Australian Financial Review 2 March 2017
Australia is fat and happy. Indulgences delivered by 25 years of economic growth are beginning to unravel the place. A provincial mindset, fact free debate and sloppy, inconsistent policymaking is commonplace.
Three current issues reveal the nation’s flabbiness.
The first is tax. To the detractors of the company tax cut plan, it doesn’t matter what our tax system looks like, investment will roll in. Apparently, the world owes us a living.
Australia has relied upon foreign investment since the First Fleet. Foreign investment may not be popular but it underwrites our prosperity.
We do not have enough capital in the country to develop it. We simply do not have or save enough.
In the past 20 years, $3 trillion has been invested into Australia. 20 per cent of capital flows in 2015 were foreign.
The RBA Governor Philip Lowe said recently:
“Year after year, for more than two centuries now, capital from the rest of the world has helped build our country. If we had to rely on our own resources, we would not be enjoying the prosperity that we do today.”
The tax system is the biggest overall drag on our competitive position and slows investment. KPMG modelling shows a 22 per cent company tax rate would boost investment by over 4 per cent. Over half of that new investment would come from overseas.
Without investment, there will be no new jobs. Jobs cannot be created without investment.
The complacency is so deep, virtually no analysis has been conducted on the impact of Donald Trump’s plan to cut U.S. company tax from 35 to 15 per cent or Theresa May’s agenda for a 17 per cent rate.
These changes are material. For instance, the U.S. remains Australia’s largest investor with $173.5 billion of direct investments which is 25 per cent of total direct foreign investment (FDI).
On the other side of the coin, the U.S.A. is Australia’s biggest investment. 20 per cent of outbound Australian FDI goes to the USA (over $100 billion).
The noisy groups against the company tax cut plan, such as unions, say we cannot afford it and hospitals and schools will cop it. Unions say big business doesn’t pay tax anyway.
Despite paying $65 billion in corporate tax in 2015-16, corporate Australia is the object of ridicule.
GetUp and unions have funded a multimillion dollar campaign based on a lie: that corporations pay no tax.
Yet that $65 billion is proportionally the second highest collection of company tax in the OECD. $65 billion for schools, hospitals and roads.
This campaign to discredit Australian business has been conducted because it is easy.
It’s easy to invest fake news in a rich country.
It’s easy to invent false choices.
But you only get away with indulgences in fat times (like now). Too few have argued the truth. When business leaders have, it hasn’t had the reach of Getup or unions who get to people at local hospitals or schools.
It is possible these groups could rob Australia of a company tax cut.
The second indulgence is the populist demand for a Royal Commission into financial services without any thought of the desired outcome.
On outcomes, most of the problems in financial services have already been the subject of painstaking, detailed reform falling out of David Murray’s Financial System Inquiry or Ian Ramsay’s review of complaints and compensation.
For example, the Greens say they want to investigate vertical integration for two years in their proposed Royal Commission.
Yet these laws were completely redrawn under the Future of Financial Advice reforms with more belts and braces than you’d find at a Melbourne Club cigar night.’. Commissions are banned and financial advisers have a fiduciary duty. It is time to enforce the law.
In many cases, the law hasn’t been enforced which is why the corporate regulator ASIC should be under a lot more pressure.
The best law in the world is no law at all if it isn’t enforced. Compliance not witch hunts should be the focus.
When Royal Commissions are called into major sectors without a proper basis, we know the Argentine disease has taken hold as we are beset with indulgent division.
A great reminder of sanity from years past comes from Paul Keating saying in 1985 “banking is the artery of the economy.”
Keating understood banks must not be bashed to death because a strong financial sector is a core building block of a market economy which provides opportunities for millions of Australians.
The final indulgence is energy policy.
A nation of 25 million people should not end up with a renewable energy target of 23.5 per cent at the national level and over a half dozen inconsistent state targets ranging from nothing to 100 per cent.
In 2015, the average South Australian reliance on renewables was 41 per cent. The trouble is, on some days it was zero.
It is hard to believe we would look to go to 50 per cent renewables when we can’t get it right at 41 per cent.
Further, why would we export coal and gas to power the world but not use it at home?
As Bluescope CEO Paul O’Malley said, gas was being “hoovered up and sent overseas… If there is gas in Australia and we say it can go overseas, and we don’t have any baseload generation, I think we are going to have an energy catastrophe in Australia.”
Australia’s second and third exports should not become affordable indulgences only away from home.
Ultimately, the longer we remain fat and happy, the hunger games will hurt more when they commence.