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Economics References Committee
26/04/2018
Commitment to the Senate issued by the Business Council of Australia

McCALLUM, Mr Lance, National Campaign Coordinator, Australian Council of Trade Unions

ROBERTS, Mr Tom, Director of Industrial and Social Policy, Australian Council of Trade Unions

WATTS, Mr Christopher, Social Policy Officer, Australian Council of Trade Unions

[12:25]

CHAIR: I now welcome representatives from the Australian Council of Trade Unions. Thank you for appearing before the committee today. I invite you to make a brief opening statement, should you wish to do so, and then we'll open it up for questions.

Mr McCallum : Thanks very much, Chair. Firstly I'd like to acknowledge the traditional owners of the land on which we meet today and to acknowledge their elders past and present.

Big business is already doing very well in Australia. Last year their profits increased, in some cases, by up to 20 per cent. Yet over the same time we've seen record low wage growth. In many cases, wages have actually gone backwards in real terms. Many businesses already thumb their noses at paying taxes, exploiting loopholes to offshore profits made in Australia and to aggressively avoid tax. In 2015-16, 732 companies paid no tax, despite having a combined income of more than $506 billion. This means that more than one-third of companies with more than $100 million in income paid no tax.

It seems that that is not enough for business; they want more. They say they need to pay even less tax, and only then will they be able to pay wage increases and invest more in Australia. This is a nonsense. This is just more trickle-down economics. We've seen over 30 years how this ideology has failed. The only thing trickle-down economics has delivered is record inequality in Australia. Giving some of the wealthiest corporations a tax cut won't increase wages for local workers; it will increase profits for overseas shareholders and we will have less money for job-creating projects like public services, transport, schools and hospitals.

When you boil it down, the core of the BCA's statement to the Senate is big business saying, 'Trust us,' but people don't. Trust in corporations is at a real low at the moment, and for good reasons. They don't, because corporations already don't pay their fair share of tax. They don't, because there has been no increase in wages while business profits have been growing. They don't, because we have been seeing shocking revelations from the banking royal commission about the conduct of big banks who alone stand to benefit from a windfall of over $10 billion under these tax cuts. These banks who will benefit have been breaking codes of conduct, customer agreements, laws and regulations. Why on earth would anyone seriously believe a tepid and vague statement from the BCA saying that business will invest more, which in turn might lead to higher wages? Frankly, we're surprised that they have the gall to ask.

A recent survey by the National Australia Bank that was published on 19 April this year found that only eight per cent of businesses said that they would give workers a significant wage rise if they received a company tax cut. That's just the ones who said they would. We believe it's wrong when companies who are already paying no or very little tax while enjoying record profits are asking for more special treatment while workers struggle with record low wage growth and exponentially increasing costs of living expenses. We submit that the statement from the BCA and its members should be dismissed entirely by the Senate.

CHAIR: You've made your views about this commitment from the BCA fairly clear. Your affiliates have experience with a number of the companies signatory to the BCA letter. Would you describe them as good corporate citizens?

Mr McCallum : No, we would not. I might let one of my colleagues delve into a little more detail. We deal with many of the companies that have signed the BCA statement, as well as many other companies like them, and we don't find them to be very good corporate citizens. A company like Esso, for example, is one of the world's largest multinationals and has over $7 billion revenue in Australia yet has paid absolutely no corporate tax here. Some of their workers have been locked out for over 300 days and are being asked to accept a 30 to 50 per cent wage cut, less superannuation and leave loading, and anti-family rosters where people have to go away and work on an oil rig for weeks at a time. No, we don't find the behaviour of these companies very good at all. This is a company that isn't even paying any tax, let alone companies that are paying a little tax and are seeking to pay less.

Mr Watts : When it comes to corporate citizenship we ask a few basic questions about a company. One of them is, 'Do they pay their fair share of tax?' It has already been fairly well established that five of the 10 signatories to the BCA letter paid no corporate tax in the latest year of ATO data. EnergyAustralia, JBS Australia, MYOB, Origin Energy and Qantas all paid a tax rate of zero per cent in the 2015-16 financial year, despite a combined income of $35 billion a year and a taxable income of $146 million. We also should remember that EnergyAustralia, MYOB and Qantas have all paid no tax in any of the ATO tax transparency reports as far back as they go. We would say three of the remaining five companies have questionable tax records, although they have at least paid some at some point. Over the last three tax transparency reports BHP have paid an average of 25 per cent, Fortescue Metals 20 per cent and Woodside Petroleum 18 per cent. We would consider paying the 30 per cent tax rate that they're meant to be paying the bare minimum for good corporate citizenship, which quite a few of them aren't doing.

Another question we ask is about treatment of workers. When the times are good, or even when things get tough, do they treat their workers well and look after them? Unfortunately, once again the answer is no for quite a few of the signatories to the letter. A lot of them use labour hire and contractors extensively to replace higher paid directly-employed workforces. That's particularly the case with mining signatories BHP, Woodside and Fortescue. That is worsened by a lack of commitment to training apprentices and Australian workers in general. We have seen shirking of responsibility for the conditions of those contracted-out workers. The best example of that is Aerocare and Qantas, where workers are working under terrible conditions, and Qantas has largely avoided any responsibility for that, by saying it's not their problem. Several of the signatories have locked out workers in the past as part of disputes, including, most famously, Qantas, when they shut down their airline over pay, as well as instituting pay freezes while doubling the remuneration packages of their executives—once again, Qantas.

