Trump’s tax changes mean we all must knuckle down
28 December 2016
This opinion article by Chief Executive Jennifer Westacott was published in The Australian on Wednesday 28 December 2016.
When it comes to tumultuous years, 2016 certainly stands out. The essential challenge for next year is to seize the opportunities, and avoid the pitfalls, that have been left in its wake.
The Turnbull government has had some substantial public policy achievements of which it should be proud, whether it’s making progress to curb public spending or putting the Australian Building and Construction Commission back on the beat.
Significantly, the government is carrying the torch for innovation, productivity and competitiveness — including by pressing ahead with its full enterprise tax plan that will stimulate investment and create better jobs, higher incomes and more opportunity.
The essential task now is to maintain this momentum amid worrying signs that, without aggressive reform, our nation could hurtle towards a bereft future of low growth and reduced economic opportunity.
Whether or not you like Donald Trump, there is little doubt his platform of aggressive company tax cuts and deregulation will attract businesses to invest in the US. His pledge to reduce the federal company tax rate to 15 per cent is a global game-changer.
Australia cannot afford for politicians to take a wait-and-see approach when it comes to ensuring our economy is ripe for new investment and every line of regulation is fit for purpose.
One of the great regrets of this year is the undermining of the centrist political agenda that has delivered a doubling of the average Australian’s real income across the past 40 years — a productive, competitive, outward-looking, enterprise-led economy that provides greater opportunity for all while holding its own in the world.
We may not all agree on the policy minutiae but it seems we increasingly are struggling to agree that achieving our aim of a generous, compassionate and fair society requires a dynamic, successful market economy to underpin it. This reality cannot be ignored. Populist ideologues of the Left or Right espousing anti-business policies are duty-bound to explain the impact their low-growth policies would have on the most disadvantaged in society.
When businesses are successful and growing it doesn’t just benefit private shareholders — 4.7 million Australians, about a quarter of the nation’s adults — but the almost 15 million people who hold investments through their superannuation. It also benefits the 10 million Australians employed in the private sector.
Our parliamentarians will need to demonstrate vision and leadership in the year ahead.
This generation of politicians — be they government, opposition or crossbenchers — must consider how they will look back on their parliamentary careers should Australia’s economy deteriorate on their watch.
The economy went backwards between July and September, nominal wages growth is the weakest in 18 years and new business investment is falling at rates not seen since the 1990s recession.
The parlous state of the budget, revealed in this year’s mid-year update, should shock the entire parliament into grappling with this reality. All MPs should remain committed to a creative, open society that is prepared to embrace the challenges and opportunities of this technology-driven age. The alternative, to hit the snooze button or incite people’s fears about globalisation, will only hurt those who need the most help to adjust to this new economy.
Non-government MPs should weigh carefully what they want to achieve if and when they assume power and what policy options they should keep on the table for when that time comes.
We must steadfastly refuse to embrace isolationism. Australia is a relatively small, trade-oriented country that relies on maintaining its international competitiveness to drive higher living standards. Larger countries may be able to afford to turn inward if they choose, at least for a while, but we don’t have that luxury.
Unless we can reclaim the philosophy of the pragmatic centre, it will be our undoing. This year, parliament must pass the government’s enterprise tax plan in full. This plan is the bare minimum needed to ensure Australia remains attractive to global investors, who can always choose to do business anywhere.
Does anyone really believe that we can continue to lure marginal investments with a 30 per cent company tax rate when the US is going to 15 per cent, Britain is moving to 17 per cent by 2020, and the average rate across Asia is already 22 per cent?
The plan is economically responsible, with staged reductions in the company tax rate across a decade.
Even though all the changes are gradual, we know from other countries’ experience that the passage of the bill in full would send a clear signal to global investors that would drive confidence and investment and, in turn, create jobs.
Every time one of Australia’s competitors cuts its company tax rate, it is an effective tax increase on people doing business here. We cannot afford to be caught standing still while the rest of the world presses ahead.
We cannot thrive by giving tax relief only to small businesses with turnover up to $10 million, as some argue. Small businesses are vital but so, too, are larger, capital-intensive businesses that can drive efficiencies from scale. Small and large business also depend on each other. We cannot prosper and seize the opportunities on our doorstep with cottage industries alone.
The budget must be brought to a sustainable surplus. The government is the nation’s insurer of last resort against economic shocks, natural disasters and national security emergencies. Failure to repair the budget ultimately limits the state’s ability to protect its citizens. We cannot afford for the opportunistic rhetoric of some, who spark fear by claiming budget repair means degrading Australia’s social safety net, to take hold.
A healthy budget will protect the safety net and allow us to pay for the quality services, particularly in health and education, that Australians value.
But the longer it takes to rein in the budget deficit, the tougher it becomes to repair.
There are many challenges ahead. We cannot let 2017 slip past wondering what could have been.