Topics: Federal Budget, tax reform, intergenerational fairness
E&OE
Sally Sara, Host: Black is the CEO of the Business Council of Australia, and joins me in the studio this morning. Bran, welcome back to Breakfast.
Bran Black, BCA: Thanks so much for having me.
Sally: And Michele O’Neil is the President of the Australian Council of Trade Unions. Michele, it’s good to have you back in the studio as well.
Michele O’Neil, ACTU: Thanks, Sally. Good to be here.
Sally: I think as united in the same positions as we were last year for the Budget as well. Bran, if I can start with you. Yesterday, you said that the Budget must be fiscally strong, given domestic pressures and this global economic uncertainty. Is this a fiscally strong Budget in your view?
Bran: Well, I think the Treasurer has taken some important steps towards improving our fiscal position. It’s clear that there is still a ways to go. We’re still looking at eight years ahead of deficits, and those are in circumstances where we see the world around us is increasingly complicated. When you think about just the last six years alone, we’ve had Covid, we had the surprise, if you will, of the tariffs that Donald Trump imposed. I don’t think anybody was anticipating, at least before his election, that we would be the subject of tariffs ourselves.
And then, of course, we’ve had the closure of the Straits of Hormuz, and that’s just in the last six years. I think it is pretty clear, as a consequence of that, that we’re going to see more shocks coming down the track. So we need to be as fiscally strong as possible. The Government’s done good work in terms of the NDIS. That’s hard work, because you know that in making those decisions, you’re making calls that affect people’s lives very directly, including the most vulnerable.
So they should be commended for making those decisions, because it means that we have a sustainable scheme into the future. But there is still work to do. As I say, we’ve got deficits forecast ahead. There is still a lot of work that we need to do in future budgets.
Sally: Michele O’Neil, you were looking for a Budget with fairness at the heart of the document. Is that what you see?
Michele: It is what we see, Sally. I think the fact that we’ve got a Budget that really does shift the balance towards a fairer system for housing and tax towards working people is a really important change in Australia’s system, and that’s because we’ve really favoured taxing work more than wealth in Australia, which I think is the wrong way around.
Working people pay their taxes, but we’ve had all sorts of arrangements in place that have let those that are, in some cases, professional landlords or people with the most, pay far less tax. People who, the worker pays their tax every week, what these people sometimes do is pay their lawyer and accountant to find ways of not paying the tax every week.
Now I’m not having a go at people that use legitimate and legal measures to think about how they were going to look after themselves in their retirement. But if you look at where the changes really hit, what we know is that 83 per cent of the capital gains tax changes benefit the top 10 per cent of Australia’s wealthiest people, and 90 per cent of the changes in terms of discretionary trusts are held by the same 10 per cent. So I think this is an important shift for fairness.
Sally: Bran, at the beginning of this second term for the Albanese Government, the Treasurer and the Prime Minister were setting the scene that this was going to be a term all about productivity, primarily. We had the Productivity and Economic Roundtable last year. Is there enough in this Budget to lift productivity from a business perspective?
Bran: There is certainly a very, very decent down payment in terms of the work that’s required with respect to productivity. I do need to caveat that, and I’ll come back in terms of the tax changes, because we don’t consider that the changes to CGT or negative gearing are good in the context of improving our overall competitiveness and therefore generating scope for more investment, which needs to be the overarching objective. But if you’re looking at the Treasurer’s productivity package, it is very positive.
And what I particularly draw listeners’ attention to is the fact that the Government has recognised we have a red tape problem. There is a commitment to reduce red tape by $10 billion a year. That’s not insubstantial by any stretch.
In terms of practical examples, that’s the difference between having 37 odd licences to pour a cup of coffee in Victoria and maybe having half of that. It’s the difference between potentially having 36 different categories of payment for the purposes of payroll tax and having a lower version, or indeed having a consolidated approach so that businesses that operate nationally can do so more efficiently.
These are the types of simple, easy changes that just strike us as common sense. So this package is useful. Having an approach that sees more skilled migrants come into the country and get processed faster, so that we can close the skills gaps, that’s significant. Lowering, or rather increasing, I should say, the research and development tax incentive threshold, those changes will make a difference. So we’re pleased with that.
But we’re again coming off a low base in terms of productivity. Over the last decade, it’s been 0.3 of a per cent. That’s the lowest decade in six decades. We have a lot of work to do. This should be considered a down payment. It’s a good down payment. But we’ve got to keep going.
Sally: Michele, when we’re having these discussions post the Budget, and this will go all the way from the Parliament here, to workplaces, to around the kitchen table, when we’re talking about issues of fairness and equity, is there a need to decouple age and wealth?
Because some people over the age of 55, especially if they don’t own their own home, and women over the age of 55 are a very fast-growing homelessness cohort, is it important to decouple that to have a proper discussion?
Michele: Look, I think it’s important that we realise that this is a shift in terms of fairness, but it’s not everything that needs to be done in terms of housing. So we want to see increases in supply. It’s good to see that $2 billion that’s going to lead to 65,000 more houses. But we want to see more changes, particularly investment in public housing, Sally, which is really something going forward that I think we need to look at to lift supply, particularly for the people you’re talking about.
