THE HON WAYNE SWAN MP
FEDERAL MEMBER FOR LILLEY
Short-term and populist, the Trumpification of Australian business
Last week prominent members of the Business Council of Australia (BCA) gathered at the Australian Financial Review for a round table discussion. During the discussion the Chief Executive of the Australian Stock Exchange, Elmer Funke Kupper, reportedly lamented of Australia’s current economic climate “it’s almost a shame we didn’t have a deeper downturn to wake us up to the heavy lifting we’re going to have to do.”
I couldn’t believe it when I read it. One of Australia’s most senior business leaders was bemoaning the fact Australia avoided the worst of the economic carnage wrought by the Great Recession. The resulting downturn across 23 high-income countries smashed global output by the equivalent of the entire German economy simply disappearing.
Rewind eight years. During the Global Financial Crisis, I sought to work as closely as I could with senior members of the business community to develop a package, which would shield Australians from the worst effects of the global calamity. While there was some immediate public support for the action we took from the BCA in the years that followed there was a steady stream of opposition, particularly from their new President Tony Shepherd. Their interventions masked a strong desire in sections of the business community for the cleansing power of a recession to sweep through the economy. None however were brazen enough to declare this publicly.
It was and remains a surprisingly resilient idea in some circles. Not uncommon in the business community and in my view it was the animating idea behind then Opposition Leader Malcolm Turnbull’s opposition to our stimulus.
It is also a morally hideous idea. Those wishing recession upon us are not the ones who would find their jobs in danger. They advocate pain for others in the service of some probably illusory benefit. It is gratuitous, irresponsible theorising from the materially comfortable.
Thankfully in 2008, this thinking went nowhere.
Australia’s performance during and after the Great Recession led the developed world. Our economy is now around 20 per cent larger than it was at the end of 2007. We have avoided the secular stagnation that has accelerated declines in middle class living standards across many developed countries, leading to polarisation and gridlock.
Although I know some at the roundtable do not share Mr Funke Kupper’s view, I fear Funke Kupper gave us a glimpse into the thought process of far too many of Australia’s most prominent business people and most certainly the thought process held by the majority in their peak lobby group, the BCA.
Recently I asked an American friend, a 40 year veteran of the US political process, whether the rise of Donald Trump would eventually lead to a more moderate and balanced political discourse in the US. He said “No, it will only get worse.” He went on to explain that increasingly we are seeing leading business figures lazily adopt positions based on populism and ideology rather than evidence-based economic analysis. Sadly, Trumpification has seeped into the arguments made by leading members of the Australian business community.
As the Government’s tax agenda has lurched from one policy debacle to the next the BCA has been an ever present voice calling for lower company tax and a higher GST.
Analysis of the BCA sponsored government proposal shows that a 50 per cent increase in the GST to fund an income tax cut would result in greater income inequality at the cost of long term growth – that is income concentration, not wealth creation.
Recent work from the IMF about the role of equality as a driver of economic growth has been ignored by the BCA who remain clueless as to why the public are so resistant to the BCA’s self-professed wisdom and experience.
This is most evident in the comment to the roundtable from the CEO of the Commonwealth Bank who said people think businesses aren’t paying tax “when the facts are that they are.”
While I acknowledge that Australian-based companies like the Commonwealth Bank and Wesfarmers are meeting their legal obligations, many other large and so-called respectable companies are engaged in tax evasion. The failure of the BCA to speak out about this is reprehensible.
Instead, on Tuesday the BCA will once again call for a company tax cut to 28.5 per cent and seek a commitment to a glide path to 25 per cent or lower over a decade.
The data published by the Tax Commissioner before Christmas on 1500 corporate taxpayers is staggering. Few companies would pay anywhere near the 28.5 per cent rate.
Companies reporting taxable income in 2013 paid an average tax rate of less than 24 per cent. For many this is legitimate. But as we know, in 2013, nearly half of all foreign companies with total revenues of A$21.2bn paid zero tax.
Consider this: if all the companies that reported a taxable income paid the full 30 per cent, the additional amount from these companies would equate to more than $11 billion.