Mr Roberts : I might supplement that last point about the industrial record of these BCA companies. These are some of the hardest-bargaining companies in the country. Our union affiliates deal with them on a day-to-day basis, and it seems to me that, no matter how profitable these companies are, they're not in the business of giving away wage rises, at least to the broad base of their employees. The suggestion that underlies this inquiry—that greater access to capital through corporate tax cuts would somehow magically flow through to the workforces of these companies—is, quite frankly, a nonsense.

CHAIR: Listening to the BCA's comments and commitment, one could be forgiven for believing that if they can only get a tax cut then they can pass that on as higher wages. Productivity is rising, but wages are not increasing commensurately, and profitability is at record levels. You identify in your submission a range of the things you just alluded to, Mr Watts, about the labour practices of the companies. Are these some of the reasons for the stagnant wage growth in the economy, despite productivity and profitability going up?

Mr Watts : I would say certainly, without a doubt.

CHAIR: What are these companies saying to you? If they get a tax cut, are they going to change these practices to allow a pay rise to occur? Are they going to stop this behaviour?

Mr McCallum : We've had no communications from any of the companies regarding the tax cuts and passing them on in higher wages, nor have we had undertakings or indications from these companies in relation to improving their corporate citizenship when dealing with their employees. As Mr Roberts just mentioned, these are some of the hardest-bargaining corporations and employers in the country. Nothing in our experience and that of our affiliates interacting with them in an industrial sense suggests that will change any time soon.

Senator KENEALLY: The modelling of this corporate tax cut done by people like Chris Murphy would suggest it will be paid for in part by something called the morality dividend—that is, corporates will suddenly decide to stop profit-shifting and pay a greater share of taxes in Australia out of gratitude for a lower headline rate. I take it you don't think there'll be much of a morality dividend flowing as a result of a cut in corporate tax.

Mr McCallum : No, not at all. I'll talk about ExxonMobil again, a company that has almost $7 billion in incoming revenue and was able to reduce that down to zero taxable revenue, yet has a workforce of almost 200 people that haven't been to work for over 300 days and are being asked to take 30 to 50 per cent pay cuts and a range of other reductions in their working conditions. That company has not paid any morality dividend; in fact it has an immoral dividend on the workers that have been locked out for over 300 days.

Senator HUME: Was ExxonMobil one of the BCA signatories?

Mr McCallum : No, it wasn't.

Senator HUME: Then I think that's outside the terms of reference, Chair.

Senator KENEALLY: First of all, it's Esso. Secondly—

Senator HUME: Esso is a division of ExxonMobil.

CHAIR: We're talking about the impacts of the tax cuts on wages.

Senator HUME: No, we're talking about the BCA's commitment to the Senate. Those are the terms of reference for this inquiry.

Mr Roberts : Exxon is a BCA member. The BCA have signed a commitment on behalf of their members.

Senator HUME: But it wasn't a signatory of the commitment to the Senate. If we're going to extend beyond the terms of reference of this inquiry, we should make that pretty clear from the outset.

CHAIR: I think the BCA is making claims about what's going to happen more broadly in the economy.

Senator HUME: I'm having a sense of deja vu, Mr McCallum. We had an inquiry into corporate tax avoidance not that long ago, where ExxonMobil not only were discussed but were witnesses, along with you.

Mr McCallum : That's right.

Senator HUME: Haven't we already prosecuted this particular argument. Are we here to talk about the corporate tax cuts, or are we here to talk about Exxon?

Mr McCallum : We're here to talk about corporate tax cuts and the behaviour of corporations in Australia that would benefit from them. There was a hearing previously into corporate tax avoidance, and that hearing—

Senator HUME: I remember; there was a protest out the front.

Senator KENEALLY: My question was simply about modelling done by Chris Murphy, which a number of the witnesses have cited and we've been able to canvass. The witness can choose to answer the question about a morality dividend in any way he chooses, and he has chosen to answer it in that way.

CHAIR: Do you think that providing these BCA member companies with a tax cut is the best way to increase wages for the union members that you represent?

Mr McCallum : No, absolutely not. For a start, we need a restoration of bargaining power between workers and businesses and employers in Australia. That has been completely out of balance in favour of employers for a long time. That would be the number one starting point in how to deliver higher wages for workers, which in turn would stimulate the economy, benefit businesses and increase GDP.

CHAIR: There was an earlier version of the pledge—the BCA explains it wasn't necessarily an earlier version of the particular commitment we're debating today—linking the enterprise tax plan to a range of commitments that were being contemplated in that draft. Why do you think companies weren't willing to sign that pledge?

Mr McCallum : I saw those media reports and found it curious but not surprising that the earlier draft, which seemed much more explicit in providing commitments in greater detail around investment and wages, was walked back, and the eventual statement was effectively a watered-down version. It relates to the issue of trust I spoke about in my opening statement, particularly when you consider that, when asked to provide some more details about how the signatories would be passing on any potential benefits or greater investment through larger wages, the response has been, 'Sorry, we can't do that; that's covered by commercial-in-confidence.'