But, you know, the example I think of is a nurse whose name is Sonia, and she’s paying $25,000 out of her $90,000 salary in tax. Her landlord, Malcolm, is getting $90,000 income from rent and from dividends, and he’s paying $2,000 in tax.
Now there’s something broken in that system. So starting to address it in a way that gives more opportunity to people to get into the housing market. We’ve seen, since John Howard introduced those capital gains tax and negative gearing changes to the way they are now, a 400 per cent increase in housing prices and workers’ wages have only gone up about half of that over that time.
So we, I think, need to really look at fairness and equity and see this as an important part of that. But we also need to do more in terms of rental rights and housing supply. And public housing is really important part of that. The other thing I’d say is just on the productivity piece that Bran spoke about. We want to see changes that improve productivity. But one of the real problems we’ve got in this country is that companies have not been investing enough in skills and training of workers, in the technology they need to improve productivity in research and development and innovation.
They’ve got to lift their game and actually do that. But the other thing we’ve got to know is that no longer is it true that productivity gains automatically lead to wage increases in Australia. So there was a one per cent, small improvement in productivity in the last 12 months. Workers’ wages went backwards by 0.2 per cent. And if you look over 25 years, that nexus of the share that workers are getting in terms of even when there’s small productivity growth, it’s not flowing through so that’s another important area where we need to lift wages.
Bran: I think the key point to make there is that we haven’t seen sustained productivity growth, and that’s why we haven’t seen the increase in real wages that we’ve all been looking for. When you look at the Reserve Bank and the Treasury’s analysis of productivity, it’s absolutely clear that when you get sustained productivity growth, that is the way to improve real wages. Indeed, the Treasurer said himself last night in his Budget speech that if we want to increase real wages, if we want to lift living standards, we have to drive productivity improvements.
Now Michele made the point that we need to see businesses invest more. We agree. But businesses are only going to invest more if they’re given an incentive for doing that. And the challenge that we’ve had in Australia is that there are better opportunities for businesses to invest in many jurisdictions overseas, and the settings that they look to in terms of deciding where to invest are often more attractive in those jurisdictions. Tax is a great example.
On our analysis, the BCA’s analysis, we rank 38th of 42 developed economies in terms of the competitiveness of our tax settings. If we want companies to invest more here, we need to improve on that. The challenge that we see is that with decisions such as those taken in this Budget with respect to CGT and negative gearing, is that they set our settings back in terms of competitiveness. For instance, if you look at the housing side of things, the tax changes, in and of themselves, actually reduce supply. They reduce supply by 35,000 homes if we want the Sonia’s of the world to get ahead.
Sally: In the Budget, it does also say that other measures in net will increase supply.
Bran: Yes, but those are the supply side measures. So it’s the supply side measures, as Michele mentioned, it’s the increased investment in connecting infrastructure, so the water, the utilities and so forth, roads.
We’ve been saying for a long time that if you want to generate more opportunity for housing and give the Sonias of the world the chance to get into the market, the way to do that is to invest in supply side measures. But these demand side measures, the CGT reform and the negative gearing reform that we’ve seen in this Budget, actually put downward opportunities into the market, and that’s just a very poor outcome.
Michele: I just don’t accept that that is the impact, Bran. But I also just want to pick you up on this issue.
Bran: It is what the Budget paper is saying.
Michele: Well, no, because the point is that you have to look at all of the measures combined. This is a wicked, complex problem we’ve got in terms of housing supply in this country and making it fairer. So it’s not correct to just sort of carve out one bit. And also, we know that push up of prices that I talked before is because more and more investors have been buying multiple, multiple homes, making them less and less affordable to people who are just trying to buy their first home. And workers can’t afford to live near where they work anymore. They’re worried about what’s going to happen to their kids and their grandkids.
And even people who are benefiting from the capital gains tax and negative gearing changes who are older workers say to me, ‘Look, I’m really worried. This isn’t going to be something that’s going to help my kids and my grandkids, unless we change the system, unless we do something’. The other thing is, just talking about corporate tax, 1,100 of the biggest businesses in Australia in 23-24, those that have revenue of more than $100 million, paid zero tax. So, you know, I appreciate that they might like to look at greener grass, but let’s start with them actually paying some tax.
Bran: Well, I think there needs to be a response to that.
Sally: A brief reply, because the clock’s ticking on us, unfortunately.
Bran: We know that companies that don’t pay tax are doing it because they’re not making money. They’ve got deductions which they’re incurring, and necessarily that means that our focus needs to be on making them profitable. That’s the key thing that we need to drive here. And certainly with respect to housing, we entirely agree that we want to see people given the opportunity to buy homes closer to their families.
But again, that comes down to supply. The best thing that we can do is back in initiatives that enable planning reform, that enable connecting infrastructure, that enable companies, home builders, developers, to feel confident, to make the investments that generate more opportunity for people to buy homes.
Sally: Well, it’s been interesting to throw around some of the details and the principles of this Budget, which was unveiled last night. Bran Black is the CEO of the Business Council of Australia. Bran, thank you very much for coming in.
Bran: Thank you.
Sally: And Michele O’Neil is the President of the Australian Council of Trade Unions. Michele, thank you so much.
Michele: Thanks very much, Sally. And thanks, Bran.