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Standing Committee on Economics
31/07/2018
Impediments to business investment

CARR, Mr Adam, Director, Economics and Industry Policy, Australian Chamber of Commerce and Industry

KACZMARSKA, Ms Magdalena, Senior Policy Adviser, Australian Chamber of Commerce and Industry

[10:14]

CHAIR: I now welcome representatives of the Australian Chamber of Commerce and Industry. Although the committee does not require you to give evidence on oath, I should advise you that these hearings are legal proceedings of the parliament and therefore have the same standing as proceedings of the respective houses. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. Would you like to make an opening statement before we proceed to discussion?

Mr Carr : Thank you. We'll keep our statement as short as possible. The gist of our submission was that the major impediments to business investment come down to animal spirits, to put it in a nutshell. There are a few things within that. I should stress that this is all from our members. There is this idea that there's a policy vacuum or a lack of leadership. That's not directed at one political party; that's directed at the political system. Again from our members, there is a sense that politics is put above policy rather than policy above politics. I get comments from members when we go and talk to them. They just say, 'We're jack of it; we really want to see some decisions made and some long-term planning.' That includes energy policy, planning and infrastructure. I know that's not just a federal issue, but again there is this idea that there's a lack of coordination amongst the states. I liked KPMG's idea of a permanent secretariat for COAG. Maybe that's worth exploring when you look at some of the key problems around planning and infrastructure failures which have led to housing affordability problems.

Ms Kearney, you raised some issues you raised about inequality and a perception that inequality is rising. You could write a PhD thesis on this stuff, but my perception from when we talk to our members is that a lot of that might come down to the fact that, if you live in Sydney or Melbourne in certain areas, you've seen house prices go through the roof. If you've happened to buy into that, all of a sudden you are quite wealthy from not really doing anything, whereas if you're in a younger generation or you didn't quite have the deposit to get in on that then you've missed the boat. So that causes a lot of angst. When I talk to a lot of millennials or whoever is below that, they feel gypped at the end of the day. So that's that policy vacuum idea.

The second one is a complex regulatory environment, and you can throw in the tax system. Forget the rate, although that is important. It is the complexity of it. It is the same with industrial relations. We get reports from many businesses who genuinely want to do the right thing. They don't want to break the law. They're just unclear on what the law is or what it's saying. These are obviously smaller businesses who don't necessarily have the resources, the time or the money to get a consultant or a lawyer to explain things. There is legislation and regulations. We had an interesting discussion with a member who said that there are 50 definitions across Australia of the word 'shed'. This is crazy stuff, but it's important to businesses—small and medium businesses in particular. It is stuff like that. A lot of our members report regulations that are outdated or are not fit for purpose. Tied in with that is a need for greater harmonisation. Again, maybe that's something that should be addressed at the COAG level.

The third one is elevated input costs. Take your pick. Energy is obviously key. There's white-hot rage in our membership in the business community that we've got some of the most expensive electricity prices in the world. Why? I was really fascinated to hear from KPMG again that in Canada the cost is one-third of what it is here. That's terrible. Why are we doing that to ourselves? There are insurance premiums. We're near the top of the league when it comes to high wage costs. We potentially have higher company tax rates than a lot of countries in the world now. And we can't overlook this when it comes to animal spirits: the lagged effect from the GFC, possibly, or a culture of risk aversion. So they're the top four things which we would say have been an impediment to business investment. I'll leave it there.

CHAIR: Thank you very much, Mr Carr. You referred to a 'policy vacuum', and I draw on the conversation that we've been having with KPMG about company tax. Isn't the issue one of policy uncertainty? The government, of course, has a very clear set of policies and a very clear plan in relation to driving business investment through lower company tax—and also, might I add, lower personal income tax—to the tune of $140 billion of investment. Previously we had a very, very strong bipartisan position on this key issue, where both sides of politics shared the view that lower company tax delivers more investment and more jobs. Now—might I say, I think for political expediency—we've seen the opposition shift its position. Isn't that really one of the key issues that your members are concerned about?