Mr Watts : This relates to the question Senator Keneally asked about the morality dividend. They were essentially given an opportunity to promise one, and they passed that up. If anything, that informs our scepticism about the probability of its occurrence.

Senator HUME: Can you list for me exactly what tax those companies that didn't pay tax should have paid.

Mr Watts : I don't have those figures in front of me. It would be difficult, particularly for the companies that reduced their taxable income to zero, as I can't simply apply a 30 per cent corporate tax rate to zero, so I would be unable to tell you how much tax they should've paid. I imagine their accountants could; you might ask them that.

Senator HUME: No, I'm asking you, because you've essentially accused them of avoiding tax, have you not?

Mr Watts : No, I've said that they paid no tax; I've not speculated as to how they achieved that.

Senator HUME: I think you were implying that they had paid no tax, because of some devious behaviour.

Mr Watts : I'm not responsible for what you infer from my statement. I said they paid no tax. I view paying tax as contributing to Australian society. They did not do that. I didn't speculate on how they achieved that.

Senator HUME: Do you think that they worked within the legal boundaries of our current tax laws?

Mr Watts : I'm sure that they did.

Senator HUME: Do you think they intend to pay no tax in the future? Do you think that's their objective?

Mr Watts : I wouldn't be able to speculate as to their objective. I'm sure they will seek to minimise tax in future, but that is my opinion.

Senator HUME: How many Australians do those companies employ?

Mr Watts : I don't have that figure off the top of my head.

Senator HUME: You don't have that data either.

Mr Watts : No.

Senator HUME: I would've thought:

Any student of Australian business and economic history since the mid-80s knows that part of Australia's success was derived through the reduction in the company tax rate. We need to be able to make life easier for Australian business, which employs two in every three Australians.

Wouldn't you agree?

Mr Watts : Not necessarily, no.

Senator HUME: So you don't agree with Bill Shorten? That was what he said. It wasn't me; it was Bill.

Mr McCallum : When you started your statement with what, effectively, was your thought, we're not going to speculate. If you're now telling us that you're quoting from someone else then I can't speculate as—

Senator HUME: So you wouldn't agree if it were my thought, but you will agree if it's Bill Shorten's thought?

Mr McCallum : No, if you let me finish—

Senator HUME: It's the same statement.

Mr McCallum : I would like to know the economy's fiscal environment when those statements were made.

Senator KENEALLY: This is Senator Hume's fun game she plays at these hearings. She just reads out a series of statements and then reveals who said them, without any context.

Senator HUME: I'm sure I could find one from you, given half a push.

Senator KENEALLY: Go for it.

Senator HUME: The quote is, 'I think it would be a better thing if Australia's tax rate was more competitive.' Is that true?

Senator KENEALLY: In what context?

Senator HUME: It goes on:

I'd like to see it lower over time. I think we've had 14 years of having the corporate tax rate stable. That's too long. Over time, I'd like to see it lowered.

That's from Chris Bowen. Do you think that's right?

Mr McCallum : If you have questions regarding statements by—

Senator HUME: I have questions about lower company tax rates. Do you think that that's right?

Mr McCallum : You're asking questions about quotes from Bill Shorten and Chris Bowen, and I think that—

Senator HUME: They all believe that lower company tax rates improve productivity over time.

Mr McCallum : those questions are best put to those people.

Senator HUME: I'm asking you whether you agree with that.

Senator WHISH-WILSON: He's just made a perfectly reasonable response, Senator. As he said, you should put the questions directly to them.

Senator HUME: I'm asking whether you agree with them.

Mr McCallum : What we agree with is companies in Australia paying their fair share of tax, which they're not doing at the moment. We've got over a third of companies that have a taxable income of zero. In fact, one of the signatories of the BCA statement, Qantas, has sacked thousands of workers in recent memory, in the last four or five years. We don't think that these companies should be benefiting from a reduction in corporate tax when that money should be better spent by investing it in schools, hospitals, infrastructure and transport which will create jobs, or funding services in regions badly in need in Australia.

Senator HUME: Chris Bowen said:

It's a Labor thing to have the ambition of reducing company tax, because it promotes investment, creates jobs and drives growth.

Do you think it should be a Labor thing? Is Chris Bowen right?

Mr McCallum : You'd best ask the Labor Party about what the Labor—

Senator HUME: No, I'm asking your opinion.

Mr McCallum : I've just given you my answer.

Senator HUME: No, you've given me an obfuscation. You haven't given me your opinion on whether it should be a Labor thing, as Chris Bowen suggests.

Mr McCallum : Senator, I have given you my answer in relation to that question.

Senator KENEALLY: Mr McCallum, does context matter? Senator Hume is right to put questions to you about what people have said in the past, but does context matter?

Senator HUME: He wrote a whole book about it, Senator Keneally.

