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Economics References Committee
24/04/2018
Commitment to the Senate issued by the Business Council of Australia

ALVARES, Mr Edison, Chief Financial Officer, JBS Australia

BENNETT, Mr Christian, Head, Government Relations and Industry Affairs, Woolworths Group Ltd

BERRY, Mr John, Director and Head of Corporate and Regulatory, JBS Australia

KING, Mr Grant, President, Business of Council of Australia

LA SPINA, Mr Tino Enrico, Group Chief Financial Officer, Qantas Group

MARR, Mr David, Chief Financial Officer, Woolworths Group Ltd

PARKER, Mr Andrew James, Group Executive, Government, Industry, International and Environment, Qantas Group

WESTACOTT, Ms Jennifer, Chief Executive Officer, Business of Council of Australia

[14:03]

CHAIR: While the witnesses are making their way to the table, I remind the media about the standard arrangements. I ask photographers and cameramen to follow the established media guidelines and the instructions of the committee's secretariat. Please ensure that senators' and witnesses' laptops and personal papers are not filmed.

Ms Westacott and gentlemen, welcome to our inquiry and thank you for appearing before us. Ms Westacott, do you have an opening statement?

Ms Westacott : Mr King will do that.

Mr King : Thank you very much, Chairman and senators, for the opportunity to speak with you today and to make an opening statement, which I'll read, and then we'll move on from there. The Business Council and its members welcome the opportunity to reaffirm our commitment to the Senate to invest in Australia if a reduction in the corporate tax rate is passed. Given the importance of the enterprise tax plan to the nation, we believe it is only fitting that it undergo close scrutiny. We hope that this level of scrutiny applies to other significant public policies in the future. Unfortunately, the committee's tight timetable has meant that most of our member CEOs have been unable to move other commitments, so we appear today with their representatives on behalf of all the signatories to the statement.

We understand the committee sought answers from our members to several questions about their current and future business plans in relation to the enterprise tax plan. It would be difficult for any company to disclose the requested information because it is at once highly commercially sensitive and based on assumptions and variables that could over time render the information the subject of legal challenge. Such information, if disclosed, would also be highly valuable to competitors, including in those countries who compete with Australia for capital, jobs and investments. Circumstances will be different for each company; however, the Business Council sought general legal advice on behalf of its members. On behalf of its members, I would like to table that advice, which sets out the legal issues which directors and senior executives would need to consider, including the commercial sensitivity of the information, ASIC guidelines, the ASX Listing Rules and directors fiduciary duties.

CHAIR: Thank you.

Mr King : We have been advocating for a reduction in the company tax rate for many years. That is because locking in a reduction in the rate is urgent and vital to keeping Australia competitive. Of course, we would prefer to be having a discussion about broader tax reform, as we set out over two years ago when we released our three-stage tax plan. However, the absence of a broad tax reform agenda should not be a reason to delay any tax reform. The enterprise tax plan represents the only growth-enhancing plan currently on the table. More importantly, reducing the corporate tax rate would also be the first step in any good comprehensive tax reform package, because it is the most damaging federal tax.

Treasury analysis shows that the 30 per cent company tax rate is the most harmful federal tax in terms of its impact on economic growth. Our high corporate tax rate is the area where we are under the most competitive pressure. We now have the third highest tax rate in the industrial world. A globally competitive tax rate is one of the most direct and effective economy-wide policy levers we have to boost investment. Reducing the corporate tax rate is the springboard that allows you to grow the economy, which in turn provides you with greater fiscal capacity to undertake further reform. As we said in our original commitment, if the Senate passes this important legislation, our members, as some of the nation's largest employers, commit to invest more in Australia, which will lead to employing more Australians and therefore stronger wage growth as that investment builds. In fact, over the past 18 months, our member CEOs have repeatedly called for parliament to pass the enterprise tax plan. Why have they done this? They have done it because the plan is measured, fiscally responsible and fully accounted for; but, most importantly, a reduction in the tax rate is about sending a signal for investment. Investment allows businesses to expand, hire new workers, become more efficient, enter new markets and export.

A competitive tax system telegraphs that Australia intends to remain internationally competitive. Business will be able to bring forward investment ahead of the actual tax cuts if they are confident that the lower rates will apply as investment comes on stream. When companies are weighing up where to investment, do we really want to put Australia at a competitive disadvantage? The US slashed its corporate tax rate by 14 percentage points, almost overnight, while Australia has proposed a modest five percentage point reduction that takes 10 years to be fully phased in. The IMF confirmed that the US tax cuts will draw substantial investment funds into the US from global markets. The reality is that company tax is a tax on investment and, as a nation, we cannot afford for investment to go elsewhere, because so too will the growth it drives. We cannot afford to deny Australia the opportunity to grow the economy by $18 billion a year—that is an additional $180 billion over 10 years. The facts show that Australian workers benefit the most from growth. ABS statistics show that 55 per cent of the benefit of economic growth historically goes to income through more people working, more people working more hours and higher incomes. This is a fact, not a forecast. That is why we are confident in Treasury modelling that shows over half the benefit from reducing the company tax rate to 25 per cent will flow to Australian workers and households. Government revenues would be around $4 billion higher in today's terms every year. This will help fund the services we all want and need.

Don't just take our word for it. An OECD study late last year stated that company tax cuts bring benefits to people at all income levels and do not unfairly favour the rich. This advice was backed by Professor Richard Holden, a leading economist, who wrote in The Australian Financial Review in January that company tax cuts are 'not a gift to the so-called big end of town' and help 'to redress economic inequality'. Deloitte Access Economics partner Chris Richardson has said that reducing the corporate tax rate for all businesses to 25 per cent would be simultaneously good for companies, shareholders and workers, that the whole point of company tax reform was that it increased the size of the pie. Extending the tax cuts to larger businesses would also help smaller businesses. Smaller businesses already have access to tax cuts, but they do not operate in a vacuum. As Peter Strong, CEO of the Council of Small Business Organisations Australia said that, if the tax cut is not extended to all businesses, it will eventually become meaningless. He argues if big business isn't investing then there are fewer opportunities for small businesses, which will mean fewer jobs and less prosperity for Australians.

We welcome the opposition's Investment Guarantee scheme by proposing to introduce accelerated depreciation for certain investments. The opposition is acknowledging that lower company taxes encourage stronger investment. They have acknowledged that tax matters when you want to send a signal to encourage more investment. However, we do not believe that the guarantee is a substitute for the company tax cut, which will have a bigger benefit across all forms of investment in the economy, not just investing in physical assets but also investing in people. The plan for company tax cuts is supported by the facts and has also been independently and rigorously modelled. We are disappointed that economic fundamentals and previous political bipartisanship are missing during this significant debate about Australia's economic future. Australia needs to grow, because only through growth can we secure a better future for all Australians. The fuel for growth is investment, and investment needs a competitive tax rate.

The characterisation of business during this debate is leading us all down. Business is the engine of growth in the Australian economy. Who is business? Business is the 10 million of the 12 million working Australians who work in those businesses. It is the almost six million Australians who own shares in Australian companies. It is where the superannuation is invested and whose retirement depends on those businesses continuing to grow and prosper. It is the ecosystem of small, medium and large businesses that together generate $555 billion of economic activity a year. Businesses, big and small, deliver extraordinary outcomes every day. They create jobs, innovate, export and support thriving communities. Now is the time to push hard for investment that increases productivity so we can create the conditions for higher incomes. Now is the time to make additional investments in sectors like mining, agriculture, energy, advanced manufacturing and to encourage new investments in the digital economy so we can compete and export on the global stage. That is what a more competitive company tax rate is about—driving more investments so we can grow our economy by innovating, exporting more, expanding existing businesses, starting new businesses, creating new jobs and delivering higher incomes. We are falling behind in our tax rates, and we have no time to waste in implementing this plan. We look forward to the senators' questions on our commitment to investment more in Australia if the enterprise tax plan passes the Senate. Thank you, Chairman.

CHAIR: Thank you very much, Mr King. I will kick off the questioning. Firstly, I am interested in the expenditure of the BCA in terms of your advocacy on this issue in support of your commitment. So I am going to ask if you could take this on notice for Thursday, when we come back together. Can you tell us the total external cost of policy advocacy, advertising and public campaigning to advocate for the second round of the proposed company tax cuts since May 2017. I am taking that as a yes.

Ms Westacott : Yes.

CHAIR: Also, can you outline internal costs, particularly how many full-time equivalent staff, total salary and bonuses associated with this policy advocacy, advertising and public campaigning.

Ms Westacott : Yes.

CHAIR: Thank you very much for that. I want to clarify one point: because we know that a number of senators are advocating that banks be treated differently when it comes to the corporate tax cuts, I want to confirm the BCA position. Is it that all companies with a turnover of above $50 million should be given the company tax cut, including the big four banks?

Ms Westacott : Yes, it is our position. Clearly, the revelations in the royal commission are deeply disappointing, but the banks don't get the first part of this cut until 2023. They don't get the full cut, along with those other companies of similar revenue, to 2026-27. In the meantime, they will pay a bank levy of $1.5 billion a year. So I think to use tax policy to punish a sector is only going to punish their customers, including many small businesses. It is only going to punish their shareholders. It is only going to punish their staff. Why are we going to punish the bank manager in one of the regional communities who has been the backbone of that community, getting small businesses going and getting people housing loans? Why are we going to punish the economy? Most people agree that our banks are central to the economy. Why are we going to do that? It is not going to solve the problems that the royal commission is clearly highlighting.

If we want to solve those problems, we need to act quickly and decisively to penalise the people who have done something wrong. The banks need to make sure they repair the circumstances that people have gone through. But taking a populist punishment action on a sector of the economy is not the way to deal with the revelations of the royal commission. It will hurt the economy. What has to happen is swift, decisive action to deal with the wrong behaviour, as the royal commission finds it, to strengthen the role of regulators. It is not to punish the economy, not to punish the shareholders and not to punish the very many hardworking staff at the banks who are not being called in to be questioned. I encourage the parliament and the Senate to take a national interest approach to this rather than—and I understand the politics—a populist one. It will not solve the problems. It will cause harm and it will cause harm to the economy.

CHAIR: Are you disappointed that the deplorable behaviour of the banks has made it more difficult for you to advocate—

Ms Westacott : I think every Australian is disappointed with what they are hearing in the royal commission. It is very disappointing. What we have to do is tackle that behaviour and tackle it urgently, not punish the economy, not punish the banking system and not hurt the banking system. Our economy depends on a strong banking system. As this royal commission rolls out, and it is a very important royal commission, we need to make sure that we don't throw the baby out with the bathwater and actually hurt our banking sector. Our banking sector has to remain strong and has to be competitive, but we clearly have to act on the egregious behaviour that is being revealed in the royal commission.

CHAIR: In terms of your interactions with the government on the enterprise tax plan, can you tell us when discussions first occurred between yourselves and the government in relation to this approach about the second round of the enterprise tax plan cuts?

Ms Westacott : What do you mean 'in terms of discussions'?

CHAIR: In terms of discussions with the government about the proposed tax cuts.

Ms Westacott : The full package? The first package that was announced?

CHAIR: No, I'm talking about the second round. We've got the first round legislated. We're talking about the second round now. Did you have discussions with the government about the second round?

Ms Westacott : The government has drafted a piece of legislation for the second round. Obviously, we have had discussions with the government about that.

CHAIR: Can you tell us when those discussions were?

Ms Westacott : Those discussions have been ongoing. Since the $50 million was passed, we have had numerous discussions with the government, as we have had with the opposition to try to encourage them to return to their bipartisan approach of supporting the corporate tax reduction.

CHAIR: Who did you meet with in the government?

Ms Westacott : We've met with the finance minister, the Prime Minister and the Treasurer. We have met with Mr Bowen and Mr Shorten. This is our job: to go and talk to politicians and talk to them about their policy objectives. As I've said, we have spent many hours talking to the opposition to try to convince them to return to their once strong support for a company tax reduction.

