Jennifer Westacott - Australian business delegation in Washington
21 February 2018
Event Press Conference, Australian Business Delegation, Washington DC
Speaker Jennifer Westacott, Grant King, Michael Chaney, Jean-Sebastien Jacques, Steven Ciobo
Date 21 February 2018
Topics US business delegation, company tax
Grant King, President: I suspect you've already had a very busy couple of days and we appreciate you taking the time to just join us briefly and listen to a number of people reflect a bit on what they've learnt and seen. I'd just like to anchor this with a couple of comments about the trip that Jennifer and I did here in September last year where we really understand or understood? what was happening or likely to happen in the US.
It's been a matter of government policy. The enterprise tax plan has been very clear part of government policy since last election, since their re-election we in the BCA have been very big supporters of that policy but the US and what has happened here has been a very important to influence of outcomes. We formed the view in September that it was going to happen and that was not the view in Australian. I think most of the commentary in Australia was that it would never happen. I must admit I thought it was going to happen in the first quarter of this year.
For a variety of reasons, it happened before Christmas and that has profoundly changed the landscape. I think it changes it in two ways, things that people thought were impossible are possible and secondly it is providing a great exemplar for Australia because we heard, for example, I'm not quite sure what briefing you've been in, but we certainly heard in our briefing from Cohen, he headed the economics committee, that even in two months you've seen it make a difference. It's making a greater difference than they thought, in the environment and the numbers. Companies are investing, wages are growing, a number of companies are saying, "this is changing our decisions", but of course it's changing the risk for Australia because what we also heard is that the US is becoming an even more attractive place to invest because numbers are simply different. My hope is if you're taking the opportunity, as part of this trip, to look at what's happening here in the US and understand the changes that have been here are making a difference and need to be responding to an Australia.
The second thing that we heard in September, which was not talked about in Australia at all was the impact that a change in regulation deregulation particularly in the US, was having on investment decisions in the US. It was an untold story in Australia, but a big story in the US. And so if I was to take two things out of this trip, it's that tax reform has occurred in the US and it is making a difference and it is doing those things, improving those things, which are contended by our government in Australian who are putting forward that Enterprise Tax Plan, of course, strongly supported by our members.
And secondly, the deregulation, also shows that it makes a difference to business and business investment and that's been a less told story but also a story I hope you'll get the opportunity to probe more deeply as to just what changes have been made, there is clearly, there was a desire to increase the rate at which projects are approved, reduce the burden of environmental permitting, for example, not to the detriment of the community or the genuine needs of the community, but to make it easier and quicker for companies to invest with more confidence and these two things are clearly making a difference.
With those introductory comments I think were perhaps a few comments from our colleagues and the Minister.
Hon Steven Ciobo, Minister for Trade, Investment and Tourism: Well thanks Grant, I guess to pick up on a couple of comments. The comment was made in one of the sessions today that here in the United States off the back of the GFC, the federal government was looking at providing a stimulus package of around six hundred billion dollars. The observation was made that they estimated that for tax reform and regulatory reform here in the US, that the private sector stimulus was well in excess of some six hundred billion dollars, it really exemplifies the stories, exemplifies the difference in policy approach. The outcome is the same if not better from the later, that is from the company tax cuts, the tax reform package and regulatory reform package cuts, which has driven private capital into the market place, which is providing stimulatory effect. To bring in Australian domestic context, the Coalition has put very firmly on the table our desire to reduce company taxes. We know that by doing that we're creating a stimulatory environment, to drive private sector capital which will drive economic growth and create jobs.
That is the lived experience here in the US. It ought to be the lived experience in Australia, as a government, we are pursuing this because we have a duty of care to Australians to do the two things, drive economic growth and therefore create jobs and know that by creating jobs it will in time lead to modest wage price inflation. And that's a good economic outcome. So, in order to make people's lives better, we need to create more jobs, full stop. you create more jobs by driving private sector investment and you drive the private sector investment by reducing company tax rates. So that message is completely, could not be more completely clear, than the fact that we've heard repeatedly throughout the course of today. So, I make that quick observation. Just, if I can also touch on the infrastructure issue here in the US, the President, made clear and members of the administration made clear
They'd put about roughly two hundred billion dollars on the table, which they see being able to be leveraged up to be in excess of one to one and a half trillion dollars of infrastructure investment across the US again. Again, there is a lot to be learned from the Australian experience. There is a genuine desire in the US to be able to draw on Australia's experience in that respect and I am delighted that we have not only Australian service providers in this space, in terms of project finance, project design and construction management, but also on that issue of project finance, we’ve also got Australian capital here as well. So we can utilise that to drive a more active infrastructure investment in share mutual opportunities.