Senator KENEALLY: For example, in the 1980s and the 1990s, we saw a lower corporate tax rate in Australia, which some people could argue led to economic growth, but it was part of a bigger package of reforms that, in fact, the ACTU was part of—changes to the social wage, changes to labour market reforms, the encouragement of private savings and the end of restrictive trade practices. That context matters, doesn't it?

Mr McCallum : Of course it does.

Senator KENEALLY: So for Senator Hume to read out a bunch of statements out of context without describing the—

Senator HUME: It describes your guys in the last five years.

Senator KENEALLY: And opposed by Senator Hume's party, I might add. That corporate tax cut was opposed by Senator Hume's party. So context matters, doesn't it? The fiscal context and the other reform settings around it matter.

Mr McCallum : Of course it does.

Senator HUME: Sorry, so Chris Bowen's book Hearts & minds is now irrelevant? Is that what you're saying?

Senator KENEALLY: Maybe the question back to Senator Hume is why did her party oppose the corporate tax cut?

Senator HUME: I'm not here to answer questions. I'm here to ask them, Senator Keneally.

Senator WHISH-WILSON: A point of order, Chair. Could you please let Mr McCallum answer the question? Could you ask him to answer the question?

CHAIR: I'll endeavour to do that. Mr McCallum?

Mr McCallum : Just expanding on the point of context, indeed, you've heard from previous witnesses that when it comes to the enterprise tax plan part 2 and the tax cuts for corporations that that will deliver. There has been some discussion about the Henry tax review and that the Henry tax review included corporate tax cuts as part of a broader package of tax reform. So, yes, context is important.

Senator KENEALLY: Including changes to the mining tax?

Mr McCallum : Yes, in fact, when it comes to the petroleum resource rent tax, we think that the name 'tax' on that policy mechanism is actually misleading. It's really a royalty, and it's not really a tax at all. It's a royalty on—

Senator PATERSON: It was the Hawke government that introduced it.

Mr McCallum : Sure. But I wish they had introduced it with the name 'royalty'.

Senator HUME: Can I go back to my original line of questioning, please. The national accounts data showed that in 2007 private sector company profits actually grew by five per cent, not, I think it was, greater than 20 per cent—as you suggested—while compensation from employers grew by only 4.8 per cent. The national accounts data, which I think is pretty reliable, says that, 'over the last six years, compensation for employees has grown by 21.8 per cent while company profits have grown by 13.7 per cent.' Where are you getting your data from?

Mr McCallum : Senator, could you provide a little more detail to your question when you use the phrase 'compensation from employers'? Is that different to wages?

Senator HUME: I would assume it's the same.

Senator PATERSON: It's the total package of remuneration.

Mr McCallum : So that would include superannuation and other benefits et cetera?

Senator PATERSON: Yes.

Mr Watts : It also includes increases in that figure based on the growth in the number of employees. The total amount spent by business on remuneration of employees will have increased over the last decade because there are more workers. It doesn't necessarily mean that individual workers are receiving higher wages, or significantly higher wages.

Senator HUME: So the national accounts data is being tricky, is it?

Mr Watts : It's not being tricky; it merely provides data on specific information. It doesn't provide data on—

Senator HUME: So where's your data coming from?

Mr Watts : We also use ABS data, but I'm not sure to which data you refer when you say 'your data'.

Senator HUME: Well I'm not sure which data you're referring to when you say that company profits have grown by 22 per cent but wages haven't increased.

Mr Watts : We use ABS data for that as well. I don't have the particular category number off the top of my head.

Senator HUME: Perhaps you could take that on notice then.

Mr Watts : That would be perfectly fine.

Senator HUME: Thank you. You said that it's an issue of trust, that you don't trust the largest Australian companies to come good with a commitment to the Senate that they would increase in their own companies, in their own countries, if a company tax cut was passed. Is that correct?

Senator WHISH-WILSON: Increased what, sorry, Senator Hume?

Mr McCallum : Wages? Is that right?

Senator KENEALLY: They've only committed to invest more. That's all they've committed.

Senator HUME: You said you didn't trust those companies.

Mr McCallum : That's right, yes.

Mr Roberts : We're talking about a four-line piece of wording that is essentially meaningless. It doesn't commit the companies to anything. Is it a promise? Is it a guarantee? Is it a commitment? It's none of those things.

Senator HUME: So why is it an issue of trust, if you don't—

Mr Roberts : It's not measurable. How would we ever know if they meet this commitment if the company tax changes were passed?

Senator HUME: If it's so meaningless, why on earth are we dragging them in front of a Senate inquiry?

Senator WHISH-WILSON: Because there is a lot of money involved here, and it's a significant—

Mr McCallum : Perhaps you'd asked the BCA that, because they're the ones who made the statement to the Senate.

Senator HUME: We have asked the BCA. We did it last Tuesday. I'm assuming you listened in.

Mr McCallum : Sorry?

Senator HUME: We did ask it last Tuesday—I assume that you listened in—although they'll be appearing again today, so I'm sure we'll get another chance to have a whack at them.

Mr McCallum : I wasn't listening in on Tuesday.

Senator HUME: Okay. I put to you that the testimony of your organisation should also be dismissed. Why should we trust the ACTU when the ACTU have said that it's okay to break laws when they don't like them? Don't you think that that indicates a slightly less trustworthy organisation than the BCA?

