This Is No Time to Undermine Corporate Confidence

17 May 2010

The Australian

Graham Bradley

President, Business Council of Australia

Confidence is a crucial cornerstone of our market-based economy. It is a key ingredient in the recipe for growth and improved living standards.

Confident businesses will invest, grow and hire. Confident investors -- here and overseas -- will provide the financing for this to happen. And a confident community will spend, start families, buy houses, and invest in their own education and training.

Reflecting this, economic policies need to be set and communicated in a way that builds confidence and minimises unnecessary uncertainty.

The global financial crisis provided a graphic example of how falling confidence can spiral down in a series of vicious cycles.

America’s policymakers were fully stretched in halting this slide.

Australia faced the same challenge and was at serious risk of contagion.

But the Rudd Government and Reserve Bank took decisive action to stabilise confidence and through it economic activity. These measures worked and received strong endorsement from the Business Council of Australia.

While our economy is growing stronger again and confidence has begun to return, it is risky to take this for granted.

As business is again starting to invest, maintaining confidence is just as important now as it was in the height of the GFC.

Government actions and policy proposals need to recognise the complexities of business and the challenges in remaining competitive.

There is no doubt that tax and regulatory settings have a significant bearing on business competitiveness and investment, for big and small businesses.

Policy changes and the uncertainties associated with them weigh on business confidence and weigh on the investment and jobs that are underpinning our economy and federal budget.

As it stands, the key driver of Australia’s economic fortunes, our resources sector, finds itself in an unenviable position: facing a new, not yet fully defined profits tax, and with uncertainty created by a significant lag before it comes into effect some two years hence.

Tremendous uncertainty has been created for those companies affected, for potential investors and shareholders.

No doubt this is engaging the time and energies of many in these companies, time that would be better spent building their businesses.

In communicating these measures the government has, unfortunately, raised questions about appropriate returns to foreign investors and has publicly pitted itself against leading businesses.

This has not gone unnoticed in the boardrooms of investing companies in Beijing, London, New York.

And, if market reaction is a reasonable barometer of confidence then it is clear confidence in the prospects of our resources sector has been severely tarnished. The broader perception of policy risk, or sovereign risk as it is known, could end up extending well beyond this sector.

Australia has done remarkably well.

Our return to confidence and growth is welcome and deserved. It reflects the hard work of business and government alike. But confidence and all that comes with it can be easily lost.

The near-term growth forecasts contained in the budget are heavily dependent on strong levels of investment, especially in the mining sector. With uncertainty and confusion surrounding the resource super-profit tax it will be difficult to sustain the confidence needed to underpin a strong investment climate. Australia will be worse off as a result.

The government must clearly communicate that it understands the importance of a stable business investment environment in all sectors and that it stands ready to respond to the very real concerns raised about the resources tax.

Now is the time to build up, not erode, our hard-won business and community confidence.



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