Andrew Forrest, Chair, Fortescue: If you wish. Yeah, okay, look, I have learnt a great deal on this trip, to see the enthusiasm in American business people's faces is powerful. You know, just next door they all they sit. We've each had a huge free kick. American businesses have become 20 to 25 per cent more competitive in one stroke. And that is a boon for the labour market, you've got rising wages, I think the lesson therefore, there for all of us is two things I would like to, to take out of that. One is that Australia has to be competitive. That's the bottom line. We absolutely have to be, I think, and if you think "no, it will be pretty right", just remember that if we keep going the way we are we're going to drop out of the G20 by 2025, that's the numbers and that will be a material drop in living standards, for each and every Australian. I don't think we should keep going the way we are and you know there are some free kicks around, free leadership kicks, which I'm happy to say under Minister Ciobo Australia is at last going to take.
I started the ASA 100 just to get one brand with one logo going in our country. We are very competitive in our businesses. We're very competitive in our corporations all over the world, but we're not recognised and we're not recognised as a single country. Right? Like Great Britain or 100% Zealand, these are household names all over the world. Now. Australia should be a household word in all of the? products it manufacturers or grows or mines et centera. It should be a household word, under a single brand and with a single logo. That I think, itself, can help turn the corner away from dropping out of the G20 by 2025. Steve Ciobo is right on top of this but we need the Australian people to really demand it as well.
Jean-Sebastien Jacques, CEO, Rio Tinto: Maybe going to build on what Andrew has said, the corporate tax rate is absolutely essential. I’ve got to use the example of mining. A typical project for us now is five bill[ion] and it is mined for 40 years, so you can imagine the difference between 30 per cent or 20 per cent extra [tax] makes a massive difference.
That's one aspect. The second aspect is, I’ll use a real example, as a global company, our duty is to create maximum value for shareholders. Right? And the real value, as of this morning, we're 100 billion market cap and I've got 20 per cent of my shareholders in the US. I've got only 16 or 18 per cent in Australia, so today I’ve got projects both in Australia and in the US, and it will be a pity if the money goes to the wrong direction. I won't tell you which direction actually for obvious reason, but that's very important. As soon as you've got a global corporation, we have to deploy capital, our fiduciary duty to our shareholders, is to deploy capital in the best possible way and when you've got a project which is going, especially on the mining and infrastructure, with a 40, 50 year life of project, the 10 point gap makes a massive, massive difference.
So we love Australia, we've been in Australia for 100 years, we've been in the US for 120 years. So it's not an easy situation. You know, the emotional argument doesn't always work on these ones. So it's so important to repeat what Andrew said, Australian needs to remain competitive from a tax and royalties standpoint and the competition is not between Fortescue, BHP and Rio in that sense, it’s really about Australia versus India versus Brazil and we should not forget about the big picture here. So as Rio we love Australia. I mean 50 per cent of us are in Australia. 50 per cent of our employees in Australia. We want to make sure that Australia's successful, not in the next two years, but 10 years, 20 years, 30 years from now on. And please Minister we are right behind you in relation to the corporate tax rate because that is absolutely essential for us going forward.
Michael Chaney, Chair, Wesfarmers: I see this as very simplistic, and I think President Trump summed it up when he said at 34 per cent corporate tax rate we were uncompetitive. The OECD average is 22 per cent. We dropped it to 21. We were losing investment. Now we're going to be gaining investment and the virtuous circle that the minister's described, the lower tax rates, more investment, more jobs, higher wages is blindingly obvious. And the lamentable thing I think is that it's not being embraced by all sides of politics and Australians.
People are playing political games with it and Australia will lose investment and it will lose jobs over time. If the corporate tax rate for large companies, what we're talking about here, remains at 30 per cent. It's a very simple issue and it needs to be embraced wholeheartedly.
Journalist: A quick question based on something that Grant said and I'd be interested in opinions on this from as many people as possible. One aspect of the debate in Australia is that the modeling for company tax cut shows it would take 10 years to take effect.
Grant, you mentioned that the view here in the states is that it's already starting to take effect now. a critic of these company tax cuts would say, well, the anecdotal evidence is rubbish because the official modelling shows you're? going to wait 10 years, so I just want opinions from as many of you as possible. Are you being told here that you get an immediate pay day with company tax cuts?
King: I think I challenge the premise because it takes 10 years to implement. Yeah, so one of the questions I think he should be, not whether we should be acting but whether we're taking too damn long to do it? That's the first and relevant question but the Treasury modelling says the benefit accrues at a rate of a billion dollars a year. It's not 10 years before any benefit accrues, Jennifer?
Jennifer Westacott, CEO, Business Council: That's one per cent permanent change in the economy, each year.
Journalist: My question is not about the modeling so much as what you were hearing here.
Andrew Forrest, Chair, Fortescue: So we met this morning with the chief tax strategist to the United States. I asked her this question. She said the impact has started immediately, like immediately, and that the modelling to lose one point five trillion over 10 years looks like conservative rubbish. They're recasting as though they cut it now and they're bringing in those forecasts immediately, the dividend has already been felt on the US economy in two months.
