Tax, red tape, and productivity dominate again, but public servants know the bigger picture is prevention and public goods.
The business sector’s agenda for the federal government’s Economic Reform Roundtable, ending today, is hardly a secret. An “Open Letter” in The Australian Financial Review on April 10 this year was signed by 20 business sector organisations, led by the Business Council of Australia and closing with the logo of the Minerals Council of Australia.
The advertisement is headed “A strong economy with successful businesses is the backbone of a strong nation”. It goes on to reiterate four time-worn arguments: that the nation has an uncompetitive tax system; is burdened with regulation and red tape; suffers from lagging productivity; and should be made a more attractive destination for investment. The rationale? So that we can “increase living standards”. Let’s examine those five assertions.
The mainstream measure of ‘strength’ is GDP or GDP per capita, but this measures only an economy’s throughput and has a highly ambiguous relationship with human wellbeing, which surely is the objective of the roundtable (and of public policy generally). GDP measures expenditure on patching up people in hospitals as gain, but undercounts — or disregards altogether — the productivity (value-adding) of public sector employees such as schoolteachers who toil to teach children how to live a healthy life.
An expanding economy suits the business sector in aggregate, but aggregate measures like GDP hide nuance and do not reflect the specific circumstances that cause individual people and business firms to thrive or decline. In any case, ‘standard of living’, which measures quantity of stuff, is a poor substitute for ‘quality of life’, which approximates well-being.
Australia is widely reported to be a low-taxing country, but that should not be a source of pride. In return for the taxes they pay, businesses receive a wide range of public goods without which they could not trade and would be vulnerable to predatory behaviour by other businesses. Prudential regulation, a trustworthy currency, and protection from international turbulence are necessary to encourage firms to invest with confidence.
Business does not come with clean hands to a debate on taxation. Tax evasion and avoidance are rife, especially with multinational firms running overseas accounts. Business peak bodies no doubt are aware of the lurks some of their members adopt and are in a better position than any other entity to pressure them to pay their fair share. Every dollar of avoided tax increases the share of public expenditure that other firms must pay to supply the civic services and institutions that are essential to business, and everyone else.
The term ‘regulatory burden’ is a misnomer. Yes, regulation restricts a company’s flexibility to operate as it pleases, but it also offers protection against predatory competitors, engenders trust in its activities and can foster better operational productivity through quality control.
Much of the restrictive regulation that attracts business protestation has been introduced, after the fact, to prevent cheating, tax avoidance, worker exploitation, unsafe work practices or environmental pollution by companies seeking profit at others’ expense. For example, a major justification for imposing the red-tape-heavy GST in 2000 was to counter tax evasion.
Certainly, there is such a thing as inefficient regulation. It was reported last week that there is “a backlog of 30,000 housing approvals currently being assessed under the Environment Protection and Biodiversity (EPBC) Act.” Now, how can that be?
A backlog of that magnitude suggests something beyond simply a clunky statute — more likely understaffing of the bureaux responsible for assessment. A similar explanation can lie behind delays in obtaining development approval at the local government level.
Much commentary in the business press seems to conceive of productivity as confined to the efficiency of using labour. But there are many sources of inefficiency and waste other than employees’ remuneration or privileges, including many that business has the pre-eminent power to reduce.
For example, there is the lost productivity of capital leakage. The roundtable might usefully discuss how to prevent the siphoning of franchise fees and profits overseas by international firms when they could have been invested here. It could also debate how the property development sector can avoid wasting the investment of previous generations through bulldozing thoroughly serviceable houses to build faux-Georgian faux-mansions. Then there is the destructive competition between big retailers who duplicate their stores simply to deny their rivals market share.
For another example, the roundtable might debate how to put to work the sizeable cohort of people of working age who are too poor to afford transport to job interviews, too insecurely housed to receive mail and too unfit to escape patching up via the health system. Prevention is clearly better economically than patch-up: some 50% of hospital emergency admissions result from complications of treatable chronic conditions.
The roundtable might also usefully debate how to ensure that ‘owned capital assets’ such as hospitals are not left idle because staffing is underfunded. Many government-funded projects are financed from capital accounts with fixed budgets, leaving running costs vulnerable to perennially squeezed annual appropriations or dependent on a different level of government.
Data from the Australian Bureau of Statistics indicate that from 2000 to 2020, the absolute amount and percentage of manufacturing profits reinvested have fallen continuously, year-on-year. Profits have been diverted to dividends, share buybacks, corporate takeovers and executive bonuses — not obstruction by governments. These forms of under-investment are almost completely within the control of the corporations themselves.
The roundtable might also discuss how to reduce waste of natural resources, particularly petroleum, in which Australia is no longer self-sufficient. This means pressing the government for stronger regulation of vehicle efficiency, hastening the transition to electric transport and dare I say it, putting a price on carbon.
The dishonest campaign against a carbon price during the Gillard government era was a massive own-goal by business. It was a missed opportunity to increase the efficiency (productivity) of industrial processes and reduce business costs across the board, through an orthodox economic mechanism. Retrofitting energy-efficient equipment commonly pays for itself within two years.
The notion that Australia needs to attract yet more foreign investment is unconvincing, to put it mildly. There is space here to mention just two counter-arguments.
What is the key precondition for establishing a new business? It’s not the statutory framework or even the tax regime. It is demand, for the product or service. And what is the primary precondition of demand? It is discretionary income. The greatest contribution that governments could make to business prosperity is to reduce inequality and poverty, so that people now in poor financial straits can enter markets for goods and services.
The second greatest contribution would be to moderate the nation’s uncompromising free trade regime, which has crushed demand for a wide range of locally produced goods and services.
Nothing in this article suggests that it is improper for peak bodies to advocate policies they perceive as in the interest of their constituents. That’s why they exist. But their role as lobbyists should be acknowledged for what it is. Business — like any sectoral advocate — is quite capable of leading policy astray. Businesses’ obstruction of the carbon transition will impose incalculable economic and environmental costs on our nation for decades to come.
The Treasurer should treat sceptically claims by business that it is the source of prosperity. Prosperity derives from the talents, enterprise and good health of the population, nurtured by public institutions and operating within a supportive statutory, policy and budgetary framework, with business being one of the downstream vehicles.
Perhaps business might use its knowledge of commercial supply chains to devise a model for a better consumption tax than the regressive GST, which taxes production. For example, a wholesale tax upon non-renewable gas and petroleum could flow through the economy with minimal compliance cost.
The Treasurer should accelerate the preparation of better measures of a “strong economy” than simply growth — factoring in resilience, distribution of welfare and income, and sustainability.
The current national economic policy settings are not conducive to a flourishing, productive population. Too many pro-market policy changes advocated by business, such as negative gearing, deregulation and privatisation have increased the share of national productivity enjoyed by the already-financially comfortable, thus reducing the capacity of a large fraction of the population to participate in market exchanges, contribute their labour and even to manage their lives without patching up because of sickness and welfare dependency.
People will become more productive if they become more self-reliant. They will become more self-reliant — more resilient — if they are healthier, are not crippled by financial inadequacy and don’t have to justify their usefulness by a punitive welfare regime.
Fix poverty, fund public goods including preventative health, education and research adequately, and productivity (whatever that is) will fix itself.