Mr Roberts : I think we've strayed from the terms of reference.

Senator PATERSON: Thank you, Mr Roberts, but it's not your role—

Senator HUME: If we're going to get into trustworthy organisations, I would suggest that an organisation that have actively said that they intend to break the law, that they don't intend to follow the laws where they don't agree with them, shouldn't be wagging fingers at the biggest employers in the country.

CHAIR: I'll take that as a comment.

Senator KENEALLY: In Senator Hume's world, Rosa Parks should have been thrown in jail for 20 years.

Mr McCallum : Senator, if you want to talk about organisations breaking the law, I will refer to my statements around the large banks and the banking royal commission. There have been shocking revelations coming out of there. I think—

Senator HUME: A little bit like the Heydon royal commission; there were some pretty shocking revelations that came out of that one too.

Mr McCallum : that does go to trust and that is directly relevant to this inquiry, because they are going to benefit from these tax cuts. The ACTU is not.

Senator PATERSON: That's because you pay no tax.

CHAIR: Do you have any further questions, Senator Hume?

Senator HUME: No, that's fine.

Senator WHISH-WILSON: The most important question I had, I think you've answered. I was interested in what kinds of negotiations or chats—I won't use the word 'negotiation'—or discussions the peak body for unions in this country has had with these BCA members. Shareholders are one stakeholder. We're all another one, the Senate, as are citizens and taxpayers. I presume they would have talked to you, as workers, to discuss this issue before they went out and made public statements. Just to be clear: there have been no formal discussions with the BCA or any individual businesses on this issue?

Mr McCallum : Not to my knowledge, no.

Senator WHISH-WILSON: I find that quite extraordinary. Senator Keneally said a minute ago they haven't actually publicly made a commitment to raise workers wages, but that they've made a commitment to increase investment. They believe this will lead to an increase of productivity and, potentially, wage rises and employment in the future. Have you got any comments on those assumptions that the Treasury model and the BCA are using to put it out there—that is, this is going to be a good thing for the workers?

Mr McCallum : Sure.

Mr Watts : Yes. Our economist isn't here, but we would question the optimism of the assumptions within some of the modelling about what proportion of the tax cuts will be passed onto workers as increased wages. It appears to us the Treasury modelling assumes a large proportion will be passed on. We don't believe that's backed up by any kind of observation of corporate behaviour either domestically or internationally when they get more money, so I'd say that's probably one of our key issues with those models in general—that is, they tend to assume a rather more generous view of corporate's propensity to pass it on.

Mr McCallum : Just to quickly add to that: the Treasury modelling, which I believe was released towards the end of last year, quoted $750 in terms of potential wage increases. According to our analysis, that would mean that the entire of the corporate tax cuts—so that's enterprise plan 1 and 2—the $65 billion, so 100 per cent of that—would need to be passed on as wage increases, and that it would not get up to anywhere near the figure quoted until 2025 or 2027.

Senator Whish-Wilson interjecting

Mr McCallum : Extremely optimistic!

Senator WHISH-WILSON: You've done your own internal work on that?

Mr McCallum : Yes.

Senator WHISH-WILSON: Excellent.

Mr McCallum : If it's not in our submission, we're happy to provide that.

Senator WHISH-WILSON: Take that on notice. That's quite extraordinary.

Mr Roberts : The other point I'd make is that, understandably, a lot of the modelling and analysis has been focused on the private sector, but there hasn't been, as far as I've been able to ascertain, much information or analysis about how this might affect public sector employees, so how teachers, nurses, police officers and so on are going to benefit from a corporate tax cut in an environment where they're confronted with wage freezes at the state level and the federal level. It's more than optimistic to suggest that those public sector workers are going to benefit to the tune of $750 a year.

Mr McCallum : Indeed, and that contrast becomes even sharper when you consider that the foregone revenue that would occur as part of these corporate tax cuts could in fact be spent on health care, education et cetera, which would drive jobs.

Senator WHISH-WILSON: That's one opportunity cost, and an important opportunity cost, to consider in the public debate, and I'm glad that the ACTU has got a view on that. The other simple opportunity cost is how could you better target the $60 billion worth of tax revenue, which is intending to go directly to corporations, to create jobs? Do you have ideas around that, like infrastructure spending or other strategies?

Mr McCallum : So when we talk about that money being better spent by being invested in infrastructure projects—particularly in the regions for public transport, schools, hospitals—we mean that for every $1 billion under the corporate tax cuts, that could deliver 17 new high schools or a 400-bed hospital et cetera. The possibilities of what could be done with that revenue that will be forgone under the corporate tax cuts is immense, and it holds great potential for economic stimulus and direct job creation, as opposed to this promise—

Senator WHISH-WILSON: Hypothetical scenario.

Mr McCallum : this hypothetical trickle-down promise, that there might be jobs and there might be wage increases.

Mr Watts : If I could just add to that, training is something that we would strongly advocate money be spent on, particularly vocational education and training in this country. I think previous witnesses have attested to the pathetic state of the current sector, largely due to funding cuts over the years. Restoring funding to the training sector would be a good priority to consider.