Ignoring this, the BCA look instead to the pockets of the Australian people, justifying their grab with highly theoretical economic argument that bears little resemblance to the reality of everyday life.
We know from the Treasury sponsored KPMG Econtech modelling that an income tax-GST swap would make little difference in terms of economic efficiency but would hit low and middle income earners hard.
When it comes to a company tax-GST swap the BCA puts its faith in modelling such as that contained in a 2014 Treasury Round Up article which argues two thirds of the gains of a company tax cut flows to labour with only one-third flowing to the owners of capital. These models typically assume perfectly mobile capital and ignore the real world experience of corporate tax policy. Multinational tax avoidance is huge and as long as Singapore exists no rate will be low enough. The beggar-thy-neighbour policies of countries like Singapore are a tax shield or tariff discriminating against investment in Australia. There is no way Australia or any country can compete with a zero rate.
Even if you accept the assumptions of the BCA’s modelling, the paper notes the full benefit of the company tax cut will take 20 years to flow through. Even then the benefits to workers are highly sensitive to assumptions, and could be negligible in a world with imperfectly mobile capital.
As Treasurer I proposed the reduction of the company tax rate by 2 per cent accepting the argument that we needed to be competitive internationally. Bizarrely the Liberal Party, including the current Prime Minister, voted against that cut with the BCA’s tacit support.
Back then, I bought the argument that a company tax cut reduces the cost of capital investment and our workers would benefit in the long run. That part of the argument has some validity, but the debate has moved on, and my overwhelming feeling now is that business and their subsidiaries in the Liberal Party had their chance. Tax reform today needs to mean something far different.
What has become crystal clear in the interim is the full extent of multinational tax evasion and minimisation by some of our most respected corporates.
With most Australian corporates already paying less than 25 cents in the dollar the case for a cut is absurd.
Essentially the BCA is driving for an increased profit share of income at the expense of the wage share, whether it is directly through a corporate tax-GST swap or for its friends in high tax brackets through the income tax-GST swap.
An increased reliance on indirect taxation without action against those evading the system and those individuals and corporates that are pillaging the revenue base is a recipe for further inequality.
What the BCA will never acknowledge is that progressive taxation is an essential ingredient in the policy mix required for wealth creation and social mobility.
Instead they cheer from the sidelines supporting the slowed wages growth, hooting about cuts to weekend rates for casual workers, and going on mute when the Government cuts the social wage through scrapping Medicare bulk billing incentives.
Australia needs a more balanced discussion about a reform program to lift productivity but when you look at the BCA and their tax reform proposals there has been no effort to move from their deeply entrenched and ideological position.
Most of the reform being pushed by big business is aimed primarily at increasing corporate profits in the short term. It’s a 1980s and 1990s agenda of American style trickle-down economics where workers have fewer rights and lower wages and where companies have lower taxes and lower regulation.
It’s nothing like, as they claim, a continuation of the Hawke-Keating agenda which was a bargain between the government and the union movement to share growing prosperity fairly throughout society. It is however an agenda that will lead to a further polarisation because of a Trumpification of Australian business.
They have an agenda for growing inequality and the public know it. It fails the motivation test. They’re not putting forward an agenda because it’s the right thing to do, it’s an agenda which feathers their own nest and when you fail the motivation test people stop trusting you.
As Treasurer I did my best to listen to responsible voices in the business community, but it seems to me they are getting fewer and fewer. No doubt I will again be accused of discouraging individual achievement and attacking the wealth creators. I have deep respect for many in business but I remind everyone that wealth is not just created by certain groups in our society. All Australians create wealth, from cleaners to executives, and all Australians deserve a voice in our economic debate. I will fight for this voice because I am convinced that you can’t treat the creation and the distribution of wealth as two separate matters.
The trickle-down agenda of the BCA will only create the same environment that Trump is feasting on in America: where the wealthy have left everybody behind in a very dry pool of economic resentment.
A shortened version of this article was originally published on the Guardian Australia.