CHAIR: Who else participated in those discussions?

Ms Westacott : As in my staff?

CHAIR: Or members of the BCA. Who else participated in the discussions with government?

Mr King : I participated in some. Some members have made their own representations independent of the BCA. I couldn't tell you how many, because many have made their own independent representations.

CHAIR: Just going to the issue of the letter itself. There are public reports about a prior draft of the letter of commitment. That prior draft appears to be substantially different to the one that your members have signed. Can you confirm the reports about that draft that is in the public domain?

Ms Westacott : There was an earlier discussion with companies that had not been to the board. That looked at the idea of a compact. There were some earlier discussions with some of the companies and what we decided to do was to separate the tax issues from the future of work issues, because they were conflating two issues. We are still working on that compact around the future of work. We feel very strongly that companies should make a very strong commitment and a very clear commitment about how they are going to manage the transition that's underway in our workplaces. We decided that we would pursue the tax matter separately and go to a sample representation of Australia's largest companies, some of whom are here today, and asked them to make a specific commitment around the enterprise tax plan.

CHAIR: You are confirming that it is an earlier draft?

Ms Westacott : No, it is not an earlier draft of this commitment. It is an earlier draft of the idea of a compact. It is not related to this particular commitment. Our decision was also to separate commitments about tax and commitments about the future of work.

CHAIR: Because the draft that is in the public domain talks about the enterprise tax plan, and the purpose is to create new and better jobs in Australia.

Ms Westacott : As I said, it was a very early discussion around a compact. It is not the beginnings of this commitment. This commitment was a separate discussion with a sample of representative companies across sectors of the economy. That was an earlier discussion that was underway by some of my team with companies about the whole broader issue of a compact. We decided that we would separate the tax matters from the future of work matters. As I have said, we're continuing to work with companies on what they are willing to commit to in terms of making some very important commitments to the community about how they will actually manage the transition that's underway in their workplaces.

CHAIR: But on the earlier draft, can you confirm its authenticity as a BCA draft?

Ms Westacott : It is a draft of a compact. It is not an earlier draft of the commitment.

CHAIR: Sure. But it says that:

If the Senate passes the enterprise tax plan in full, we will—

And then there'—one, two, three, four—five points.

Ms Westacott : I've confirmed that. I said what we've decided to do was to separate it. There is a lot in that, so we decided to separate a tax related set of issues and a future of work related issues. That is not an earlier draft of this tax commitment. It does mention the enterprise tax plan, I know that. We decided to pull them apart and get a commitment about the future of work and a specific commitment from particular companies on the enterprise tax plan.

Senator RHIANNON: Did you decide to pull it apart because some of the companies wouldn't agree?

Ms Westacott : No, it hasn't been through that process.

Senator RHIANNON: What is the process? It was reported that some of the companies—Qantas being one of them, so it would be good to hear from them—wouldn't agree to that early—

Ms Westacott : I haven't seen that report. This was a very early discussion by a staff member in my team with some companies about what a compact might look like. As I said, we decided that we would separate the future of work discussion—the whole issue of how we manage offshoring, outsourcing, transparency and the use of data—from the tax issues and that we would get a much more concrete and specific commitment around tax with the companies that signed the commitment to get a sample of those parts of the economy. The actual future of work—the kind of compact, if you will—is still being discussed.

CHAIR: Did this compact arise from discussions with government?

Ms Westacott : No.

CHAIR: So the idea was initiated within the BCA, is that correct?

Ms Westacott : Correct.

CHAIR: Are there other drafts in existence of the letter that was ultimately signed by the 10 companies?

Ms Westacott : I think there were bits and pieces of wording changed, but the substantive commitment is what was sent to companies and what was discussed with companies.

CHAIR: If you could provide us with other drafts of this, including details—

Ms Westacott : These are wording changes. They are not substantive changes. This is the substantive commitment that was put to companies, which they agreed to.

CHAIR: I am ask you to provide details of records, letters, drafts and emails in relation to the drafting of this commitment.

Ms Westacott : Sure.

CHAIR: Can you tell me how long it might take you to provide that information?

Ms Westacott : We can do that by Thursday.

CHAIR: Thank you very much, that's very helpful. In terms of the evolution of this commitment, when was the first draft of that circulated to your membership?

Ms Westacott : Of this commitment?

CHAIR: Of the final commitment that we have seen. Presumably, there were some early drafts.

Ms Westacott : It was 24 hours.

CHAIR: It was 24 hours and you had a final document?

Ms Westacott : Correct. That's why there's only one document. It's not like this has been through a drafting process. It's one document that took 24 hours.

CHAIR: Was it circulated to broader BCA membership?

Ms Westacott : No, only to these companies.

CHAIR: So only these companies have the opportunity to sign this commitment?

Ms Westacott : Correct.

CHAIR: Did you select these companies?

Ms Westacott : Yes.

CHAIR: Senator Keneally has a follow-on question.

Senator KENEALLY: Did every company you approached agree or did some companies disagree?

Ms Westacott : Some companies were not contactable that day, because we were trying to do this in an urgent turnaround. Don't forget that senators were asking for companies to make a commitment. We worked with those companies—

Senator KENEALLY: Did anyone say no? I suppose that's my question.

Ms Westacott : No, not to my knowledge.

Senator KENEALLY: You can't recall if anyone said no?

Ms Westacott : I can't recall that people said no. People were approached. Some people could not be contacted. We did this in 24-hours because senators were asking for a commitment and that's what the commitment went to.

Mr King : Some couldn't respond within the 24-hour period.

Senator KENEALLY: Have gone back to the ones you couldn't get a hold of to ask them if they would like to sign up—

Ms Westacott : No.

Senator KENEALLY: or do you think this list is sufficient?

Ms Westacott : This is a very big sample of the economy.

CHAIR: In this earlier document, which you say is a draft of an 'informal compact'—that's the heading of it—those five commitments that are given are:

1. Create more Australian jobs in the cities, suburbs, town and bush; 2. Invest in more Australian projects and ideas - especially in remote and rural Australia; 3. Be in a stronger position to avoid offshoring of jobs; 4. Be able to increase wages when the conditions are right; 5. Pay our tax and show our commitment by signing the ATOs tax transparency charter.

Despite what is clearly said here that those commitments are given for the passage of the enterprise tax plan, you're saying there are other factors which would have given rise to those five commitments?

Ms Westacott : Yes. As I said, we are currently developing a compact with our members about this whole question of the future of work. As I said, we decided to pull the tax commitments out. But make no mistake, we are pushing hard for our companies to sign the tax transparency code. We have over $23 billion of taxes now paid under the code. We're not walking away from that commitment. What we decided to do was to pull the future of work commitments, the whole question of offshoring and the whole question of the use of data and try to make that as strong as we could and to have a very targeted approach to a sample of companies, which is actually what has happened with the commitment that is before you.

CHAIR: In this document, entitled 'Informal compact', can you point to where talks about this commitment to the safety net? The only references I can see in this document are references to the enterprise tax plan and commitments related to the enterprise tax plan, not to do with—

Ms Westacott : The whole question of offshoring and the whole question of employment is part of this question in the compact that we are looking at for the whole question of the future of work. This was a very early piece of work done by a member of my team that was discussed with some companies. We decided, as I said, to pull out the tax stuff and start focusing on the whole future of work stuff, which we believe is very important. Australians want to see companies make very specific commitments on how they are going to manage the transition in the workplace.

CHAIR: Again, I will ask you: can you tell me where in this document it refers to the future of work?

Ms Westacott : The whole question of offshoring and the whole question of employing people. I'm sorry to disappoint you, but this was a piece of work done by member of my team at a very early stage to talk about the sorts of things that might form some kind of compact. It has no formal status in the BCA. I can't say any more than what I have said. We decided to pull it apart to say, 'Let's talk about this whole future of work issue and let's get quite a concrete and specific commitment on the enterprise tax plan.'

CHAIR: Was this informal compact circulated to members of the BCA?

Ms Westacott : As I understand it, it was put before some member companies and, as I've said, what we decided to do was to stop that process, concentrate on the enterprise tax plan commitment and start working on a broader compact around the whole question of the future of work.

CHAIR: I am interested in this earlier draft, because it obviously shows some thinking of the BCA in relation to these issues.

Ms Westacott : Some of that thinking is ongoing. That is what I have said.

CHAIR: I would like to think so, yes.

Ms Westacott : Some of that thinking is ongoing about how we commit to managing this whole question of transition in the workforce.

CHAIR: On the first commitment about creating more Australian jobs in the cities, suburbs, town and bush, are you resiling from that?

Ms Westacott : No, of course not. That's not just a creature of tax; that's a creature of decentralisation, a creature of regulation and a creature of this whole question of where companies place their activities. That's not just central to the tax stuff; it's central to many other things. So that's what I'm saying. We are very interested in the whole question of decentralisation, for example, and I would like to see companies making stronger commitments to look at the regions of Australia—Adelaide, Townsville, Geelong; those places—as part of their overall staffing allocation. That's not contingent upon the enterprise tax plan. This is what I am trying to say. We've pulled things apart that we thought were central to the whole question of work and work transition, where jobs are located, how we do decentralisation and how we strengthen regional communities. That is a separate issue to the specific commitments that companies were making around the enterprise tax plan.

CHAIR: Do you stand by the commitment to invest in more Australian projects and ideas, especially in remote and rural Australia?

Ms Westacott : Absolutely.

CHAIR: What about to be in a stronger position to avoid offshoring jobs?

Ms Westacott : I would like to see companies avoid offshoring, but I can tell you what drives companies to offshore: it's high costs. The more expensive we make it to do business in Australia, the more likely it is that our companies will be faced with choices about where they locate their teams. The less expensive it is to do work in Australia—the less regulation, the less red tape, the less tax, the more competitive the tax system—the more Australian companies will be able to employ people in Australia. I would like to see companies going to Townsville, Geelong and Adelaide, but if we do not create the conditions for companies to do that then that will be very difficult. Companies have a fiduciary responsibility to be accountable to their shareholders for their returns. I would like to see companies looking at investing in regional areas, so I stand by that commitment. Grant stands by that commitment. But we have got to get the economic conditions to make that easier. And we are making that extremely hard.

CHAIR: When I hear you say that costs are an impediment to this commitment to avoid offshoring jobs, are labour costs part of that?

Ms Westacott : Labour productivity is part of that. Just so that we are very clear: the BCA has never advocated for a change in the minimum wage. We have always advocated for higher wages linked to strong productivity. We have not argued for a lowering of labour costs. What we want to see is productivity, which is driven by investment. We can come back to that. But what we want to see are the circumstances to encourage companies to relocate. We need to make sure that planning approvals don't take years and years and years, as they currently do. There are differences between occupational licensing across states. All these things add to red tape and costs in our businesses. All these things make it hard to employ people. Our companies want to employ Australians. We've got some of the best employers in the country here. They are strong companies and they want to employ Australians. So I would like us to be minimising offshoring. But let me be very clear: to do that, we need better conditions, a more competitive tax rate, better and more effective regulation not a removal of regulation, less costly regulation, making it easier to do business and employ people and of course improve the productivity and flexibility of our workplaces.

CHAIR: So more competitive in terms of wages?

Ms Westacott : In what sense?

CHAIR: Compared to our overseas competitors.

Ms Westacott : No. This is about productivity. This is where people want to say that we want to pay people less. We don't. We want to pay them more. We want to see higher wages linked to higher productivity, linked to strong businesses, linked to more competitive businesses.

CHAIR: You also say you want to be able to increase wages when the conditions are right. Do you stand by that?

Ms Westacott : Perhaps I'll get Grant just to walk through exactly what the commitment really means because, as I said, this is a very early draft of something that was done internally in my team and, as I said, we pulled it apart; we worked on the tax commitment. It's important to say exactly what that means. As I said, we are continuing to work with our companies on this whole question of employing people in regions, of decentralisation, and on this whole question of offshoring. That work is continuing.