Look, we had Lendlease on one side of me and we had Konica Phillips on the other side, two multinational companies, one Australian, one American and they're both saying "we're investing in America, we're pulling out of other countries and we're investing in America". So that's an immediate decision by the board of directors. It's not waiting 10 years, it didn't wait 10 days.
Chaney: The thing that's really struck me as the energy and enthusiasm in the corporate sector. That is, this is a real sea-change, we are bringing money back because not only tax cuts. It's the, the investment allowance and the depreciation, and it's having an immediate effect. It has an immediate effect for the government because of the reductions in the first few years, but they need to get that virtuous circle and you get new tax coming in from new projects.
Jacques: What I would add though, remember there is limited FDI globally at any point in time, there is only one pot of money and when the money goes to one country, that's it. You stop and it's even more critical in these kinds of new infrastructure or mining business which are very capital intensive. Once the money is earmarked, its gone,
Forrest: And more money follows it.
Jacques: That's right. That's right. You put in a big project in a non Australian country, then you're continually investing.
Chaney: So we have to be very careful. I understand your point about the modelling but the point is people shouldn't make that assumption that they would be FDI because the FDI may go to the US to Canada, may go to Chile and other places and once it's gone, you know it's gone for five years because that's the five year. 15 year cycle, it's gone full stop.
Westacott: And that was going to be my point, there is the modelling and then there is what companies are going to do it and the Australian company who said even though the tax plan is phased in, they will make immediate decisions, they will forecast it in and for big capital projects it will take effect. But to JS's point, it'll work the other way if we don't do something. It'll make an effect to go somewhere else and that will be immediate. So that's what we're hearing today. And immediate change. An immediate change in confidence and immediate change in direction and you've heard in Australia that even with a kind of staged tax plan, an immediate change in confidence, an immediate change in decisions and immediate kind of sense that "these projects now look good" and staying in and that the risk of not doing it means the alternative happens.
Jacques: There's another dimension which is a human being dimension, There is lots of growth in the pipeline in the US and the global talent will move to the US. Do not under estimate this issue, and it's very important point because if we don't grow then people will go elsewhere.
Journalist: So where do you get the circuit breaker in Australia? How do you achieve it? Because we, the senate obviously needs to pass this and it looks like it won't even pass? in this term. How do you get that circuit breaker?
Chaney: I think if it doesn't, it would be very unfortunate. But with the function of a bit more time, the penny will drop and we'll have an election at the end of the year, we'll have the same or a different government. They're going to have to face reality and address the issue.
Westacott: One of the dangers is that people want this to be popular and they want to look at it from a popular kind of lens. Well, I tell you what, sell popular, unpopular is losing investment to another country. Unpopular is long periods of wage deflation, unpopular is, you know, unemployment not being, being higher than it should be. Unemployment is bigger [inaudible].
Unpopular is big Australian companies going somewhere else, that's really unpopular and you know, we've got to get that message to the senate that you were looking for this to be one of those super popular kind of things, its not going to be, it's the right thing to do, it's the responsible thing to do. In 10 years time if the sorts of things that we're hearing today, and they will because this is not kind of economic modelling, this is what people are telling us they're going to do.
People will look at future governments, and saying "why didn't you do something in 2018 when you had the chance and that's the message we're giving really strongly, that this is not about winning a popularity contest. This is about doing the right thing for the country.
King: On this question, you might recall last year the BCA met in Canberra and some of you came to that press conference? I think it was a Tuesday in March. I think on Tuesday tax cuts were not going to happen for anyone, 10 million wasn't even going to get up on Friday 50 million got passed. The government worked extremely hard in the Parliament and in the Senate. And I think business worked extremely hard that week to get the arguments across. So, I actually don't care that people say it won't get up today because today's today. It'll go before the parliament, when it goes to the parliament, that's when people really turn their mind to all of the issues that are been raised. I think the importance of your role is for all of those who are opposing it, to expose the mythology that a lot of those people are promoting. So, the notion that the country can't afford corporate tax cuts, even with the tax cuts, the corporate tax take nearly doubles over 10 years. Something like $70 billion or $120 billion. So, this notion of somehow corporation's going to pay less tax, it just means I'll pay a lesser amount of an increase in tax. So the corporate sector will still continue to pay a lot of tax. So that's I think part of the job is to make sure we get that full and balanced understanding.
Journalist: As businessmen all of you sounded very articulate and very quiet, simple arguments, easily understandable arguments that could be seen to be quite compelling. This is all about politics. You know, this is all about convincing the Senate. Say would you be prepared individually to speak as you've just spoken here back in Australia? Jennifer has been doing all of the leg work under the umbrella of the BCA and talk on. [inaudible]
Chaney: I think all of us would be prepared, so the question is what form you do that in. If you run paid ads that tends to be viewed cynically. I think the press has a huge responsibility here because it is straightforward.