Mr Carr : The company tax discussion is important. When we talk to our members, when we talk to business people, they obviously want more cash. It is a cash issue for us. The foreign investment component is a component of that debate, but we don't see anything wrong with letting businesses and households keep more of their money, especially when, if you look at the composition of GDP growth, it has been, over the last few years, primarily driven by public demand, and private demand has been quite soft. That is changing. We are seeing business investment pick up. We are seeing household spending pick up a little bit. But, when you look at the company tax rate and you think to yourself, 'Would that make a difference to jobs, investment et cetera?' it has to. It is difficult to quantify, obviously. But say you give a company more money. Just think of it from a cash-flow perspective. They can do a number of different things with it: employ someone; pay them a higher wage; invest a bit—or buy a corporate jet! But, at the end of the day, it's a competitive environment. If everyone goes out there and wastes that kind of money, shareholders, for listed companies, will punish them. If you are a smaller company, you're not doing yourself any favours wasting your money; you're soon going to be out of business. So the idea is: if you give businesses more money in their hands through a tax cut, that does yield good results in terms of jobs, investment and what have you.

CHAIR: Can I just draw you back to the question in relation to policy uncertainty and putting politics ahead of good policy. Isn't that what has occurred, as your members are saying, in relation to the Labor Party's dramatic shift in policy on this matter?

Mr Carr : As to policy certainty, when it comes to the tax issue: if you have clearly articulated positions, that doesn't create uncertainty. People can vote for what they want. What our members want to see is clearly articulated positions—a clear choice, as it were. Ideally, both parties would adopt a path to lower taxes, from our members' perspective. But we've got to be reasonable about it. When you look at the path to tax cuts now, you are talking nine or 10 years, so it's a long time.

CHAIR: Just to correct you: that's not actually the case, because some tax cuts have already been implemented, for small and medium-sized businesses—

Mr Carr : Yes, but going forward from here.

CHAIR: up to $50 million in turnover. That is just to correct the record on that. We are not talking the length of time that you've referred to in relation to what has already been implemented by the government. The sheer difference in policy, obviously, is that the Labor Party has made it clear that they won't reduce company tax below 27.5 per cent, whereas of course our plan is to reduce that to 25 per cent.

Mr Carr : Yes, and ideally we would support a move to 25 per cent.

CHAIR: And those tax cuts, remember, have already been implemented, and small and medium-sized companies are already benefiting from those tax cuts.

Mr Carr : We support the move to 25 per cent. Our members would just suggest that maybe you bring it forward. I think the Prime Minister has made comments in that regard—that if the budget is in a good position, then that could happen. And that would be a very welcome development.

CHAIR: I just want to move quickly to planning and infrastructure. You referred to some of the challenges with those matters. Of course, state and territory governments and also local councils are primarily responsible for many of those matters. I have a frustration in my own region in the area I represent, the Corangamite electorate, where the Commonwealth has made an announcement of $150 million for the duplication of a local rail track in circumstances where the Geelong region is growing very dramatically, but we can't get matching funding from the state government. That's obviously very frustrating for me as a local member and, of course, for my constituents. But what do you say more broadly about the need for state governments to invest in infrastructure in lock step with growth to make sure that growing regions and growing populations have the infrastructure that they need?

Mr Carr : Yes, absolutely. That's what we would want to see: a coordinated holistic approach to planning and infrastructure. So talk about it with the state governments and the local planning agencies. Get together everyone: the feds, the states and the local governments. Let's have a discussion about what kind of Australia we want and how we're going to distribute our population most efficiently using the infrastructure that we've got in a way that doesn't lead to a lot of these problems that we've seen to date with housing affordability et cetera. So that's what our members want to see. That's what business really wants to see. Elevate this issue. Don't just pass the buck. Again, it's not just a federal issue. We know that. But we would like the federal government to take the lead in coordinating—whether that's through COAG or what have you—a top-down holistic approach to infrastructure where we think to ourselves, 'Well, can we alleviate housing affordability through a better distribution of the population and a more efficient use of resources and infrastructure in other cities—for example, fast trains from Sydney to Newcastle, the Central Coast or Wollongong?' A lot of foreign businesspeople who come here remark on the lack of infrastructure in that regard.