Senator WHISH-WILSON: Even if we do accept the premise that the tax cut will be reinvested back in businesses—let's go with your assumption, 100 per cent—and that it will actually lead to increased productivity, even if we accept that, why do you think it is that Treasury and the BCA haven't looked at the disconnect that is obvious to all of us now that recent productivity gains haven't led to wage rises? Why do you think that key assumption is being ignored in this debate? Is it an optimistic scenario that somehow we will get—

Mr McCallum : For exactly that, because the evidence to date does not support the proposition that there is going to be a flow-on effect of increased wages. We've had an economy that's been growing, as people say, for 27 years; we've got profits going up—and people might have differing views about how much they're increasing, but there's no doubt that they are—and yet we've got flat wages that are going back in real terms, to the point where Treasury modelling was overly optimistic in last year's budget and there was actually an increase of over a billion dollars in terms of deficit because there wasn't as much income tax received because wages hadn't gone up as much as Treasury thought. That's not modelling; that's actually historical evidence. And I think that's a much stronger guide.

Senator WHISH-WILSON: In terms of wage increases, you would argue that raising Newstart or the minimum wage would be a better way of stimulating the economy?

Mr McCallum : Of course those things should be considered. A study was done that looked at what happened to wages in the UK against the US the last time that corporate tax was cut in the UK—is that right?

Mr Roberts : Yes.

Mr McCallum : Once again, this is historical evidence and not projections or modelling. That study found that wages actually increased in the US, which, at that time, had maintained its corporate tax rate, and actually decreased in the UK, which was the country that had introduced tax cuts.

Senator WHISH-WILSON: Mr Roberts, you mentioned the public sector a bit earlier and how they might benefit from this. Purely as a matter of interest, has the ACTU discussed or considered a policy option on supporting a wages break-out in the public sector? This is a Greens idea, by the way—a four to five per cent wage rise for the public sector. We've had some previous evidence that it has actually had flow-on effects into the private sector, to stimulate—

Mr Roberts : All of our public sector affiliates are in the business of bargaining for wage increases in a very difficult set of circumstances, and I'm sure that they will use their best endeavours with the system that we've got at the moment to try and achieve whatever wage results they can manage. But Mr McCallum has outlined some of the limitations in the current bargaining climate. They're manifest. They mean that bargaining is actually dropping away. Coverage of enterprise bargaining is dropping away. Award reliance is increasing. And, unless something is done about that, there will be a rising level of inequality in this country.

Senator WHISH-WILSON: My last question is in relation to the trust factor that you got grilled on by Senator Hume. Were you aware that the Australian bankers' association recently made statements—which I have even seen on the TVs at the airport where you get your baggage—advertising, or, indeed, boasting, on behalf of the banks, that 80 per cent of all profits go to shareholders?

Senator PATERSON: Australian shareholders.

Senator WHISH-WILSON: Do you believe that they will change that ratio in the future if they get a $10 billion dividend from the Australian taxpayer?

Mr Roberts : I think our colleagues from Per Capita addressed that to some extent in the submissions they made this morning. The trend, clearly, has been up, in terms of the percentage of profits paid out to shareholders as dividends. It's high by international standards—that's my understanding—and there is no reason to suggest that profits that would be accrued as a result of the tax cut would be treated any differently.

Senator WHISH-WILSON: We've seen a big swing in the US in recent months into reinvesting the tax cut over there back into share buybacks. That's obviously good for shareholders. Who does best out of share buybacks? Can you give me two stakeholders who do very well out of them?

Mr Roberts : Executive remuneration's always a winner!

Senator WHISH-WILSON: That's right. It's very good for executive bonuses.

CHAIR: Okay. Thank you.

Mr Watts : Sorry, Chair, if I may—

CHAIR: Yes.

Mr Watts : just to save the secretariat some time on Senator Hume's question on notice: the reference that we have for our 21 per cent increase in business profits is also the Business Indicators statistic. We don't use the quarter-to-quarter figures, which I believe are the ones you quoted, because they tend to fluctuate wildly, based on business cycles. So we say:

Business' total gross operating profits for all 4 quarters in 2017 was $322 billion—21% higher than the same number in 2016.

That's from the ABS Business Indicators, December 2017.

Senator HUME: I also put some other questions on notice which replicated the ones that Senator Ketter directed to the BCA on Tuesday. I am wondering whether you have that data with you. Can the ACTU please inform the committee of the costs incurred since May 2017 for policy advocacy, advertising, public campaigning et cetera to advocate against the second part of the enterprise tax plan. Similarly, can the ACTU please outline total internal costs, particularly full-time employees' total salary and bonuses associated with the same policy advocacy, advertising and public campaigning. Did you come armed with that data today, or is it something that we need to take on notice?

Mr McCallum : In order to assist you as much as possible, we have come with a response today. We did receive that question on notice, unusually, prior to the hearing. It was an interesting precedent.

Senator HUME: We thought we would make it easier for you.

Mr McCallum : Yes, and we appreciate that.

Senator PATERSON: It's pretty standard practice.

Mr McCallum : It's unusual for us.

Senator HUME: It's silly to compare what the BCA has spent without comparing it with what you guys have spent.