Mr King : The absolute core of this commitment, and the absolutely essential thing for the Australian economy, is that we grow. The economy is growing. It's growing at around 2.4 per cent a year. It has for the last four or five years. It averaged 3.3 per cent before then. We need to grow at least three per cent plus a year to achieve for our country what we want. Investment is the key to that growth. The key to that investment, amongst other things, is this. I'll put it in business terms—and I'm sorry for the jargon. For those of us who've spent our life in business making investment decisions, it's all about the cost of capital. The two key drivers of the cost of capital are interest rates and tax rates. And that is why tax is so fundamental to the investment decision. With a lower tax rate, a lower cost of capital—all other things being equal—companies will invest more capital, because the hurdle rate is lower.

It then follows—and you don't need to believe us, because you can look at the Australian Bureau of Statistics or any other statistical record—that if investment occurs and growth occurs then more than half of the benefits of that growth go to people in the form of higher incomes. So that's the key mechanism, that's the commitment that companies make. And it's an easy commitment to give, because the lower the hurdle rate, the more the investment that will occur. Every company has a seriatim of investments, and it will generally make those investments that meet that hurdle rate or exceed it. The lower the hurdle rate, the more the investment that will occur. So it's an easy commitment to give—as a collective, if you like, but as companies individually.

Senator KENEALLY: I understand the argument you're putting, but corporate profits are at a five-year high and Australian workers are currently experiencing the lowest share of those profits in 53 years, according to the ABS. According to the IMF, Australia now has one of the fastest growing income inequality rates in the world. Wage growth is at only 2.1 per cent. If Australian companies aren't willing to share profits in these circumstances, why should we believe they're going to pass on a tax cut to workers in the form of higher wages?

Mr King : Firstly, I've seen quite a few statistics, and it depends what time period you take. The 10-year statistics that I've looked at show that there's been a roughly equal distribution of profits and wages. You can pick different slices of time and get different answers. I've seen statistics recently that took a one-year view and said that profits grew dramatically and wages didn't. That was a one-year view. Over a 10-year period the distribution, as I understand it, has been pretty equal. That's the first point.

The second point is that the active decision that companies make is to invest. What flows from that investment is impacts on jobs and impacts on wages. That occurs in three ways. Of course, more people work more hours, people who didn't have jobs have jobs, and sometimes there are increases in the rate of pay. That's the way the benefits of that investment flow through. It's not that companies sit there and say, 'How do we share our profits?' It follows that investment drives jobs. Jobs require pay and therefore incomes are higher for the reasons of those three mechanisms that I just explained.

Ms Westacott : There are only a few ways to get wages and incomes to increase. If companies are more successful it means they're able to increase people's wages, which means they are expanding—they're growing—and their revenues are growing. People get more hours of work because companies are more successful. Unemployed people get a job because companies are expanding. All of those things require investment, and it's investment that is at the corner of our commitment. It's very clear that investment has driven 55 per cent of the growth in income per capita. That is the data. So it is investment that's the core of our commitment, and the evidence is overwhelming that investment drives higher productivity, which is the fundamental to driving higher wages.

Mr King : Could I give you two practical examples. We all lived through a period of huge investment in resources in Australia. Every company involved in that investment saw very significant increases in employment and very significant increases in wages. That's just one example of many we could give. Investment—

Senator KENEALLY: Are you talking about the mining boom?

Mr King : Yes.

Senator KENEALLY: We heard evidence earlier today that, while investment went up, productivity did not go up.

Mr King : That's because of the short term. It takes a while for the production to come through. You invest money; it takes a while for that investment to pay off. You'll see the productivity dividend of that investment come through. It is coming through, for example, in an industry I'm familiar with, which is LNG, because exports are now growing dramatically. So investment in long life industries, like the resource sector, takes quite a while to drive production. But there are very real examples where you see those mechanisms at work.

CHAIR: The final commitment in this earlier draft of the informal compact talks about 'paying our tax' and 'showing our commitment by signing the ATO's tax transparency standard'. Do you stand by that?

Ms Westacott : I have just said we are strongly supporting the Tax Transparency Code. We have worked hard and we are continuing to work hard to get companies to sign that code.

CHAIR: Okay. Ms Westacott, you've agreed with all of those commitments that were in the earlier draft. Why did they not find their way into the final draft?

Ms Westacott : I don't know how many times I can say this. We decided to get a very specific commitment on investment and the consequential things that will follow—more jobs, higher wages—and we decided to pull some of those things into a compact around the future of work.

CHAIR: You mentioned that this earlier draft or this other work was circulated to other BCA members.

Ms Westacott : As I understand, it was tabled at a meeting of some BCA companies, but it never went through a formal process in the BCA and it never went to our board. It was something that started—

CHAIR: So it was killed off at that earlier—

Ms Westacott : It was wasn't killed off. I decided, as I've said to you, that we would take the tax stuff and make that very specific about the investment side of this, and that we will deal with the other matters around regional employment, strengthening regional jobs and offshoring as part of a future of work commitment.

Mr King : If I could just add one comment, I think the distinction is very important. The BCA, as a group that represents all business, can be absolutely committed to those five points you've raised. For individual businesses, some of them aren't relevant. Some companies do not offshore, so it's just not relevant that they would sign a commitment about offshoring because they don't offshore. Some companies don't employ in regional areas and won't. So there is a very big difference between the commitment we have as an organisation representing all business, which remains, as Jennifer said, true. But each individual business might only own one slice of that commitment, and that shouldn't be a surprising idea, because every business is of itself different, and not every one of those points is relevant absolutely for every business. We remain very committed to those points, and I don't think that the fact that it's not signed says business isn't committed to them; not every point is relevant to every single business.

CHAIR: I know you've gone over this point a number of times, but can you just explain to me why that earlier draft wasn't successful? You say it went to an early meeting.

Ms Westacott : I've answered your question, Senator. I really have.

CHAIR: I'm sorry; you haven't explained what happened at that meeting as to why this compact didn't get off the ground.

Ms Westacott : I wasn't at the meeting. People attended the meeting and some feedback was given. It wasn't about not supporting it. We just decided internally that we would pursue a different course. We would get individual companies to talk about what they would do with the tax cut, and we would separate the tax from the future of work. We decided to get a very specific commitment around investment and leave those other matters around regional employment, strengthening regional employment and offshoring to a future of work commitment.

CHAIR: Who chaired that meeting?

Ms Westacott : Andrew Bragg.

CHAIR: Will he be available on Thursday?

Ms Westacott : If you want him to be.

CHAIR: Yes, I think that would be worthwhile. I do have other questions as well, but I will hand over to the deputy chair at this stage.

Senator HUME: Just before I begin, Ms Westacott and Mr King, the questions posed by Senator Ketter at the very beginning, just after your opening statement, took me by surprise. Obviously the BCA is an organisation whose purpose is to advocate on behalf of its members. Asking questions about how much you spend on advocacy on a specific issue I find quite extraordinary.

Senator RHIANNON: He can ask that.

Senator HUME: Yes, I know. But it's an advocacy group—surely that's the point and purpose of the organisation. Did you find those questions unusual? Have you ever been asked those questions before at a Senate hearing?

Senator RHIANNON: There's no need to defend the BCA.

Senator HUME: I'm not defending the BCA. I'm just saying that it's a very strange line of questioning, Senator.

Senator RHIANNON: Because they won't answer the questions.

Senator HUME: I'm just asking whether the BCA have ever been asked to explain how much they spend on doing the job that they are charged to do.

Mr King : I have to say I did consider it an unusual question, but we're happy to answer the question. There's nothing secret about that or what the BCA does. Jennifer Westacott's committed to answering that question.

Senator HUME: I thought it was quite a thorough line of questioning, too. There was a fair level of detail that was required of the BCA. I've very pleased that the BCA—

Mr King : We do nothing other than advocate for policies that our members collectively seek for us to pursue.

Senator HUME: I think it's probably appropriate that the coalition ask exactly the same line of questioning of the ACTU and exactly how much they have spent arguing against the company tax cuts. Do you think that's appropriate?

CHAIR: It's up to you as to how you spend your time.

Senator HUME: I think that's exactly what we'll do. We might put those questions on notice to the ACTU, who are appearing on Thursday.

Senator KENEALLY: You've given them forewarning, too. Very helpful of you, Senator.

Senator HUME: As I said, they were very thorough questions, and it'd be very interesting to see just how much they have spent. Ms Westacott and Mr King, can I ask questions of the individual companies that are here today? We have a little bit of time, so we might as well get into the weeds here. Can I ask each company how your company will benefit from the full implementation of the enterprise tax plan? We might start with Qantas and move down the line.

Mr La Spina : I think it's fair to say that any reduction in company tax would benefit the economy in terms of GDP. I think that's pretty uncontroversial. What we have seen and what we do know is that there's quite a strong correlation between Qantas's prospects in terms of travel and GDP: when the economy is performing well then domestic and international travel, outbound and inbound for that matter, tend to correlate quite closely and do well. With a reduction in company tax, if the economy is doing well, we're doing well. What does that mean? That means more people are looking to travel. If more people are looking to travel then obviously we will need to make the necessary investment to accommodate that increase in demand. And with that increase in investment, employment opportunities naturally follow. In other words, more planes mean more people required to fly, maintain and crew the planes and do the ground handling and whatnot. It's a natural extension of economic growth.

Mr Parker : From a Qantas perspective, if you look at perhaps the most internationally exposed part of our business, Qantas International, which is also the business that was most challenged in recent years as part of our turnaround, that business competes on a daily basis with airlines around the world with dramatically different tax rates. We have done an extraordinary amount of work to make the business as cost competitive as we can through the transformation program, which has been a significant success, and a lot of that work has gone into Qantas International to give it that fighting chance to compete against airlines that pay no tax, single-digit tax or tax in the teens. But the reason we argue strongly for reform of company tax is that we need public policy settings that similarly allow us to be competitive internationally, particularly for those businesses that are exposed to the international economy, which is holistically seeing tax rates reduce, comparative to Australia.

Senator HUME: Before I move on to JBS, can I ask how your existing employees—because it's not just more employment—will benefit from a lower corporate tax rate under the enterprise tax plan.

Mr La Spina : I think it's clear that if you've got a growing economy then there are growing opportunities. There are promotion opportunities for all of our staff. There's the ability for us to invest more in training. In fact, that's what we've been doing. Since 2015, which was when we commenced our turnaround program, we've been investing heavily in staff. Since then, we've employed more than 1,300 staff. Since then, we've paid our frontline employees more than $220 million in discretionary payments as well. It's fair to say that with investment comes other flow-on benefits that get shared more broadly throughout the economy.

Senator HUME: On that particular issue, could you also please describe how you might be able to pass on the benefits of any company tax cuts to other businesses you work with, such as contractors and suppliers.

Mr La Spina : It comes through quite directly. The more surplus that's created, the more we reinvest in the business. Since 2015, we've invested more than $3.5 billion in capital expenditure back into the business. In terms of other services and ancillary services—yes, our suppliers obviously will also benefit from that. We have many suppliers. Qantas is a large employer in its own right but an indirect employer through its supply base as well.

Senator HUME: Mr Berry and Mr Alvares, can you talk to me about JBS—how your company might benefit from the full implementation of the enterprise tax plan.

Mr Berry : From the outset, we're very proud of the fact that we've got 13,000 employees in this country and around 6,000 of those in regional and rural parts of the country. We see that our investment strategy is clearly tied to the international climate. We're part of a global company. We have operations in the US, Canada, South America and Europe. As you know, and as the senators know, international capital is footloose. So, from our perspective, it's about where capital is best employed in terms of returns. As a global company, our view is: we want to do more in this country. But, simply, a takeaway is: less cash means less capacity to invest and grow here in Australia.