CHAIR: Another example, of course, is the $5 billion that the Turnbull government has just announced for airport rail. I think that brought the state government to the table, and they've now matched that in Victoria with $5 billion. I think that's a very good example where the Commonwealth has taken the lead on infrastructure as part of the $75 billion spend on infrastructure. Have you got any practical suggestions on how the states and local councils can work more proactively to make sure that they're ahead of the curve when it comes to investing in infrastructure?

Mr Carr : There are limits because they don't necessarily have the funds or they feel that they would not necessarily have the remit or the vision. If you're a local council, you can't sit there and think: 'How are we going to distribute the population? We've got so many migrants coming to Australia. How can we distribute that more effectively? We've got a choice between project A and project B.' So we would say: don't look at it just from a state or local perspective in their responsibilities. You all need to get together to talk and flesh it out that way.

CHAIR: Thank you very much.

Mr THISTLETHWAITE: I just want to put on the record that when Labor were in government we did attempt to reduce the corporate tax rate. It was the Abbott opposition that actually voted against it and stopped it. Our position at the moment is that the budget can't afford the corporate tax cuts and that that money is better invested in our education and health sectors. We've got a clear difference of greater investment in our schools, our TAFE colleges and our universities to grow the knowledge capital of the country, and greater investment in Medicare and our health system than the government. That's probably the clear difference. You mentioned having a clear view on what the differences are. I would suggest that that's what they are.

I want to move on to energy policy. How big an issue for your members are increasing electricity costs?

Mr Carr : A huge issue. It's the No. 1 issue, to be frank. It's got to the point where we've had a number of members report that businesses within their membership are literally crunching the numbers as to whether they stay domestic or move abroad. It was interesting that we were talking in that earlier conversation about how business investment is increasingly being driven by the services economy et cetera. Again, services use electricity. But it's much easier for companies these days to relocate elsewhere. The costs of doing so aren't as marked now, so it is something we need to take seriously when a business says: 'Look, we're paying the highest electricity prices in the world. We can save X per cent if we go to Singapore or what have you and just export to Australia.'

Mr THISTLETHWAITE: Has your organisation done any analysis of the reasons behind this and what the potential solutions could be?

Mr Carr : Yes. We refer to the ACCC, because we like the work they have done. They've produced two good reports investigating the causes of high electricity prices and what could be done about it. When you look at the causes, network costs seem to be a pretty significant component of that. Policy uncertainty has been key as well, but I can't remember the exact number. I think it was 10 per cent or something of the increase in electricity cost in 2015-16. So that's significant, but we can't overlook the other drivers: network costs, retailers' margins et cetera.

As to what we do, we need to look at those network costs. We need to look at the issue of competition in the electricity space and do what we can to promote competition throughout generation, distribution, transmission et cetera of electricity, and at the retail end as well. Price transparency, I think, is another good recommendation which we would endorse. We would ask all parliamentarians to endorse the idea of price transparency—being able to look at a discount offer and be sure that it is a genuine discount. That's not unreasonable.

Mr THISTLETHWAITE: Is it your view that your membership broadly agree with the notion that we have to reduce our reliance on coal-fired power in the longer term and transition to cleaner fuels if we're going to provide a cleaner environment for our kids?