Mr McCallum : Fair enough. We did receive that question a little after 5 pm on Tuesday, so we haven't had a lot of time, given that yesterday was Anzac Day. We prepared an answer as best we could to assist you. We can advise that we have not incurred any advertising or campaign expenses specifically in relation to the second part of the enterprise tax plan. This means no TV commercials, radio ads or billboards. We estimate that we have spent $951 on a social media spend in relation to the overall $65 billion tax cuts—that is, enterprise tax plans 1 and 2. We don't delineate down into part 1 or part 2 over the time frame of the question, so since May last year. We haven't commissioned any research or reports into the enterprise tax plan No. 2, nor have we engaged any external advice in relation to it. We don't have any staff members that are dedicated to focusing on the enterprise tax plan No. 2. Our response to the enterprise tax plan No. 2 consists of a range of campaign policy communications and political staff using some of their time on an as needs basis, which collectively represents our overall response to the bill. This includes a legislative policy brief, the policy submission that we've done or prepared for this inquiry, attending today's hearings and answering this question on notice. Unfortunately, it is almost impossible for us to quantify exactly how much time of each staff member has been broken down into specifically the enterprise tax plan No. 2. We don't bill in six-minute units or similar segments, so it's not practically feasible for us to get down to the level of granularity sought in your question. We would advise, once again to be as helpful as possible, it is only an approximate that there would be several hours worth of work by around seven to nine staff since May 2017. Our activities connected specifically to the enterprise tax plan No. 2. We can assure you that all of the staff involved in those hours have paid more tax on those hours alone than some of the signatories on the BCA statement.

Senator HUME: Terrific. Can we have that in writing, in the same way that we're going to receive it from the BCA? If you want some more time to flesh it out beforehand, you're more than welcome. You did say that you only had a day to do it.

Mr McCallum : I'm happy to provide it in writing. We'll send it through to the secretariat.

Senator HUME: That would be great.

Mr McCallum : You're welcome.

CHAIR: In the interest of time, we might go to Senator Patrick.

Senator PATRICK: I have some very short questions, which I might ask of you, Mr Watts, just to help me out this afternoon. You talk about the tax transparency report. There is obviously a total income for a company that leads to a taxable income, and there are lots of things that can happen between those two numbers, including avoidance and evasion—and I don't say that lightly. There are certainly prosecutions for that and there is certainly a lot of effort going into anti-avoidance. Between the taxable income and the next number they publish is the tax payable. One would have thought that, by the time you get down to taxable income, that would almost certainly directly relate to tax payable. What are the reasons for that difference? Some end up with a zero result and, as you suggested, some like BHP end up with 25 per cent and FMG, I think you said, 20 per cent. Is it simply that they're booking it against a previous loss? What are the differences in that space?

Mr Watts : Unfortunately, much to my mother's disappointment, I'm not a tax accountant, so I can't go into much detail here. You are right, there is significant variance between the companies in the level to which their taxable income is then expressed as tax payable. As to why, I imagine there are a variety of reasons, and I think you have named some of them, like losses carried over from previous years, R&D tax credits et cetera. I wouldn't be able to speculate much beyond that.

Mr McCallum : If I could just add to that. I think it's also instructive to appreciate the difference between headline rates and effective and average rates. In Australia, we've got a headline rate of 30 per cent tax, but the often quoted US congressional study that compared international corporate tax rates found that in Australia we have an effective tax rate for corporations of 10.4 per cent, which is after we take into account all of the deductions that are allowable under our system, and we have an average tax rate of 17 per cent.

Senator PATRICK: Thank you. I have looked at these average rates and marginal rates, and you can almost end up getting yourself more confused in asking how do we benchmark one against the other. If you used one of those numbers, it still doesn't explain why one company necessarily pays 25 per cent, one pays 20 per cent and one pays none. I just thought there was an easy answer.

Mr McCallum : We're trying to understand it as well. On a serious note, these are companies that spend a lot of money on specialist advisers and lawyers et cetera to reduce their taxable income, as they are entitled to do. But it does seem unbelievable that companies can have billions—seven, eight, nine, 10; in the case of Energy Australia, they have over $10 billion—in revenue, yet they pay zero tax in Australia.

Senator PATRICK: To be fair to Mr Jordan, the commissioner, there is an article where he says that at least $4 billion has been recovered over the last financial year in tax avoidance. I was just trying to work out whether that sits between the total income and the taxable income or between the taxable income and the tax paid.

Mr Watts : It's probably everywhere. I imagine the step is done throughout. The ratio of income to taxable income across the company seems to be fairly steady. It is about four or five per cent, but I'd have to double-check. Everyone seems to do the same thing to get from income to taxable income. It is taxable income to tax where the difference seems to come in.

Mr McCallum : The ATO is doing a good job in trying to recover some of the tax that should have been paid by corporations. There are legal processes going on there, but broadly speaking that does go to show that we have a problem in Australia when it comes to corporate tax avoidance and that the current rates aren't being enforced properly or aren't being applied correctly by companies at the moment, and they shouldn't get a discount going forward.