Senator HUME: What about the potential for your employees to benefit from a lower corporate tax rate under the enterprise tax plan?

Mr Berry : As Jennifer and Grant alluded to, higher productivity levels and competition for labour—we have a small labour pool in this country. The flow-on effects will be quite tangible, in our view.

Senator HUME: Can you be a little bit more expansive on 'tangible, flow-on effects'?

Mr Berry : In terms of the simplistic view that higher taxes will automatically mean direct increases correlated with that tax increase, each sector has its own dynamics, investment strategies and labour requirements. But, from our perspective, as I said, we want to do more in this country. We believe that the future, as the BCA has put forward, is in higher levels of productivity, and capital is needed to drive that investment strategy here in this country.

Senator HUME: Will the effect of a corporate tax cut through the enterprise tax plan be passed on to your contractors and suppliers also?

Mr Berry : Certainly. We rely on local procurement to drive our businesses. We're very capital intensive, so working with our suppliers is a strategy that we'll have.

Mr Alvares : The more volumes you do, the more volumes they do as well, so everybody benefits from that growth. As Tino from Qantas said, if the economy is growing as a whole, not only JBS or Qantas but all of the companies—and that's what we believe: with a tax cut, you would benefit the broader economy of Australia. We are a global business. We've recently seen what happened in the US and what's happening in the UK. The way we see it, it's all about promoting the economy and promoting the growth of the economy. Our businesses in the US are sharing these directly with their employees. Now they have full employment there, they have to dispute, so it's a natural supply-and-demand equation: when the economy is growing, pretty much everybody benefits from that. That's what we are advocating here, in a sense.

Senator HUME: Mr Marr and Mr Bennett, can you talk to me about how Woolworths will benefit, potentially, from a company tax cut and the full implementation of the enterprise tax plan.

Mr Marr : Firstly, I might just say that we're obviously very proud of our strong taxpayer record. Hopefully, you saw that in our submission document. We've got a very strong record as a taxpayer in this country. We're also a very significant contributor to the economy. We're the second-largest private sector employer, with just under 190,000 team members. We have 25 million people buying products from us through one of our 3,000 stores every week, so we're very aware of the important role we play within the community.

To the point on suppliers—we're supported, hopefully mutually beneficially so, by 16,000 suppliers, 2½ thousand of which, by the way, do less than $1 million a year with us. So, we have a lot of small suppliers, right through to big suppliers. It is fair to say that the retail market within which we operate is incredibly competitive, and that competition is only intensifying. This is not just from our traditional competitors, but from new entrants that have arrived over the last 10 years—ALDI and Costco, both of which are among the 10-largest retailers in the world, even more recently, Amazon, and, arriving imminently, Kaufland, which is part of the Schwarz Group. We see that competition only intensifying, and intensification means investment. We know we need to invest to remain relevant, both from a competitive perspective but also, most importantly, for our customers. In 2017 alone we invested $1.8 billion of capital. We see that continuing. It needs to continue for us to remain relevant to our customers.

Quite simply, this tax reduction would allow us to accelerate that investment. By the way, through that investment we created 10,500 new jobs in 2017 alone. We see job creation and investment continuing, and we see a more competitive tax rate allowing us to accelerate that.

Senator HUME: I think you've answered a lot of my next questions, but I suppose that your testimony there would certainly contradict the ACTU submission, which suggested a 'sting in the tail' and called Woolworths a lazy oligopoly. I think you deserve an opportunity to respond to that accusation.

Mr Marr : We obviously did see that. We're disappointed by that comment. We don't feel there's anything lazy about our 190,000 team members, who work very hard for our customers—the vast majority of which, by the way, are either in store or in distribution centres serving our customers. That's the first point.

The second point, as I just mentioned, is the retail market is incredibly competitive. It's one that requires an ongoing investment, which we've been very focused on. That investment can be in the form, and it has been in the form, of new stores, addressing new communities as they arise, and investing in our existing stores where customer needs and expectations continue to increase. So maintaining our network to at least an acceptable standard is quite an important point, whether it's in the distribution infrastructure, as I talked about, or just getting the product into our DCs in the most efficient way possible and then into stores, or into the new growth areas where customer expectations continue to change. For example, the growth of online shopping. There is an enormous growth in customers wanting to shop with us online, whether that's product delivered to their home or product delivered to their store that they can pick up that they've pre-ordered. All of these areas require investment, and that investment creates jobs. We think this corporate tax rate will allow us to accelerate that, so, going back to the first point, we were clearly very disappointed by the ACTU's comments.

Senator HUME: So all three of the organisations that have appeared before the Senate committee today have said that their companies will benefit from a corporate tax cut, that their employees will benefit from a corporate tax cut, that their contractors and suppliers will benefit from a corporate tax cut. I suppose the $64,000 question—perhaps it's a bit more than that, according to the opposition—

Senator KENEALLY: $65 billion.

Senator HUME: is whether, with a corporate tax cut and the increased investment and increased employment that will inevitably follow, an increase in wages for employees will naturally follow that. I will start with Qantas.

Mr Parker : To the earlier point on this discussion around what a business like Qantas does with surplus, we have a strong track record, since our transformation and turnaround in recent years, of investing, in a very capital intensive industry, in new aircraft, in new products. We've invested with our employees. Tino mentioned the discretionary payments, but also look at the fact that we are paying three per cent wage increases, which is above CPI at the moment, along with those discretionary payments as part of our workforce participating in the growth and success of Qantas in recent years. I would say: take us on our track record in recent years, of how we are investing in product, in workforce, in shareholders—who are mum and dad investors and superannuation funds. That's why we believe we get those options when we have additional surpluses of funds available to us to invest.

Mr La Spina : I'd go one step further and say look at where we are today, in terms of those investments, and what's that's led to. We're at a point in time where we've got the highest employee engagement in the company's history, we've got the highest customer satisfaction rate in the company's history, and we've got the best financial performance in the company's history. It's not that one has to go to the detriment of the other; you can get the trifecta right, as long as you redistribute that effectively. We've got a fair track record of being able to do that.

Senator HUME: What about JBS?

Mr Berry : We've got a strong track record of industrial relations in this country, through collective agreements. They've worked well for us, and they will continue to work well. Linking productivity improvement to wage increases is one facet of that. But I'd turn the coin over for the question, 'Will it flow through?' I'd put it back to the senators and the government: ultimately a do-nothing approach will put Australia significantly out of whack with the rest of the world. We've seen US, 21 per cent; we've seen the UK, 19 per cent, going to 18 per cent next year. You've got to look at it in the metrics of: how competitive or how out of pace will Australia be if we don't move on corporate tax rates in this country?

Senator HUME: Just to be clear, Mr Berry: will corporate tax cuts flow through to wages at JBS?

Mr Berry : The flow-through will be: wages will be covered in increased productivity, increased investment, the strength of the economy. I reiterate that, as a company, we continue to compete for capital globally. Australia has got to be able to justify further investments going forward.

Mr Marr : I think we've covered the first couple of points. Obviously, higher investment creates more jobs; with jobs comes growth, which provides great opportunities for new employees as well as current employees. I'd reiterate those points around training and investments in our teams: the more skilled our teams are, the higher the wages. We're very proud of the fact that we're one of the best payers within the retail industry, and we would see that continuing. There is an element of meeting the market; there is an element affordability. We would see, as a consequence of the first two, it flowing through to wage growth, yes.

Senator HUME: Chair, I've got some more questions, but I will leave it there for the moment.

Senator KENEALLY: I want to go back to the BCA first. According to the AFR on 26 March 2018 a direct survey of CEOs of the 130 members of the BCA was conducted following the Trump tax cuts earlier this year. It said:

The chief executives were asked which of four options they would nominate as their preferred response to the company tax cut in Australia.

Those options were:

… returning funds to shareholders; more investment; increasing the wages of their existing workforce; or increasing employment.

First of all, is that report accurate? Was that survey done? Were those the four options?

Ms Westacott : It was an incomplete survey, but, yes, that's pretty right.

Senator KENEALLY: What percentage of respondents nominated higher wages or increased employment?

Ms Westacott : I will take that on notice and get back to you. The survey was done in January. It was a poor time to do the survey. Again, we decided that it would be best to get each company to speak for themselves and talk about what they would do. But, again, we'll come back to you with that on notice.

Senator KENEALLY: The newspaper reported that it was 16 per cent to 17 per cent.

Ms Westacott : No, that's not correct.

Senator KENEALLY: That's incorrect?

Ms Westacott : That isn't correct, yes.

Senator KENEALLY: What percentage of respondents nominated a return of funds to shareholders and more investment?

Ms Westacott : As I recall, more than 70 per cent said they would invest more. Again, that goes to our commitment. Whenever we have asked companies what their response to the enterprise tax plan would be, more than 70 per cent have said they will invest more in Australia—and that is at the cornerstone of our commitment.

Senator KENEALLY: The newspaper said it was 80 per cent. I'm just wondering if you could break that down further. You say 70 per cent say they will invest more.

Ms Westacott : We're constantly asking companies what they're going to be doing.

Senator KENEALLY: Right, but I'm asking about this one specific survey.

Ms Westacott : Let me come back to you on notice.

Senator KENEALLY: In that article it said a spokesman for the BCA told the AFR the organisation never completed the survey because the response rate was too low.

Ms Westacott : It was low. It was done in January, when everyone was on leave.

Senator KENEALLY: What was the response rate?

Ms Westacott : I will have to give you that on notice.

Senator KENEALLY: Why did you undertake it in January then? Did you not realise that the response rate might be low in January?

Ms Westacott : I think people were testing because the Trump tax plan had just gone through. I think people were just taking the pulse of members at the time. My view was that that wasn't the right time to be doing a survey. It was January; people were away. But, clearly, there was a very strong indication from companies, and, as I've said, whenever we've tested this we've found that they're going to invest more in Australia. That is what the commitment goes to, and we have to keep coming back to that. We have a commitment before you, which this inquiry's about, about three statements: we will invest more in Australia, and that will lead to higher jobs and stronger wage growth. In every survey we've ever done well over 70 per cent of respondents have said they will invest more in Australia.

Senator KENEALLY: So is the reverse side of that commitment also true—that is, if the Senate does not pass this legislation, the signatories will cut investment in Australia?

Mr La Spina : I can certainly say that directionally, to the extent that surpluses increase and that we have more available for investment, it increases the chances. What you've got to do, Senator, is have a look at the way that we look at our investment. I'm the CFO of Qantas. If I've got an investment proposal that hits my desk, especially when it comes to aircraft, one of the first questions that I'm forced to stare into is: what does the future of demand look like? We know there is a very strong correlation between demand for air travel and underlying GDP. So if that environment is strong, then of course we're going to feel a lot stronger about the investment prospects. It stands to reason.

Senator KENEALLY: Let me pick up on that. I will ask the other businesses if the reverse of this commitment is true, but let me pursue that for a moment. You did say that your view was that a cut in the corporate tax rate would grow GDP, which therefore would grow demand in air travel. How much do you think the corporate tax rate will grow GDP?

Mr La Spina : How much do I think that the corporate tax rate—

Senator KENEALLY: Say, over 10 years.

Mr La Spina : I don't have a view on that. Directionally it will grow GDP and that will lead to higher investment. It makes sense. As it flows through, all of corporate Australia—and that's the key: to see how much corporate Australia is going to travel.

Ms Westacott : Senator, the Treasury has modelled this.

Senator KENEALLY: I know that and I know the answer. I'm curious as to whether Mr La Spina knows.

Ms Westacott : It's a one per cent change in the size of the GDP. That's a permanent one per cent increase in the size of the GDP—

Senator KENEALLY: In the long term?

Ms Westacott : That's $18 billion—

Senator KENEALLY: In the long term.