Mr Carr : Most of our members that we talk to know the direction we're going, and we want to meet Paris. Everyone agrees. No-one disagrees with that. As to how we do it, we're neutral on that. We're not scientists, engineers et cetera. What our members want is for the ideology to go out the window. We're sick of it. We want people to think: 'Okay, Paris is a reality. We've got to get there. That's not negotiable, because both parties have signed up to it. Let's not be stupid about it. What's the best way to get to that point without crunching businesses and elevating electricity costs?' We believe, from when we talk to the experts, that it is achievable. We just need the political will. We can't have ideologists on either side dictating or controlling the debate.

Mr THISTLETHWAITE: Go back to 2007. In the lead-up to the 2007 election, both John Howard as the Prime Minister and Kevin Rudd as the opposition leader were proposing an emissions-trading scheme. It appeared to be generally accepted. Labor won that election. We began putting that together. Malcolm Turnbull as the opposition leader was working with the government. It was all proceeding well. Is that the sort of bipartisanship and cooperation that you'd like to see return to Australia again?

Mr Carr : Yes, 100 per cent. Get into a room, flesh it out, nut it out and compromise. That's business.

Mr THISTLETHWAITE: This inquiry is related to decisions to invest. Isn't it the reality that there are a whole host of issues that go into decisions by companies to invest in Australia, and a lot of them would be industry specific? For instance, if you're in the resources sector, the No. 1 issue, I would think, would be the quality of the resources that you can get out of the ground and sell in international markets. That's why Australia's had a lot of investment in our resources sector over recent decades: because of the quality of the minerals. The services, the talent and the knowledge capital, if you like, of the population that you, employers, people working in your business, are seeking—they are all big issues. What is your organisation's view on how well Australia has done in promoting that human capital factor, the education system—particularly the technical and further education system—and how well we have done in that space over the last decade, for instance? Are there any areas in education in which you think we could improve?

Mr Carr : That's a bit outside my area and I will have to take that on notice, ultimately; I will get our director of education to make a response to that. But, generally, I think we encourage investment in skills. What we hear from our members is that we're not necessarily getting the right investment in skills. Industry is finding skill shortages in a number of areas, which need to be addressed through skilled migration. So a lot more needs to be done to meet the needs of industry and business, to ensure that they have the skills. There is so much disruption. There are so many threats. It's not an easy environment to operate in. It is highly competitive et cetera. We've got greater global competition. So we want to be able to have a system which responds quickly and nimbly to the needs of business. It needs to be flexible and able to respond quickly.

Mr THISTLETHWAITE: When you look at university courses, it appears that they haven't changed a lot in the last 50 years—the structure of those courses. That is probably less so in TAFE. In the technical and further education system, there seems to be good interaction between businesses and the administrators running those organisations and putting the courses together. Is your organisation involved in any of that consultation, with the universities and with the technical and further training sector, about what you want in terms of the skills that you'll require, moving into the future, in employees that we're going to produce in five to 10 years?

Mr Carr : Yes, we are, and, again, I'll take that on notice and ask our director of education to make a more detailed response.

Mr THISTLETHWAITE: Yes, and perhaps they could look at any ideas that they might have for improving the liaison between the corporate sector, businesses, and those who are running our education system at a school, technical and university level.

Mr Carr : Yes, absolutely.

CHAIR: Thank you very much, Mr Thistlethwaite. I'd now like to ask Mr Evans to ask questions.

Mr EVANS: Thank you both for being here today and for making the submission that you did. I want to ask a couple of further questions around energy policy. Mr Carr, you said that you and your members were strong supporters of the ACCC's recent work and recommendations, including their very recent recommendations. One of the things that they did, I believe, was to endorse the National Energy Guarantee as one of the many things that need to be done to bring about certainty for investment and the future operations of the energy market. Briefly, do you and your members support the National Energy Guarantee?

Mr Carr : Yes, we do, and we would encourage everyone to sit around the table and work within that framework. What we like about it is that it's flexible enough that a compromise, if one is needed, can be reached. That's why we like it. That's why we support it. It's not too prescriptive.