Forrest: I've been coming to America and doing things and borrowing money from here for 25, 30 years. I've never seen the optimism. I've never seen big business saying "we're going to invest in America and we're pulling capital out of countries to invest back in America.
Journalist: What would your message be to Pauline Hanson? Because she's a key vote here. To Nick Xenophon, to some of those new crossbenchers because there's been so much turn out on the crossbench?
Ciobo: Its not just the cross bench. This also comes back to the responsibility of the opposition. I mean Australia's tradition has been, especially around economic reform, that it's historically been bipartisan in many respects so you know I'm going to hold Bill Shorten to account. You have here captains of Australian industry, responsible for tens of thousands or hundreds of thousands of jobs. Their message could not be more straightforward. It's extraordinarily arrogant for those that don't have skin in the game in terms of the people that actually employ people, that risk capital and then I have to make decisions about where they put finite pools of capital to say that they know better than these guys. So, they can either make a decision to listen to what is being said to them, that includes the opposition, or they can arrogantly dismiss it offhand and say "no", that they know better.
Forrest: Can I just say, self interests gets served up as the reason for corporates calling for tax cuts. You all know where I come from, you know that I give my income away. I've been doing that for many years now. You should also know that i always vote for Australia, I always back. So, to step forward like this is again, backing Australia. That's the only reason we're here.
Journalist: Just to that point, I think it's pretty obvious that lower corporate tax increases investment and probably over time increases wages, that's pretty apparent. But the public out there is seeing this as higher tax cuts for CEOs, bonuses, this sort of thing. Why wouldn't CEOs stand up there and say on a like for like basis, because your bonuses and your pay is going to go up directly as a result of 30 to 25 percent corporate tax cut. Why wouldn't you give some undertaking that as a result of the corporate tax cut, your remuneration, the bonuses, which are based on the profits of the company will be adjusted in line with the corporate tax rate down.
Chaney: It would actually happen because they don't go up with profits. What happens is the profit target is agreed and if you meet it you get your bonus.
Journalist: Is it pre-tax or post tax?
Forrest: After the tax cut your saying hey, here is the target profit which is now higher. You've got to achieve that.
Journalist: But would you do that? That's my question.
Forrest: So if I was Chairman of Rio Tinto, I would be speaking to my friend here. I'd say if this corporate tax cut comes into you income level you have to meet for Rio Tinto has just gone up.
Journalist: Would there be any undertaking from Australian chief executives that workers will get better wages from a company tax cut? I think that.
Chaney: It's unlikely actually. I think the more likely response will be continuing to be an will continue we’re going to invest more. We are only talking about a 5% tax cut over time here so it’s a limited amount. The critical think I think is that in all our discounted cashflow valuation, so project investment analysis, the numbers will look better and we’re more likely to do it because of the higher after tax cash flows. [inaudible]
For example, we've got this proposal for the tax rate to go down over time. If you're developing an LNG project its years in the planning and you make a commitment and it's three or four years while you're building it, so the ultimate low tax rate is the one you enjoy, its not the one in three years and in the meantime you're employing more people.
King: Can I just make one point here, sorry I know its going to take more time but it’s a very important point we’ve missed here. And that is that we’ve obviously had these tax cuts go through the parliament last year for companies up to 50 million, very small businesses. Then we’ve had a conversation about very large businesses, there are millions of Australians in between. This tax cut is about all of those companies, not just about large businesses. The important point is that for a lot of those smaller business, bigger than 50 million, but still small businesses their profits are their wages. That is a really important point to understand, their profits are their wages. You take away [inaudible], and ask me "what is the wages mechanism?", but for a lot of those people, between 50 million dollar and the billion dollar companies, their profits are their wages. And so if you want wages growth, cut taxes.
Westacott: just a final point to make on this because we've been asked this question a lot, "why don't you just promise a wage rise? Well you know, this is where the difference with the US system is. they've had a 14 point reduction instantly and we've got a 10 year plan. So that's a big difference. But secondly, what we know to be true, remember a lot of these one off bonuses to, if you look at you know Walmart, the data here, it's not necessarily a kind of inbuilt wage growth and equity.
What we, what we know about wages is this, that they are driven by productivity that they're driven by terms of trade. That you can't control terms of trade but my god, you can control productivity and productivity is driven by investment. Which is totally influenced by the after tax return, and if we want sustained income growth versus sugar hits which will just, you know, give a problem in terms of number of people employed or result in higher prices. Then the best way of doing that is to improve our productivity, improve our competitiveness driving investment, which all of the modeling shows will flow through to workers. So I think, you know, there are some big differences here.
Business Council media team
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