Ms Westacott : It builds up over time. Like all investments, it builds up over time. People say it's $18 billion or $65 billion. It's a $65 billion commitment for $180 billion, if you're doing it decade by decade. The Treasury has modelled this extensively and there is a one per cent permanent uplift in the size of the GDP.

Senator KENEALLY: The reason I'm asking these questions of Mr La Spina is that he just made the point about the types of things he considers when a proposal lands on his desk. You're asking us to forgo $65 billion of revenue. I think it's fair enough that we ask some specific questions. Would you make a commitment to forgo $65 billion in revenue on the basis of a two-sentence vague commitment?

Mr La Spina : I would do what is necessary to strengthen the nation's competitiveness. I think that's where we're getting lost in this debate. Australia runs the risk of becoming uncompetitive versus our peers. I think we should do whatever we need to do to make sure that we are competitive. That will lead to stronger investment—

Senator KENEALLY: Whatever we can do? What would you prefer the corporate tax rate to be? Is 25 per cent appropriate or should we match the US?

Mr La Spina : I think Jennifer was clear up-front when we talked about tax reform, and broader tax reform is something that we've been chasing for some time. That's not on the table here. What's on the table here is a reduction in the corporate tax rate. Would that be positive to the economy? We believe that it would be.

Senator KENEALLY: Going back to my original question: is the reverse of this commitment to the Senate true: if the Senate does not pass the corporate tax cut, you will cut investment in Australia?

Mr La Spina : I was clear on that before. We've continued to invest over the last few years, since 2015—

Senator KENEALLY: At a 30 per cent headline rate?

Mr La Spina : Correct—at 30 per cent. We invested $3½ billion dollars in capital expenditure, let alone all the operational expenditure. The question is: would the environment be better for us to invest even more than that and take the country forward even further and benefit Australian jobs and wage growth even further than that? I believe we would.

Senator KENEALLY: Can you give us any specifics at all? Surely you've done some modelling that would give you the confidence to say that. Surely you don't have the role that you have at Qantas without having the ability to run a spreadsheet that tells you: 'If the corporate tax rate is at 30 per cent, this is what's available for us to invest, and, if it's a 25 per cent rate, this is what's available for us to invest.' Surely you can give us a specific of what 'more' means in your commitment.

Mr La Spina : What we've shown is historical GDP growth and our growth tracks. Demand in airline services tracks at around GDP, plus or minus one per cent, over the long term. If GDP is going up by one per cent, then, all things being equal, that leads to a one per cent growth in demand for our services, which has flow-on investment, necessary investment, to be able to accommodate that growth, and that would be greater than any saving of the five per cent on Qantas.

Senator KENEALLY: And if the corporate tax cut doesn't go ahead?

Mr La Spina : All things being equal, the corollary is true: if you don't get the growth, then it's one per cent down on growth. There would be less growth. It doesn't mean that it's shrinking; it's less growth and there would be less opportunity to be the best that we—

Senator KENEALLY: But you're not going to cut investment next year?

Mr Parker : These tax cuts aren't relevant for us until the mid-2020s.

Senator KENEALLY: But the government would argue that, because you know it's coming in, you would increase your investment now. So I'm asking: if it doesn't come in, if we don't pass it this year, are you going to start cutting investment?

Mr Parker : I think Tino's answered that question.

Senator KENEALLY: I'll go to JBS. Would you like to say something, Mr King?

Mr King : Yes, thank you, Senator. Business investment remains stuck where it was in the 1990s. As a percentage of GDP, I don't think it's grown at all. Our economy, as I said before, has grown at 2.4 per cent, but that is not enough growth. We know that investment drives growth. So it's about the increment of activity—the additional activity—that would occur. It's not about going backwards, because companies will still spend and will still grow but will grow at far less than our economy's potential and will create fewer jobs, and fewer jobs mean less income growth, for all of the reasons we've explained. So, if you're looking to test the reverse, I don't think the question works that way. The question is in the positive. If tax rates are cut, will business invest more? Each company can speak for their own circumstance. But, in general terms, the question is: will they invest more not less?

Senator KENEALLY: That's what I'm trying to get to: what is the 'more'? How much more are they going to invest? I think Mr La Spina seems to be suggesting they'll invest one per cent more because it'll be in line with GDP growth. You'll tell me if I've mischaracterised you there.

Mr La Spina : That is mischaracterising—

Senator KENEALLY: Then you tell me: what is the figure? What is the percentage more that you will invest?

Mr La Spina : It's a hypothetical question right now.

Senator KENEALLY: It's not.

Mr La Spina : Yes, because—

Senator KENEALLY: You've given a commitment to the Senate that you will invest more. Surely you can tell the Senate how much more you will invest.

Mr La Spina : Yes, and it would be more than the tax saving that we would make—I can be very clear about that.

Mr Parker : You could put yourselves in the shoes of our board. You're a senator from New South Wales. We have major investments—over 12,000 employees—in New South Wales. We have very significant long-term capital considerations coming up for our board. They have to take an amalgam of: interests; performance of the economy; demand, as Tino said; but also public policy settings. I think all boards are looking for confidence in terms of a legislative agenda that is pro investment and pro growth. So it is a factor, even if you can't absolutely quantify it here and now.

Senator KENEALLY: Would either of our other two corporate entities like to give us a figure of how much more they are going to invest if we pass this corporate tax cut?

Mr Alvares : It's a very tough question because we are a global business, as we said before. We have a pot of money that the global business generates every year. So, as part of the strategic planning of the company, we're going to review that every year, and we are going to invest where the opportunities are—where the better or most effective commercial conditions are. I think it's important to comment that tax is not the main driver for investment. Tax is a very, very important component, but there are many others, like the legal framework, the technology available, labour and competitive advantages, and all of those are taken into account.

Senator KENEALLY: So there are many other factors that will influence your decision on whether or not to invest?

Mr Alvares : It is a very important component that determines how much cash will be available to reinvest from that capital in that country or in other countries. That's what we're talking about. I think Australia today is in a disadvantaged position compared to the UK, as you mentioned, and the US in terms of companies' tax rate.

CHAIR: Mr Alvares, I think you've touched on a very important issue: there are a range of factors involved in investment decisions. The company tax rate is one.

Mr Alvares : A very important one!

CHAIR: You say it's important but you do also say there are a range of factors. So how can you guarantee there is going to be an increase in business investment if all the other factors that impinge on the decision to invest—

Mr Alvares : I think I just answered that. If you have more cash available, you are going to look at your options and you're going to invest where the investment will be well treated.

CHAIR: But, Mr Alvares, in the case of your company, where is this decision going to be made, in terms of increased investment in Australia?

Mr Alvares : Since 2007, when I came here, we have invested over $2 billion in acquisitions and organic growth. So Australia is a very strategic part of our business.

CHAIR: Is the decision made in Australia or elsewhere?

Mr Alvares : The decision is not made in Australia but driven by Australia because we have to pitch for that money. We have a pot of money. We have to pitch and put the business case to get our cent of the coin to be able to invest.

Senator KENEALLY: Does Woolworths have any figure on how much more you're going to invest if the corporate tax cut comes into effect?

Mr Marr : If I could just start on your first question: I don't see the inverse applying—as to your point as to whether we'd have a reduction. I agree with Mr King's point. To me it's a missed opportunity. So we have our level of investment that we could do now, which we would intend to carry on investing irrespective. This is about how you accelerate that.

Senator KENEALLY: How much would you accelerate it by?

Mr Marr : This all comes down to satisfactory returns and everything else, but if you took five per cent of today's profit before tax then there would be $100 million available. That doesn't mean we'd invest $100 million; it is the cash benefit attributable to that five per cent. What we've been very clear on is that we have a number of areas that we would invest in. We've publicly said our medium-term target is 10 to 20 new stores in supermarkets meeting new demand, and similar numbers in our drinks business.

Senator KENEALLY: Those are plans you already have in place now—just to be clear?

Mr Marr : They are plans that we have in place now, yes, but that doesn't mean that's the limit of the opportunity.

Senator KENEALLY: I understand that; I'm just trying to be clear.

Mr Bennett : It is a range.

Mr Marr : It is a range, of course. We can accelerate further our store renewals to meet changing customer demands, as I touched on before. We can accelerate further into our innovation agenda, as we touched on before. It is obviously very difficult, six years out, to be specific on it. But—if you look at our track record and the things we have invested in—any additional proceeds would help us accelerate investments in those areas.

Senator KENEALLY: Of that $100 million, surely you would return some funds to shareholders?

Mr Marr : No, I think it would be very difficult to make that assumption today, six years out. We look at capital management very regularly. By the way, we haven't done any since 2010. We look at it a lot and we look at it in the context of other investment choices, as we've talked about. Historically, our investment choices have been more than sufficient to warrant where we put our money. So I wouldn't draw that conclusion, no.

Mr Bennett : One of the things to bear in mind about our particular sector is that it's said we'll see more change in our sector over the next five years than we've seen in the last 50. We know we're going to have well-funded, highly competitive international entrants to this market continuing to respond to the changing factors in customer behaviour, and we have an almost insatiable appetite to invest against that to continue to stay ahead of our customer expectations, to retain and grow the loyalty that we have. So I think the underlying story for our sector is one of very strong continued investment—to the extent that we can, within all the various other parameters that exist for the company—to sustain that and to remain competitive in this rapidly changing landscape.

Senator KENEALLY: Is that competition coming from foreign investors, foreign companies coming here to compete in your sector?

Mr Bennett : It's our traditional domestic competitors. As David has pointed out, we've seen the German entrants, with ALDI. Kaufland is entering; there's Costco; and, of course, there's the noise around Amazon.

Senator KENEALLY: They're not put off by a 30 per cent corporate headline tax rate?

Mr Bennett : Their domestic tax rates are different to ours, and that affects their overall cost of capital across their global portfolios.

CHAIR: I have a follow-up question on that, Mr Bennett. I take it you accept that the changes to the tax system that have been proposed would make Australia a more attractive place for foreign companies to invest? Do you accept that?

Mr Bennett : Yes—that's one of the premises.

CHAIR: That's one of your premises, yes. And so that encourages foreign retailers to come to Australia?

Mr Bennett : We're focused on what we can do with the capital that we have at our disposal. We know that we will have this continuing investment requirement in order to address the very different ways, and evolving ways, in which customers essentially fill their stomachs. That's what we are—

CHAIR: My concern is: do your shareholders know that, in supporting this enterprise tax plan, you are encouraging a system where foreign retailers come into Australia, which has an impact on market share of your business and then has an impact on shareholder value?

Mr Bennett : Our challenge is to invest and compete as effectively as we can, and the most important determinant in that is the amount of available capital we have to deploy into the various new and existing platforms that sustain our presence in the retail grocery market and other markets in Australia.

Ms Westacott : Increasing our attractiveness to foreign investment is not a design flaw in this tax; it's a design feature. We depend enormously on foreign investment, be it foreign borrowings or be it foreign direct investment. Over 50 per cent of our capital is foreign. If we don't get that from foreign companies, we will have to save that in Australia. We are not capable of doing that. That would require tremendous change in the economy, so we've got to be very careful not to portray the fact that foreign companies get a benefit as part of the enterprise tax plan as a bad thing. It's a designed feature because it's actually complementary to a country that is very, very dependent on foreign capital.

Can I just go to the investment point, Senator Keneally, and this idea of 'will you invest less?' This about how we get the economy to accelerate from bubbling along—or plodding along, really—at 2.4 per cent, when Australians' living standards have been driven off an economy that grew at 3.5. How do we get that economy to accelerate? How do we get that one per cent? And investment matters. Your own shadow Treasurer, on 13 March this year said:

Over the past five years, business investment in Australia has collapsed by 20 per cent. Despite strengthening global economic conditions—

The opposition leader in 2011 said:

Cutting the company tax rate increases domestic productivity and domestic investment.

And:

Friends, corporate tax reform helps Australia's private sector grow and it creates jobs right up and down the income ladder.

Senator KENEALLY: Did the BCA support the 2011 proposed corporate tax cut by Labor?

