Can't Grow Economy by Killing Golden Goose
9 June 2016
This opinion article by BCA Member and Wesfarmers Chief Executive Richard Goyder (pictured) was published in The Australian on 9 June 2016.
I am privileged to lead one of Australia’s leading companies. Wesfarmers is this country’s largest employer with approximately 200,000 Australians working across our businesses. Every year, we pay around $8bn in wages and salaries and inject billions more ($43bn last year alone) into the local economy, purchasing inventory and raw materials from valued suppliers like farmers and local manufacturers.
With our businesses ranging from chemicals through to retail shopping with our Coles and Bunnings stores, we serve around 20 million people every week.
Another group of Australians who are central to what Wesfarmers does are our shareholders. While perhaps not as visible as our employees and our customers, they are core to the role we play in communities all over Australia.
To give you an example, recently Coles announced that over the next two years, we will invest $120m in 10 supermarkets in Western Australia, creating 2,000 new jobs and potentially serving thousands of new customers. These decisions are only made when that new investment makes a suitable return for our shareholders.
Altogether, then, it’s fair to say that through our employees, our shareholders and our customers, we get a good sense of how people are feeling about our economy.
Right now, they are worrying about getting and keeping a secure job, paying the mortgage, looking after their kid’s education and staying healthy. Our customers and employees know that the taxes they pay allow Governments to fund these important social services. They also understand that our business needs to be successful if we are to open more stores, employ more people and pay our share of taxes and royalties (about $1.5bn last year).
It is disappointing, then, that during this election, basic fundamentals are being misconstrued. While I’m no expert in political campaigning, I am sure that no one would want our future economic prosperity to be damaged by anti-business rhetoric.
During 2014 I chaired a group of global business leaders that advised the G20, the world’s top 20 leaders, on policies that would drive economic growth; policies that would improve our standard of living. In essence policies that would create more jobs.
In many ways the challenge is simple. The way to create more jobs is to grow the economy. Given that 80% of our economy is driven by business and private enterprise, by far the biggest lever is to encourage business to increase investment thereby leading to job creation. Governments should facilitate this through encouraging open trade, building productive infrastructure and ensuring we have a responsible and sustainable budget.
Of course maintaining world class health and education systems is also important. A plan to grow the economy has the added benefit of providing the revenue needed to pay for such services. Focusing only on additional spending while denigrating the role of business, which is the primary economic growth engine, can only damage the economy.
Interestingly, both sides of politics are happy to embrace the recently released national growth figures. Indeed 3.1% GDP growth is world leading. Care must be taken however to understand what is lurking below the surface of this apparent rosy number. While the nation is producing more due to new resource projects, we are earning less income. This should ring alarm bells.
Politicians often claim credit for navigating Australia through the GFC – this may stem from a belief that increased government spending is the salvation of economic problems. This view ignores the fact that Governments can only spend what the private sector generates. During the GFC Australia was fortunate to have a financial buffer of $45 billion in net assets and a resources sector that was generating large income. This provided the firepower required to combat negative global forces.
We no longer have a surplus to buffer us and those global forces are again threatening. Our economy now sits with net debt of almost $300 billion and unless we fix this, we could lose our cherished AAA credit rating. Investment outside the mining sector is at its lowest level in over half a century and wages growth is at its lowest in almost two decades. Our current growth figures are the result of billions of dollars of historic investments in resource projects. The new project pipeline is drying up. Taking current growth for granted risks us waking up in 3 years to a real problem – falling income, rising unemployment and ballooning government debt. We are living on borrowed time – and borrowing from our kids’ future to do it.
Politicians who wish to spend more of other people’s money, but fail to understand that it is future investment decisions that deliver future revenues, keep trying to squeeze more out of the same business golden goose. It is in no one’s longer term interest to make promises that can’t be delivered. There can’t be endless spending on new initiatives without a plan for supporting those who generate the revenue. We need Governments to stop squeezing and help create more and bigger geese!
Two of the biggest disincentives to investment are high taxes and the cost of over regulation. Politicians in campaign mode seem to love simple promises – but there are no simple solutions to growing a business or an economy. It is about getting the basics right through the medium term.
People who trivialise the impact lower business taxes would make clearly don’t understand how investment decisions are made in the real world. Put simply, lowering business tax will improve the return on a proposed future investment, thereby increasing the likelihood it will be made.
The millions of Australians who own shares in and work for our businesses are proud of the contribution we make to our society every day. Business wants to play its part to help us all get ahead. It is time to stop the business bashing and engage in meaningful discussion around how we can grow our economy together.