and the OECD average is 1.87 per cent. So we’re a full percentage point below just the average. That’s not where we want to be. We want to be much higher than that.
So when we look at what it is that’s holding business back, it’s the type of incentivisation arrangements where we see countries like the UK and Singapore and Canada, they’re all putting in place arrangements that ultimately try and secure more of that investment, because ultimately it’s that early discovery that generates lots of jobs, lots of spin-offs, and more opportunity.
Laura: Well, startups are also worried about these CGT changes. Are you worried too?
Bran: It’s a really good question, because there’s been, of course, a lot of speculation about what these changes look like. We have to, I think, look at the position that’s ultimately confirmed in the Budget papers.
Laura: You haven’t been consulted on it?
Bran: We have, indeed.
Laura: What’s your pitch?
Bran: What we’ve said is that what we would like to see in an ideal world is CGT reform undertaken as part of a broader tax reform package. But in any case, what we will be doing is looking to judge any type of CGT reform that is undertaken by reference to whether or not it doesn’t disincentivise investment in new housing, that it’s not retrospective, and also that revenue, any revenue that’s derived from that type of investment is ultimately pumped back into tax reductions or productivity enhancements.
Laura: This is largely along the lines of what Allegra Spender has been arguing as well, this hypothecated spending, if you’re going to basically put up taxes. Are you talking about CGT if it was just limited to housing, and do you think it will just be limited to housing, these changes?
Bran: Well, no, my sense, and this is just based on what I’ve read, is that it appears that the discussion is very much around CGT reform with respect to all assets, but my position with respect to CGT reform on any type of asset is as per those four points that I mentioned before.
Ultimately, we think the best way of doing this, and I really can’t stress this enough, is as part of a broader tax reform package, because you really do have to trade off –
Laura: When you say that, like, how broad? Because it’s changes to CGT, we’ve got negative gearing. Jim Chalmers is telling us that they’re going to make savings. We’ve got huge reform within the NDIS. So how much more broad are you talking about?
Bran: We think that you’ve got to put on the table if you’re talking about tax, consumption taxes, personal taxes, company taxes, and you should try and address state taxes as well, but they all fit in together.
Laura: All in this Budget? That’s very ambitious Bran.
Bran: No, we think that it should be part of a broader tax reform process, and we’ve been pleased recently to be part of the McKinnon engagement in this regard, and that’s the type of process that we’ve been advocating for through that arrangement as well, that tax reform should be holistically considered, so that you can see where the different trade offs and opportunities are.
Laura: Okay, we see also some leaks about workers getting back maybe $200 to $300 a year next financial year, perhaps this, but we’ll get the details on Tuesday. We have Michele Bullock hiking rates for the third time in three meetings this week, and she’s warning about how government spending can be stimulatory.
This is after the IMF warned about cash handouts doing the same thing. Jim Chalmers says, “Wait, you’re going to see the overall package, and it will come down to their spending vs saving in the Budget.” Do you agree with that premise?
Bran: Well, I do think at the end of the day, he’s right, that you do need to look at the whole package, and we’ll certainly be looking to do that before we can make a call on our position with respect to the Budget holistically. But as a principal position, we would say a few things: first, we always want to see those who are most in need get support, there’s no two ways around that.
We know people are doing it tough, and particularly at the lowest cohorts, the lowest income earning cohorts in our society. If we can support those people fairly and reasonably, we should.
What we don’t like to see is untargeted spending, and what we’re concerned about with the announcements that we’ve seen so far in this respect, at least, is that it seems that people like myself would also be eligible for that arrangement. And I don’t think that’s right.
Laura: Okay, well, we’ll wait to see all the details on Tuesday. We’ll speak then.