Ms Westacott : I believe we did.

Senator KENEALLY: I think you might want to check that.

Ms Westacott : I think we were very concerned. We said we supported the corporate tax cut but we did not believe it should be funded by the mining tax, which was a very flawed tax proposal. We said we supported a reduction in the corporate rate, but we did not support—

Senator KENEALLY: So you didn't support that particular tax cut?

Ms Westacott : No, we did not support it being funded by the mining tax. Can I just say to you—

Senator KENEALLY: We might come to how you fund a corporate tax cut in a moment because there are a number of ways that this particular tax cut—

Ms Westacott : I just want to be very clear that this is about adding to the size of the economy and it's about accepting that business investment, by your own party's admission, is not where it should be and—

Senator KENEALLY: Which is why we've announced the Australian investment guarantee.

Ms Westacott : Can I ask you then—

Senator KENEALLY: I know there's support for that today.

Ms Westacott : what is the size of the economic benefit that will come from the investment guarantee? Has that been modelled?

Senator KENEALLY: This is not an inquiry into the Australian investment guarantee.

Ms Westacott : But I asking, in terms of—

Senator KENEALLY: This is an inquiry about the commitment you made to senators to invest more. I've asked specific questions about how much more and I've asked specific questions about what the effect will be if we don't have the corporate tax cuts because all we have in front of us is a vague, two-sentence commitment from the Business Council and the people here asking us to forgo $65 billion in revenue. I am fairly certain not one of these business executives would forgo $65 billion in revenue based on the vague, two sentence commitment that we have received. That is the basis of my questions.

I do have a specific question for the Business Council, though, on another matter. Would the Business Council of Australia back an increase in Newstart if it were tied to the corporate tax cuts?

Ms Westacott : People will bargain political deals. We have supported an increase in the Newstart. This is an independent matter to the corporate tax cut.

Senator KENEALLY: So you would back an increase in Newstart whether the corporate tax cut went ahead or not?

Ms Westacott : We have always been supportive of an increase in the Newstart allowance for single people, which is very low. We're on the record, as you know, on that time and time again—providing it is also linked to a reform of the job services arrangements, greater support for people, greater training and better investment in literacy. But you are being asked to make an investment of $65 billion over a decade for a return of $180 billion. You're being asked to make an investment to protect Australia's competitiveness. You're being asked to make an investment that increases the size of the economy. You're being asked to make an investment—

Senator KENEALLY: With very little evidence.

Ms Westacott : that allows Australian companies to compete, to create more jobs and to create the conditions for higher incomes. That is a fundamental question that you are being asked to deal with in this legislation. And you are being asked about the counterfactual: what if we don't do this? We would not be able. We will not know about the investments, which are all at the margin, that just simply did not come to Australia. The global boards will be making decisions based on their global operations about where they get the best return. That is the issue that you, as the Senate, must deal with: are we going to act in the national interest and put politics to one side to return to the bipartisan commitment that you once had to allow Australia to be more competitive, to allow businesses to be more competitive, to allow Australian companies to stand in the global marketplace, to allow investment to be made in human capital and to increase our productivity to change the fundamental of our economy, which is growing—yes, at 2.4—but it's plodding along, still very dependent on terms of trade. You're being asked: 'Are you going to do that circuit-breaker to increase our productivity, to allow our economy to grow and to allow our businesses to compete?'

Senator KENEALLY: We heard evidence earlier today from the Institute of Public Affairs that this inquiry would have a chilling effect on business, that it was intimidatory behaviour and a curb on free speech. Do any of you feel that you are being intimidated by being here today or that your free speech has been curbed? Anyone want to volunteer?

Mr Berry : Certainly not.

Senator KENEALLY: That's good to hear. Thank you. For the Hansard record—

Mr Parker : Positively polite.

Senator KENEALLY: Thank you very much, Mr Parker. That is very delightful. I might ask Qantas: are you at all angry at the big four banks and AMP for the behaviour that has been on display at the royal commission? They seem to have made the job of getting the corporate tax cuts through the Senate that much harder.

Mr Parker : I think we would endorse Jennifer's comments from earlier as a fair representation of our views.

Senator RHIANNON: She was actually defending the banks. I was surprised about that.

Ms Westacott : Hang on. I was not defending them. I said I was very disappointed—

Senator RHIANNON: I wrote it down.

Ms Westacott : as I'm sure every Australian is, Senator, with the conduct that has been revealed in the royal commission. What I'm simply saying is that to use tax policy to punish—

Senator RHIANNON: But your response was so soft that, clearly, you were letting them off the hook. That was surprising.

Ms Westacott : That is not correct. I made it very clear to you that I believe the most important thing is to punish the people who have done something wrong, to take action to remedy the wrongdoing, to take action to provide relief and assistance to the people who have been affected, but that it would be very misguided to punish the economy, it would be very misguided to make our banking system weaker and it would be very misguided to punish the shareholders, the mum and dad investors, or to punish the superannuation investors. That was my point, Senator. I was not defending, and in no way would I defend, the things that have come out of this royal commission. But people have to be very careful about playing popular politics with those things and starting to kick own goal after own goal for this country. That is what I was defending.

Mr La Spina : You are right, Senator Keneally. It would be great if we could focus the conversation on tax reform.

Senator KENEALLY: It is to the detriment of your efforts?

Mr La Spina : You are right to say that it would be great to be able to focus on that, without being distracted by what is happening with the banks.

Senator KENEALLY: I have one more question to the Business Council, as well as to any of the other companies that would like to chime in. We are now hearing some suggestions that perhaps there would be a threshold set on the corporate tax cuts in order to avoid capturing the banks. You could put a threshold at $100 million or $500 million or wherever you sought to set it—that is, cap the corporate tax rate so that certain companies would not able to take advantage of the benefits of it. What do you think of that type of proposal? Is it an all or nothing? To get the benefits that you're arguing for, do we need the corporate tax cuts to flow across all companies?

Mr King : The cap that you describe would capture a whole bunch of businesses that aren't banks.

Senator KENEALLY: I'm not proposing this. This is what has been suggested.

Mr King : I think the simplest answer is that it would be a very bad idea.

Senator KENEALLY: To get the benefits that you are arguing would come from a corporate tax cut, we would need to see the corporate tax cut levied across all companies—not have a cap or a threshold?

Ms Westacott : Correct.

Mr King : Correct.

Senator KENEALLY: We heard testimony earlier today that according to Treasury modelling the benefits that are purported to come from a corporate tax cut do come when they are applied to the largest companies. Do you agree with that assessment by Treasury?

Mr King : Yes, because it is the largest companies that marshal the large amounts of capital that make the big investments in developing Australia, whether they are agricultural, mining or digital. It is the big companies that marshal the big capital to make the big investments that grow Australia. That flows down through the whole ecosystem of business, through medium to small businesses.

Senator KENEALLY: That is very helpful. Thank you.

Senator STOKER: Ms Westacott, you have given us some information that is quite helpful about the importance of attracting foreign capital. Could I ask each of the business representatives that are here: how important is international investment to your business and how do you characterise Australia's current position with regard to its ability to attract international investment and remain internationally competitive? Perhaps start at this end.

Mr La Spina : I think it is clear that international capital is fundamentally important to the growth of Australia. There is no way that we can fund our own growth without that capital. I don't think that is contentious at all. I think having an uncompetitive tax regime makes it less likely or less attractive for investors to invest in that regime. That is from a foreign capital perspective. If the mere fact that we have the wrong settings creates lower growth than would otherwise be the case then it is just a less attractive environment for that company to find its home. I think that is also uncontentious. What we do in our own day-to-day lives, where we're going to put our money, we're going to have to chase the best returns and wherever there is competitive advantage. We do run the risk of losing competitive advantage where I think we should have it.

Mr Berry : As my colleagues have said, we've got to be attractive to capital. We work in a highly competitive global environment as a business. From a company point of view, we need to make sure that the investment settings are right around a competitive tax rate. People here have also spoken about the lack of competitiveness. As a business and as an industry, we compete against the US and Brazil globally, and we are twice and three times the cost to operate in that space. You can't win a Melbourne Cup with 120 kilos in your saddlebag. We have got to look at it in that context. We are in a highly competitive environment. We export around 80 per cent of what we produce as a company. Any advantage we can get is going to be attractive to further investment, I would have thought.

Mr Marr : We are overwhelmingly an Australian organisation—Australia and New Zealand, to be fair. The vast majority of our products are in Australia and New Zealand. About 20 per cent of our share register is international, but, even then, obviously 80 per cent is domestic, and 425,000 retail shareholders are included in that. So international investment is important to us but is less critical than maybe some other organisations.

I will just recap on the point we were making before, because international competitors are here. They are here irrespective of the tax rate. They are here because of the opportunity in this market, the margin structure that they might perceive or the growth opportunities. We welcome that competition. We think it is good for customers. It is good for us to innovate et cetera. I wouldn't want you to feel that we're shying away from competition. It's quite the opposite, actually.

Mr King : Senator, can I make some comments too in respect of your question.

Senator STOKER: Please.

Mr King : I think by virtue of no other reason than age, I've probably done more investor presentations to overseas investors than anybody else in this room. I've done a lot of them. To get someone to invest in your company, they've first got to decide to invest in your country. One of the most important things they ask is: what is growth in Australia? Is Australia a growing country? Actually, they love to invest in countries that are growing strongly, because that means there is less risk in their investment and a better return. So growth makes a huge difference to attracting international capital to Australia. It is a very significant factor in investment decisions for overseas investors in Australia.

Senator STORER: Perhaps I will address my question to the BCA. I'm very interested in the issue of spending effectively on infrastructure versus the current tax proposal. In a country with a rapidly growing population, one of the highest in the OECD, which is a significant contribution to current GDP growth, would the effect of this tax reform—particularly as mentioned, that the larger companies do not receive the benefits of the lower tax rate until the mid-2020s—right now, in 2018, be more appropriate to reflect the findings of the Minister for Urban Cities and Infrastructure when he noted in January that increasing the Commonwealth's share of investment in infrastructure is generating 0.5 to 0.7 per cent of GDP growth in 2018?

If we need to stimulate GDP to generate, as Qantas has mentioned, more people travelling, is that not a better action to take in the immediate term than a corporate tax plan which has benefits that will flow towards the end of the 10-year period?

Ms Westacott : I'm happy for Mr King to comment as well. This is not an 'either/or', as we have always said. You should be investing in infrastructure. The challenge for the country is the counterfactual. If we don't do this and we do not get the changes in our productivity and we do not get the economic growth that comes from that, how are we going to pay for the infrastructure that I think Australians want and need? Similarly, if we want to do private sector partnerships, that after-tax return will make a big difference on many of the major infrastructure projects and make them more attractive for investment. So I don't think this is an 'either/or'. It's very clear that the enterprise tax plan has a pay-back over time, but that pay-back will start immediately, and companies have been very specific. Companies like BHP have been very specific that they will start changing their investment decisions immediately. That accrues over time.

If you don't do it, that investment will not accrue over time. That investment and that GDP growth will not happen. There is no other proposal on the table that is going to fundamentally change at an economy-wide level that productivity equation over time and give companies the flexibility around investing in their skill development and investing in their overall equipment. It's not an 'either/or'. Of course we should be doing more on infrastructure, and it would be good if we had a better process for doing the right infrastructure. It would be excellent if state governments didn't make overnight changes to infrastructure proposals. That would also build greater productivity and investor confidence. We've never presented this as, 'You do this or nothing else.' You do this and you do infrastructure and you do skills and you do investing in education and you do regulatory reform. Our submissions have been constantly clear that this is part of a broader economic policy to lift the competitiveness of Australia of which infrastructure would be an important part.