Mr EVANS: Yes, and I liked some of your earlier comments when you were talking about energy policy debates from many years ago. I think you said—I wrote some of this down—'Get in the room; thrash it out; compromise; sort it out; get it done.' Would those comments that you've made apply to getting the NEG done in the coming months?

Mr Carr : Do you know what? We had this conversation recently, and the last thing any of our members wanted to see was for us to go back to square one. That would be a disaster. We would be exactly where we were. It would just be Groundhog Day. So we really want to see a solution nutted out to this, so that we can put it behind us—and focus on costs. Let's not forget the elephant in the room. High energy costs are really hurting. I don't want to belittle energy by saying it's a distraction. It's important. I stress that it is important. But the immediate issue for our members is this issue of cost. We want the energy nutted out and agreed upon, but then we want government and parliament to turn their attention to what they're going to do about high energy costs. That really has to be the priority. Again, this isn't an ideological comment; this is a genuine call from business, who are hurting.

Mr EVANS: On behalf of those businesses that are hurting, just to draw that conversation to its conclusion, you'd say unnecessarily dragging out the debate and prolonging the negotiations and the ratification of the National Energy Guarantee would be the wrong way to go?

Mr Carr : We would want to see a solution within the current framework, yes.

Mr EVANS: Thank you. Talk to me just a little bit about the experiences of your members with energy costs very recently. You mentioned earlier in your contribution that there were some local businesses crunching the numbers—I think that was the phrase you used—around energy costs and their ongoing viability in terms of operating in Australia. Your members would broadly fit into two categories as energy users: they would be either relatively small businesses taking market offers off retailers—which are usually determined by comparison to benchmark tariffs where I'm from in Queensland or equivalents in other states—or, alternatively, larger businesses who'd be negotiating a series of contracts on the basis of spot market or wholesale prices. In both of those areas, we've seen either small or significant reductions in the cost of energy in the very recent past—is that right? So is that crunching of the numbers looking a little bit better than a year ago?

Mr Carr : I asked this question of a member a couple of weeks ago. I said, 'Has there been much in the way of relief?' They said, 'A little bit.' If you look at it in percentage terms, I can't remember the exact number. It might have been a reduction of 20 per cent in the wholesale price, just for argument's sake. That sounds significant but, when you look at where it's come from, it's small change. It's better than nothing, but we want to see that continue. So that's where our members would sit on recent price reductions: they're welcome, but we need a lot more of it.

Mr EVANS: To the extent that prices have started coming down—but you want to see a lot more of that—the government certainly would look at the advice of the Energy Market Operator and others who attribute the price changes mostly to action the government's taken around the gas supply in the eastern and southern states but also the market starting to price in the operation of the National Energy Guarantee. Do you broadly agree with that analysis?

Mr Carr : Yes, we do. It's a tricky one. We're a free market sort of organisation. We ideally don't want to see too much government intervention, noting that there has to be some at times. While the declines in gas prices are welcome, I was impressed the other day when talking about how gas prices are going to spike higher over the near term. So, when our members read that press, there's still that level of uncertainty. So it's still a concern. I wouldn't say it's been addressed sufficiently. It's welcome to see a reduction in wholesale electricity prices, but it's nowhere near what we need to see to calm the concerns of business.

Mr EVANS: Thanks, Mr Carr.

Ms KEARNEY: I don't have any questions, but thank you for your submission and your input so far. It's interesting that the three examples that you use in your submission of countries that have cheaper energy prices than Australia are Norway, Sweden and Mexico, and we've heard about Canada as well. Norway and Sweden in particular have almost 100 per cent hydro power. They don't rely on coal at all. All of those countries actually have state-owned electricity markets, which is very interesting, I think. I'm really just saying that as a comment more than anything else. Particularly in Canada, I think about 98 per cent of all of their energy supply is by state-owned enterprises. It's just an observation that those countries that you pull out have that particular framework.

