Topics: Inflation, interest rates, productivity
E&OE
Tamara Wearne, Host: Bran Black is the CEO of the Business Council of Australia, and he joins us now. Hi, Bran.
Bran Black, Chief Executive: Hi, thanks for having me on the show.
Tamara: Thanks for being with us. Now we understand what a rate rise means for homeowners.
We’ve been talking about the impact on mortgage holders, on rents, and you know family budgets around the dinner table. But what does the increased cost of borrowing mean for businesses?
Bran: Well, it’s a really good question because businesses, whenever they face increased costs, are necessarily confronted with difficult choices. Do they engage more staff, do they have to rethink opportunities for potential increases to their workforce, do they think about whether or not they should make investments in plant or processes within their operations?
And in many instances, when you do have pressures such as these, with higher borrowing costs or higher costs from inflation across the economy, businesses will think, “Well, I won’t take that decision now. I’ll defer it”, or “I’m worst case scenario, I’m going to have to actually reduce my headcount, or I’m going to have to postpone this investment entirely.” Those are the types of really difficult questions that businesses face in these situations.
Tamara: Have we also seen businesses maybe holding off on passing on cost increases to consumers, but the longer this goes on, the less likely they’re going to be able to do that?
Bran: There’s no question that businesses are always looking to postpone any increase to their customers because they want to continue to have those customers and they want to continue to be competitive for as long as possible.
But businesses are always going to be faced with that difficult choice that at a particular point in time, if inflationary pressures continue and become more pronounced, then they do have to bite the bullet and make these types of very difficult decisions. No business, no matter the size, wants to be in that position. But unfortunately, circumstances sometimes force them to that point.
Tamara: We spoke to the National Debt Helpline yesterday, and they were talking about increases across the board on people calling who are in financial distress, and they particularly pointed out a rise in in small business operators calling in. Are you seeing an increase in the rate of insolvencies or people staring down that prospect in the current climate?
Bran: Well, I think we have seen that. There’s been data that reported just in the last week showing that insolvencies have come to a record high in August. That’s obviously deeply concerning. Now, to a significant degree, that increase has been driven by the collapse of Bathla and the ongoing ramifications in the construction sector, particularly.
But there are other sectors that are finding themselves in trouble as well, right across our economy, and what we say is that this means that we’ve really got to be looking very carefully at the best steps that we can take to try and support businesses to get through these difficult times and to do so in the best shape possible, and obviously, ultimately, to have productive opportunities that enable them to grow and prosper for the benefit of their staff, for the benefit of their shareholders, and for the benefit of the broader community.
Tamara: You mentioned productivity there. Now we’ve heard that word being thrown around a lot over the past few days, and especially today, that the Governor of the RBA, Michele Bullock, didn’t mince her words when she was asked why the economy has hit its speed limit. This is what she had to say yesterday.
[Audio excerpt] Michele Bullock: The bottom line is that productivity is doing nothing, and I know we talk about productivity a lot, but it’s so important if we want the economy to be able to grow and create jobs.
Tamara: So she’s saying there, it’s so important for that. The Treasurer mentioned today as well productivity and government measures that the Labor Party had put in place to try and boost productivity, but there has been some criticism levelled at businesses that you know, are businesses stepping up, are they holding up their end of the bargain and is business investing enough in new capital to improve productivity?
Bran: Well, it’s a really good question because when you look at what the Governor of Reserve Bank has said, we’re actually seeing productivity in the negatives over the last two months. It’s not as though it’s growing, but just a bit. It’s actually declined, so it’s sitting at the last 12 months at negative point two per cent. And if you look at the last six years of this decade, we’re on track to record the worst decade in productivity growth in our recorded history with respect to productivity figures, so this is deeply concerning, and productivity is really important because ultimately, the extent to which we are productive really goes to the extent to which we can drive real wage increases and lift living standards.
The challenge in terms of business, coming directly to your question, is that if we want businesses to invest, they will only do so in circumstances where they’ve got the right settings that incentivise them and encourage them to make investments that ultimately improve their prospects, but also improve prospects for people to experience those real wage increases that I just spoke to, which is obviously what we all want, so that means that if we want businesses to feel incentivised to make these types of investments for the future, then we need to have the most competitive settings possible in terms of taxation, regulation, industrial relations, planning.
The challenge that we see across our economy at the moment is that Australia does not rank well in key areas like taxation and regulation, against other economies that are actively competing for investment that we would like to be winning.
Tamara: And when it comes to changes, there the Productivity Commission recommended a change to company taxation. What would you like to see change there to encourage investment?
Bran: Well, what we would say in terms of taxation, and bear in mind that taxation is one of the levers that we believe needs to be pulled in terms of improving the country’s productivity, what we would like to see is a holistic conversation in terms of what tax reform looks like.
That means looking at personal taxes, it means looking at our company tax rate, it means looking at our consumption taxes, and obviously at our state taxes too, but one point that I would make in terms of our company tax rate is that sitting as it is at 30 per cent, as the headline company tax rate, we are ranked 38th of 42 economies that we compete with on a day-to-day basis, according to our BCA analysis, and that means that we are uncompetitive in that respect.
So we are losing out to other countries, the United Kingdom, the United States, New Zealand, Canada, all of which have more competitive rates than we do, and that means that they’ve got a better prospect of securing investment. So if we want to keep up, indeed, if we want to try and get ahead, we have to start thinking through what we can do to improve the competitiveness of our settings.
Tamara: Yeah, the Treasurer did flag today as well, he pointed back to some budget decisions that were made back in the May Budget to boost productivity, and what the Government says is to cut regulatory costs by $10 billion. They introduce measures like permanently introducing a two-year loss carry back for companies up to $1 billion, and a loss refundability for startups, and a number of other measures there. Is there anything in the short term that we can do to make a quick turnaround? Can we can we get some quick gains in productivity at all, or is it really a long game?
Bran: Look, I think it’s a really good question. There are unquestionably reform processes that are medium-term propositions, and I think you’d have to put tax reform or comprehensive tax reform into that category. Although I would say you only get that process finished by starting it, and we’d like to see that started as quickly as possible.
But there are also steps that you can take in the short slash immediate term, in order to drive productivity, you mentioned the regulatory changes that the Treasurer announced in the Budget. We supported those, but we would say we need to go further than that. Those changes, that $10 billion that you referenced earlier, what that represents is one sixteenth of the overall regulatory burden in our economy, which is about $160 billion a year.
You’ve got other countries like the UK and indeed the EU, which have targets to reduce the regulatory burden in their jurisdictions, the cost of it by 25 per cent. So, if that was in Australia, applying the same logic, you would have a target to reduce the burden of regulation by $40 billion, not $10 billion.
Again, that’s an instance where we would say we’ve taken a useful step forward, but we still have a long way to go just to keep up with our competitors.
Tamara: We’ll have to leave it there, but thank you so much for your time and for your insights today.