Mr King : The key part of your question is: who funds the infrastructure? Investment in infrastructure is intrinsically good. I think we would all agree with that. If government funds it, all things being equal, from a given level of revenue, there are less funds available to support other important services of government which we would argue are a higher priority for government spending, be they in education or other sectors. When it comes to the question of who funds it, the competitiveness of capital is critical. If we can attract the capital and if it can be funded other than from government revenue, that would be the best outcome because, for any given level of revenue, that can be applied to other services which the community wants.

I think there's a second aspect to your question. We saw this demonstrated very significantly when Jennifer Westacott and I were in the US in February. It quite surprised me how substantial Australia's reputation was as a developer and a funder of infrastructure—the so-called infrastructure model and the way assets have been recycled to fund higher levels of investment in public infrastructure. The US was fascinated with the Australian experience. The important point is that that conference was also attended by a lot of our very experienced infrastructure investors, noting the huge opportunity in the US. One of the risks we run if we're not competitive is that funds that might have previously been invested in Australia may well be invested in infrastructure in the US because we have world-class infrastructure investors who know how to do this but who are also compelled to seek the highest possible returns. So we also run a risk that funds are drawn away from that important infrastructure investment if we are not competitive in our cost of capital and, ultimately, our tax rates.

Mr Parker : And if I could add to that, if you'll allow us the indulgence of aviation as infrastructure, be it an aircraft operating from Adelaide to Sydney or Adelaide to Perth—

Senator KENEALLY: Just to pick two random routes.

Mr Parker : I'm trying to be as relevant as possible. If you look at our recent 787 Dreamliner order, we have modelled and independently verified that attached to each of those aircraft are about 150 additional jobs. So we've purchased eight. We have options for circa 35 additional aircraft. I think, on the earlier point of the BCA members, what boards consider tax policy is clearly an element of that, and, for us to contemplate those 35 additional aircraft with 150 jobs attached to each hull, tax policy therefore is critical for infrastructure for an Australian based company like Qantas.

Senator RHIANNON: Mr Parker or Mr La Spina, Qantas signed the 66-word commitment to the Senate. Did you see an earlier version of this statement?

Mr Parker : We'll take that on record. I think, as Jennifer accurately outlined, it was a process of consultation in that 24-hour period. We were all, of course, comfortable with the intent and the wording and signed it enthusiastically.

Senator RHIANNON: The question is: did you see an earlier version? And did you decline to sign that earlier version? I understand it was Mr Joyce who signed. I'm not sure how your chain of command works, so you can take it on notice if you can't answer it.

Mr Parker : Yes, of course. I'll take it on notice.

Senator RHIANNON: Mr Alvares and Mr Berry, JBS signed the 66-word commitment to the Senate. Did you see an earlier version?

Mr Berry : We'll take that on notice as well.

Senator RHIANNON: And could you also take on notice whether you declined to sign it? Agreed? Thank you. Mr Marr and Mr Bennett, again, I understand that your CEO signed the 66-word commitment to the Senate. Did you see an earlier version of the statement?

Mr Bennett : We saw a draft, and then we saw a final.

Senator RHIANNON: Did you decline to sign the draft?

Mr Bennett : No, we didn't decline to sign the draft.

Senator RHIANNON: You didn't decline?

Mr Bennett : We didn't decline to sign it. We asked for clarification about parts of it.

Senator RHIANNON: Was that clarification requiring changes to be made until you would sign it?

Mr Bennett : I think it involved the insertion of the word 'therefore'.

Senator RHIANNON: And then you were happy to sign it?

Mr Bennett : Yes—

Senator RHIANNON: That was the only change?

Mr Bennett : Yes, it was the only change.

Senator RHIANNON: Mr King, we have this 66-word statement comprising 4½ lines, but only 10 companies—and I understand you have 130 members—chose to sign it. Why was it just ten?

Mr King : We need to go back to when this commitment was made, which, from memory, must be four to six weeks ago. I think it was sometime in March. The decision was made, in our view, in the context of discussions about the merits or otherwise and the efficacy of arguments in support of tax cuts. The companies evidenced their commitment to it. We therefore decided we would seek from some member companies that commitment. We did not approach all members. We did not have time to approach all members because we felt there was a significant time restriction. Hence, several times we've mentioned that this all happened within 24 hours—

Senator RHIANNON: Why 24 hours? Was that because you were hoping that you would be able to win the senators over, and you had to speed it through?

Mr King : It's not our job to win the senators over.

Senator RHIANNON: But that was the intent of the statement, wasn't it?

Mr King : Sure. What we were trying to do was to show that there are real companies employing substantial numbers of Australians and investing substantial amounts of capital that would support all of the economic arguments in support of the enterprise tax plan with their own actual statements. But, in the course of that day, many people were overseas or were on planes. Not all CEOs of Australian companies are waiting to get a call from the BCA on a day, so the companies that were available were available, and that's who we worked with.

Ms Westacott : Some people couldn't make that commitment in the time frame, but we approached a sample of companies in that time frame. You will recall that the Senate was debating that legislation that week, and Easter—was it before Easter?

Mr King : It was before Easter. Actually, Easter Friday was the Friday of that week, but that's a minor detail.

Senator KENEALLY: You mentioned a few times that there was a time pressure. You've just said you were mindful of Easter, and you were mindful that the Senate was debating the legislation. The Senate can debate it for as long as it wants. Did anyone in the government ask you to make this commitment public that week?

Mr King : Given that the government had introduced legislation and signalled that it intended it to be debated, we believed it was important that that debate be informed by a number of companies willing to make a commitment in promising—

Senator KENEALLY: Did you have any contact with the Treasurer's office about the commitment before it was made public?

Ms Westacott : No.

Mr King : No.

Senator KENEALLY: Did you show the commitment to anyone in the government before it was made public?

Ms Westacott : Not to my knowledge.

Senator KENEALLY: Not to your knowledge?

Senator RHIANNON: They have to take that on notice and get an answer to that.

Senator KENEALLY: Yes. Can you take that on notice?

Mr King : The government obviously got it at the end of the day.

Senator KENEALLY: I'm trying to ascertain if the government was aware of the commitment, if the government asked you to accelerate the commitment, if the government had any input into the drafting of the commitment.

Senator RHIANNON: Can you take those questions on notice and ask all your staff, please?

Mr King : Yes.

Ms Westacott : Yes.

Senator RHIANNON: Mr Marr or Mr Bennett, why does Woolworths feel that a tax cut is required for you to be in a position to invest in the economy, employ more workers and give the workers a fair pay rise? Why do you need a tax cut to do that?

Mr Marr : It's less about needing a tax cut to do it; this is more around acceleration, as I thought I said up front. We have a very strong track record of investment—hopefully, you'll have seen that—and jobs creation. We created 10,500 jobs in this last 12 months. The environment we're competing in is only getting more competitive. We know we'll need to invest further, and any assistance we can get in that investment will just help accelerate it, and I think it will be better for the economy all round. We don't need it to invest. It would be beneficial to help accelerate that investment.

Senator RHIANNON: But the statement that you've signed is about investing and then you talk about it leading to more jobs and stronger wage growth. That's the statement you've signed.

Mr Marr : Yes. That's just what I'm saying. This will lead to further investment at a faster rate, recognising, of course, that this doesn't start for us until 2024, so being precise around the areas of investment is obviously difficult at this point. But if you looked at our track record and the things we've talked about, we see plenty of opportunity for investment. This would help us increase that investment and therefore invest sooner, which would lead to jobs growth.

Senator RHIANNON: Ms Westacott or Mr King, I'm still trying to understand what this statement actually means, because it's so brief. You've made the commitments about investing in employment and wages. Surely, there is a need to follow through here so that we can actually understand this and so the public and those of us sitting in parliament can determine where this flows. Do you support that companies, which are presently required to produce an annual report, should also report on how any tax change under the proposed legislated schedule will affect their behaviour, so that we actually get to track this so that people know what's going on? You get the tax break: what do we get?

Mr King : In terms of the 10 companies that have signed this commitment, as I've explained before, that was done in a short period of time. I won't prosecute again all of those points. But, at the end of the day, 10 companies' experience and what those 10 companies do won't be the story of the Australian economy. There are thousands and thousands of businesses, remembering that corporate tax cuts apply to all companies throughout the economy. There must be 20,000, 30,000 or 40,000 companies to whom it will apply. The journey of these 10 companies will not, of itself, describe the economic benefit of the corporate tax cuts. They provide examples of how corporate tax cuts will create the outcomes that Treasury believes these tax cuts will cause.

Senator RHIANNON: The question was actually about the companies in general. Shouldn't those tens of thousands of companies be reporting on how any tax change will affect their behaviour? Again, what does the public get out of this? How do we know that those benefits—the investment, the wages and the jobs—happen?

Mr King : Because all manner of statistics are reported by companies through the Australian Bureau of Statistics, through the Taxation Office and through their own annual reports. The actual performance of companies is extensively reported, but there is no counterfactual. There will only be one future, and that is one with or without the enterprise tax plan. There won't be two futures. You won't be able to compare the with or without because there won't be two futures. There will only be one future.

Senator RHIANNON: I take your point: there's only one future. It sounds like a physics lesson, doesn't it? Okay, so we've got the future. Again, the question goes to: what's wrong with that being reported as part of the annual report? You know what the situation is now with investment, jobs and wages, et cetera. What's wrong with that being reported?

Mr King : I don't think companies can run a hypothetical analysis of what they wouldn't have done without the enterprise tax cuts. There is no baseline. To answer your question, they would run a model that says—

Senator RHIANNON: There is a baseline. The baseline is how it is: if the legislative change goes through, you have what it is at that point and then supposedly changes are going to occur. What's wrong with reporting that? You are starting to sound like you're avoiding it. It seems such a simple question.

Mr King : I think every major piece of economic reform carries or has embedded in it the same question. That is, how do you know that the economic reform has had the intended effect? The answer comes back to the fact that no-one keeps records of what they didn't do. You cannot keep a record of what you didn't do. You can only keep a record of what you did do. There's extensive reporting already of what companies did do and year-on-year comparatives.

Mr La Spina : Maybe to give a bit of colour to that, at the end of every financial year we give a statement of our financial position. We stay how many employees we employ. What we do not do, for obvious reasons, is go and give one, two, three, four or five year forecasts of what we are going to do or the business conditions are going to be in one, two, three, four, five or six years. That just does not happen, clearly. Of course, every reporting period we're able to, we're required to and we do report quite accurately the state of affairs at that point in time. We will continue to do that, absolutely.

Senator RHIANNON: Moving on to shareholders, should the CEOs make clear in their plans the nature of any future commitment or likely scenario involving distributions to the shareholders?

Mr King : I can only speak as a general comment. Each company would need to make its own decision. I don't know any board that would make long-term statements about its distribution policy in terms of dividends or anything else, presuming that's what you asking. Most companies make that every six months or 12 months when they announce their results. If your question is, 'Would they make long-term statements about how they intend to distribute their profits,' that would not be normal corporate practice. In fact, I can look around the table, but I think—

Mr La Spina : What I can say is, in Qantas' position, we do have a financial framework which quite clearly sets out how we think about distributions. We aim to have an optimal capital structure which retrieves our lowest cost to capital and that results in a leverage or a gearing range, which leaves Qantas in a strong position. We aim to achieve surpluses by achieving returns greater than our cost to capital. It then at the end of that, we're quite clear to say that we have choices as to what we do with that capital. We can either return it to shareholders, as you rightly point out, or we can reinvest it back into business. We do say to our shareholders is if we have compelling cases to reinvest our capital back into the business and to create value for our shareholders, we will absolutely do that and take that case to our shareholders. The opposite is also true: if we don't have compelling cases to do that, then we will not and we will give it back to our shareholders. That to the fundamental question here of the competitiveness of Australia and the investment alternatives, the scenarios and the environment in which we're asked to invest in.