Senator STOKER: Gentlemen, I would like to read you a statement. If you could tell me whether you agree or disagree with it, I would be grateful. 'In a world of mobile capital, if we have high company tax rates our companies will not get the investment that they need to grow employment and boost wages.' Do you think that is right or wrong?

CHAIR: I think it would be fair if you indicated who made the statement.

Senator HUME: Why? It should make no difference. It may make you go squirm, but unfortunately this is what happens.

Senator KENEALLY: Maybe it makes a difference when it was said. When was it said, Senator Stoker?

CHAIR: If you're quoting somebody it's reasonable to indicate who the quote comes from. I think that's quite a reasonable—

Senator STOKER: I'm interested in the substance of the statement. Do you think there is a value?

Mr Roberts : We do need to know the context of the statement.

Senator STOKER: I will give it to you in due course, but just think about the statement itself. Do you think that is right or wrong, or sometimes right and sometimes wrong?

Mr McCallum : Could you repeat it, please.

Senator STOKER: Of course. 'In a world of mobile capital, if we have high company tax rates our companies will not get the investment that they need to grow employment and boost wages.'

Mr McCallum : In relation to the company tax rate, we, along with other witnesses that this inquiry has already heard from, would point out that the company tax rate is one of a range of issues that companies rely on before they decide to invest in Australia. We already have an effective tax rate in Australia of 10.4 per cent. The headline rate is not a deterrent from investment. There have been studies—and we're happy to provide on notice the sources to back up what I'm about to say—that have indicated that most of the inward investment in Australia has come from companies that already have lower corporate tax rates than we do.

Senator STOKER: That would be very interesting to see. I think what you've said is no, so tell me if I've misunderstood it.

CHAIR: Please don't put words in people's mouths, Senator Stoker.

Senator KENEALLY: What a pity, Senator Stoker, you can't get your own original games; you have to pick up on Senator Hume's.

Senator STOKER: Mr McCallum is entitled to correct me if I'm wrong. It sounded like he disagreed. The reason I ask is quite a sincere one. The coalition's approach is one in which they desire to create a climate in which wages can rise for workers. Among a whole bunch of other objectives, that is one of the things that would be great to achieve from these enterprise tax cuts. I think that's the substance behind the quote I gave to you as well, which was from Andrew Leigh in 2011. If that's wrong—if you don't agree that to get the investment needed to grow employment and boost wages we've got to lower corporate tax—what do you suggest is the way to go about creating the conditions for increased private sector wages?

Mr McCallum : I've already answered that this morning, but I'm happy to repeat it. The way to make sure that there are wage increases in Australia is to make sure that bargaining in Australia is fair. At the moment, bargaining is not fair in Australia. Workers and their representatives do not have the same level of power to be able to bargain in a fair way with employers, so addressing—

Senator STOKER: Do you think that's the only matter?

Mr McCallum : Addressing that is the best way to make sure that there are going to be wage increases. When it comes to the forgone revenue of corporate tax cuts, it's better to spend $65 billion either directly on increased wages, as my colleague has mentioned, for the public service or—

Senator STOKER: I'm talking about the private sector.

Mr McCallum : If you increase wages throughout the private sector, then those wages are going to be spent. They're going to be spent in private businesses. People are going to have more money and that's going to stimulate the economy. There's going to be an overall economic benefit.

Senator STOKER: How much should wages go up?

Mr McCallum : I'm happy to send you our submissions to the Fair Work Commission around things like the minimum wage et cetera.

Senator STOKER: For the purposes of this discussion, give me a ballpark figure. How much do private sector wages need to go up—or even public sector wages, if we're going to fund it from the budget. How much, as a rough percentage, do they need to go up by?

Mr McCallum : I think, and this is my personal view, that when you look at businesses that factor in labour costs going forward they would normally factor in 3.5 to four per cent per annum going forward. We have seen nothing near that over the last couple of years. We are seeing rollovers with 0.5 per cent, which obviously is nowhere near CPI, so wages are going backwards in real terms.

Senator STOKER: There have been two surveys done by NAB in the last week. The first one said that, among larger businesses, if the corporate tax cuts were passed there was an intention for 70 per cent of those surveyed to use that, at least in part, to fund wage increases. There was another survey released today that covered medium-sized enterprises where, for the same set of responders to the same question, the result was 80 per cent that intended to use it at least in part to find wage increases. Are you nevertheless sceptical of those businesses' answers despite the recency of the data?

Mr McCallum : I'm not aware of this morning's survey. I did make reference to last week's survey in my opening statement, where only eight per cent of respondents of the NAB survey indicated that they would pass on wages—so that means that 92 per cent said that they wouldn't or weren't able to give that commitment. I'd have to look at this morning's survey before making any specific comment on it. I would also add broadly, once again, that my levels of scepticism of anything that is coming out of the big banks at the moment is very high.

Senator STOKER: I'm talking about medium-sized enterprises though; they're not banks.

Mr Watts : NAB is a bank and ran the survey.

Senator STOKER: They ran the survey, but they weren't a respondent to the survey; they're collecting information.

Mr McCallum : I'd have to look at the survey.

CHAIR: Thank you very much. We will now break for lunch.

Proceedings suspended from 13 : 21 to 14 : 06