I'm interested in the view that all companies need massive corporate tax cuts. As my colleague Matt Thistlethwaite pointed out, we think we can't afford to give tax cuts to the multinational corporations and the very wealthy businesses because we need that money spent on social infrastructure such as health, education and aged care, all of which provide much-needed jobs and also much-needed social infrastructure, and also infrastructure like roads, the NBN, a stable finance sector et cetera. Whilst Labor is quite happy to accept that small to medium enterprises might need some tax assistance, what is your view of the cost of giving tax cuts to multinational corporations who, let's face it, are making pretty healthy profits and have the ability to minimise tax through means that small to medium enterprises don't?

Mr Carr : On the issue of multinationals, part of our pre-budget submission was a call to ensure that their tax is being paid. So we do support that and policies to ensure avoidance measures are reduced or eliminated. But we look at company tax cuts as part of a broader reform of the tax and transfer system. So we think we need to have a good look at how we are spending money. Are we spending it efficiently? We all want to see world-class hospitals and world-class education. Part of our policy agenda is better infrastructure. So we want to see all of these things—and lower taxes. That might initially sound inconsistent, or a utopia type environment, but, if you look at government spending holistically and put it through the microscope, we are confident that you can find savings—efficiency gains, as it were—without cutting services, without kicking pensioners out of their homes and putting them on the street. We think you can save a considerable amount of money and divert it to lowering the tax burden on businesses and households. That is where we are coming from. We don't want to look at one aspect of the tax system in isolation. We want to look at the whole lot, think about where we are spending money and how we raise it, and then recalibrate.

Ms KEARNEY: Tax efficiencies are certainly a good idea. But if you look at the whole trickle-down theory, which is basically what is being espoused by giving companies tax cuts, it simply hasn't worked and we have seen rising inequality over time. I am interested in your understanding of the lack of investment in skills. Over time, I have done a lot of work with the Chamber of Commerce and Industry and they have had great concern that we are not investing in skill acquisition for productivity for our small to medium enterprises in particular. Do you have any views about current barriers around investment in public providers, TAFE, skill acquisition, the link between businesses and education institutions, and how that is affecting businesses at the moment?

Mr Carr : I would have to take that on notice and get our director of education to respond.

Ms KEARNEY: A lot of the evidence, and indeed our terms of reference, have relied on indices such as where Australia sits in terms of the burden of the regulatory regime. These indices are very interesting. Australia sits at about No. 80 in terms of the burden of regulatory requirements. Above us are countries like Kazakhstan and Kyrgyzstan—and, frankly, I don't think we would want to be like those countries when it comes to regulation. A lot of the regulation Australia has is to do with keeping workers safe, making sure people are paid and making sure there are means to monitor and comply with regulations. Where is the floor? It is interesting that Germany sits above us, but it is clear that Germany has just as high a regulatory regime as we do. Could it be that these are nothing but opinion polls from businesses and that people who operate in Germany, for example, might consider those regulatory burdens necessary and appropriate?

Mr Carr : I haven't really heard many members suggest that they don't want any regulation; they just don't want unnecessary regulation. In fact, in some cases they want regulation. They think the rules aren't clear enough, that it is like a football match without rules and a ref. So you need all of that. The complaints we hear are that they are outdated, that they are not fit for purpose, that the legislation was written in 1950 and you can't read it, it is not clear. That is what we are hearing. The events industry were subject to the onerous regulations of the construction industry. They thought: 'We're not in the construction industry. We have scaffolding, sure, but it is not very high. So we don't need the onerous regulations.' It is that kind of stuff. It is just about making sure it is sensible and not a handbrake to business growth. That is where they are coming from.

CHAIR: Thank you both very much for your attendance here today. If you have been asked to provide any additional material—and you have indicated that you will be following up with some further answers—could you please forward that to the secretariat. You will be sent a copy of the transcript of your evidence, to which you can make corrections of grammar and fact.