Senator RHIANNON: Which brings us back to the statement of 'the commitment to the Senate'. It really is light on. You have to admit that; it is 66 words. When you look at it closely and when you just read it, there is actually only one thing that you commit to and that is to invest more in Australia. Then you state that:

… will lead to employing more Australians and therefore stronger wage growth …

For Hansard, the emphasis is on 'will lead' and 'therefore'. You are only committing to invest. Again, I suppose I'm just surprised. I thought that you would come here—maybe with your public relations people helping you work it out, at least—with something more to say about what the Australian public and the Australian workers get out of this. Is it because they don't?

Mr King : The answer lies at two levels. At the general level, the economic linkages are very clear. I won't go through them again. They are detailed at length in our submission. If you invest more, as we said in our submission and as I've said here orally, 55 per cent of that growth in GDP that comes from that investment goes to incomes, for example. What we've sought to do in that commitment is to say there are companies—in this case, the 10 that signed that letter—that are willing to say, 'We will make investments and, if we make investments, those things will follow.' They have always followed. That has been the economic consequence of growth: with growth in jobs, growth in income and growth in the economy has followed.

Ms Westacott : The other thing that constantly is forgotten here is this is a 10-year reduction in the rate. It sends a signal to companies. What they can say is that they will invest more off the back of that signal, because long-run assets and investments will have a better rate of return. That is what they can commit to. From that, the economic evidence that we have put very clearly in our submission, is put very clearly by a range of economists and the Treasury itself and is put by history is that the benefit of that investment flows to increase productivity, job creation and higher incomes. We have a 10-year tax plan. It's not an immediate tax cut; it's a 10-year tax plan. One side of politics is also saying that it will reverse that if it is elected, reversing a previous, sensible bipartisan commitment to a reduction in the company tax rate. Companies have committed to investing off the back off that 10-year reduction. That commitment then leads to the conditions for higher incomes and the creation of more jobs.

Senator RHIANNON: You have again repeated this supposed connection between company profits, the tax cuts and wage rises. We have heard evidence that there isn't the connection. Can you give us an example of another country where the tax cuts have resulted in wage rises?

Ms Westacott : We'll take it on notice.

Senator RHIANNON: Seriously, you've come here—

Senator KENEALLY: Surely you can give us something. I'm sorry, I have asked Mr King this question before in my previous incarnation—

Senator RHIANNON: And also you've come to this inquiry, Ms Westacott. This is a hot issue. You can't take that on notice.

Senator KENEALLY: Come on. You've got to have—

Senator RHIANNON: You've got all your advisers behind you. Seriously, this is the top question.

Mr King : Sorry, you used the word 'supposed' in framing the questions. There is no supposition. The ABS and Treasury all regularly report on the linkage between growth and incomes. That's a fact.

Senator RHIANNON: I'll rephrase it then: on tax cuts, can you give me an example of where it has worked and tax cuts have delivered high wages?

Mr King : The most recent example is the US. If I go back to my trip there just very recently, there is no question that businesses are investing more. The great challenge of Australia is investing more in the US as a result of those tax cuts.

Senator RHIANNON: That's not wage rises. Again, you have fudged the language.

Mr King : Again, the linkage is very clear that between growth in investment, growth in GDP and income growth. That's a fact. It is not conjecture.

CHAIR: I'm going to take issue with that, if I could just for a second. I'm not sure if you are familiar with the work of Dr Janine Dixon from the Centre of Policy Studies. I do not think that is a universally held view. Dr Dixon makes the observation that the benefit of company tax cuts goes to foreign investors. Whilst you might argue that GDP grows when you have those revenues flowing offshore, then you are finding that national income is actually lower as a result because of the effect of this loss of taxation revenue overseas. How do governments respond to that? Do they balance the budget by cutting spending? Do we rely on bracket creep or GST changes to balance the budget? I'm not sure if you are familiar with the work of Dr Dixon, but she will be appearing before us on Thursday. Do you have a response that?

Mr King : I think the dilemma is that there are many, many opinions by many economists of great note. Clearly, there are views on both sides. If we come back, as I have several times, to actually what are the statistics reported by the bodies that we trust in Australia—ABS and Treasury, et cetera—at the end of the day they speak to the fact that these linkages occur. On your question about profits going offshore to foreign investors, well, if foreign investors have provided the capital, then there is nothing wrong with them getting a return on that capital. In fact, at the end of the day it's offshore capital, which we need to go our country.

I think someone referenced a comment by an economist saying it's the biggest companies that have the biggest leverage to GDP growth through tax cuts. That is because, as I said, they marshal the big capital necessary to grow Australia: our big infrastructure projects, our big resource projects and our big agricultural developments. That is funded substantially by foreign capital and foreign capital needs that return. If it can be spent in a lower taxing environment, we will lose that foreign capital. I'm not sure whether the comment is meant to be bad or good. It might be factually true that money goes offshore to foreign investors, but it's actually important that they get a competitive return. It is one of these things where it's factually true, but it's not bad.

CHAIR: What Dr Dixon is saying is that her modelling finds that the national income is lower as a result of a company tax cut.

Mr King : I haven't seen that modelling. I can't comment on something I have not seen.

CHAIR: I would be interested, if you are able to respond to that.

Senator RHIANNON: Have any of you received of a wage rise or bonus for putting workers' wages up? I assume that this silence means no. Have any of the people giving evidence received a wage rise or a bonus increase for increasing workers' wages?

Mr La Spina : I can say quite clearly what we said earlier, which is the three go together in the trifecta I spoke about earlier. We generate surpluses, we reinvest back into the business and we also pay discretionary payments to our frontline staff in excess of over $220 million over the last three years. Did we get a bonus for doing that? No. The point is that everybody benefits when the economy does well and when the company does well. The distribution of those benefits back into the economy are far-reaching.

Senator RHIANNON: Is it correct that you, as senior managers, are awarded bonuses based on cuts to wages and workers numbers and not for increasing wages?

Senator STOKER: I think we're straying a long way away from—

Senator RHIANNON: No, we're not. This is absolutely core. Stop trying to defend them.

Mr La Spina : That's incorrect. We don't have a KPI that gets us bonuses for cutting wages, and I certainly don't have a KPI that is about cutting wages or cutting headcount.

Mr Parker : In fact, the opposite is true, as we said in our earlier testimony. We are paying above a CPI of three per cent at the moment.

Mr La Spina : One of our KPIs is in fact what's happening with our employee engagement. As I said earlier, that is at record levels.

Ms Westacott : I will also just make the point that Janine Dixon's report is not consistent with pretty much every other piece of economic analysis. We have tabled them in our submission. The OECD said:

Corporate income taxes are the most harmful for growth as they discourage the activities of firms that are most important for growth …

The IMF said:

… corporate income taxes have the most negative effect on growth …

Ken Henry, who did the most comprehensive tax reform in Australia, said:

There is good reason to think that a lower company tax rate will drive a faster rate of investment and labour productivity growth, and that should support higher wages growth over time.

That is very consistent with our statement. The opposition leader said in 2011:

Cutting the company tax rate increases domestic productivity and domestic investment. More capital means higher productivity and economic growth and leads to more jobs and higher wages.

That is very consistent with our statement. Dr Dixon's analysis is very inconsistent with Treasury, very inconsistent with Chris Richardson at Deloitte Access Economics, very inconsistent with the International Monetary Fund and very inconsistent with the OECD. Your only leader made the point exactly right in 2011 when he said:

… higher productivity and economic growth and leads to more jobs and higher wages.

CHAIR: Ms Westacott, if this issue was not controversial, you would not have felt the need to provide a commitment.

Ms Westacott : People were going off the modelling and companies were going out and saying, 'Here's what we would do with the tax cut.' Some senators were saying, 'We want to see a stronger sense of commitment from companies.' Clearly, it's our role to ask companies to make those commitments. But what I'm trying to be very clear about is that those commitments are incredibly consistent with the overwhelming body of economic evidence internationally and domestically, the comments of the former Treasury secretary, the comments of the current head of Prime Minister and Cabinet, and the opposition leader's previous support on exactly the same grounds: increased productivity and increased investment leads to more jobs and higher wages. You're asking us if we've made a statement that is not consistent with economic orthodoxy. What I'm saying to you is that it is consistent with Australian economists, the Treasury and your own opposition leader's comments in 2011. It is consistent with the OECD and the IMF.

We've tabled all of those things for you, and I do encourage you to read them because it's very important that we have this debate sensibly and properly and that we take some of the politics out of it, act in the national interest and make sure that we're making a decision about whether or not we are going to give Australians the best chance to have the best quality of life they can have. Are we going to take the opportunity to actually make Australia more competitive, or in 10 years time are we going to look back with regret and say, 'We've plodded along at 2.4 per cent, and all of the things that Australians really want to do that would be driven by a higher, stronger and faster-growing economy are now not options to the people of Australia'?

Mr King : Might I just make a comment in respect of both Senator Rhiannon's question and the comment by Senator Keneally. Firstly, your notion that management is somehow rewarded for cutting salaries and cutting jobs has to be absolutely rejected. I don't know any company that has that. We just can't leave it on the record that that's somehow the way business operates. In my experience—I've looked at a lot of remuneration reports—one of the most common measures for management performance is return on capital in various forms. Everybody around this table would have a different manifestation of return on capital. The reason that's there is that return on capital compared to the cost of capital is critical. Investors only want to invest in companies where they think they will get a return. So it's actually return on invested capital, in whatever way it's measured, that's probably the most critical measure for investors. What that speaks to is exactly the whole conversation here. At the end of the day, if you lower the cost of capital, more capital will be invested at any given level of return. Firstly, I just have to reject any assertion that somehow business is motivated to cut jobs and wages. I absolutely reject that.

Secondly, to Senator Keneally's point about the evidence, every company will be able to say to you, 'Here is a seriatim of projects and here's our hurdle rate.' If you lower the hurdle rate there are investments that will occur.

Senator KENEALLY: That's what I've asked for today from these companies who are here who signed a commitment.

Mr King : They've said that that's what they'll do.

Senator KENEALLY: But they're not committing that to the Senate, Mr King. They're just making a commitment of more. I can commit to eat more ice cream tomorrow, and I could also tell you how much I'll eat. You've committed to investing more, but you're not telling us how much more.

Mr Bennett : Senator Rhiannon, I understand your focus on wages. I suppose we would make the point that you need a job before you can get a wage rise. We created 10,000 jobs in Australia during 2017, with 4,400 of those in New South Wales. In fact, we had 15,000 new job hires in New South Wales alone. What we have tried to do in our submission is to look at what we've done recently and what we are doing now, which is to invest very heavily in our capacity to respond to the 8,000 pieces of feedback we get from customers every business day about their trends of where they are moving in their shopping experience and also in our distribution networks and so forth. These are the investments which allow us to compete. It is off those investments that this level of job creation flows. Therefore, as a consequence of that, we would see that that is one piece of the overall underlying demand and supply equilibrium in the labour market. You would then start to see upward pressure on wages as a consequence of growth in the demand for labour. That's the best we can do, in a sense—to indicate what we're doing now, and what we plan to do and need to do in the future. We've described the competitive landscape that exists in our sector. There is no abatement of that need to continue to invest in order to remain competitive.

CHAIR: Mr Bennett, earlier today we heard from witnesses telling us that the BCA's commitment is a pile of rubbish, not worth the paper it's written on, of very little value and neither here nor there. My question to Woolworths, then, is: what does your commitment to the Senate oblige you to do, if the tax cuts were implemented, that you wouldn't otherwise do?

Mr Bennett : We have given a very explicit statement. The benefits that would accrue from a tax cut would be directed towards ensuring that we increased our investment faster and in a more accelerated way than otherwise would have been the case. We have given a range of future store builds: for example, 10 to 20. Obviously that gives us the capacity to push towards the upper range, if not beyond. This is the simple message we were trying to communicate through signing the commitment: this is what we would do. As far as I heard, in your previous session there was a suggestion that a proportion of Australians thought that the funds would go to other areas of corporate endeavour as opposed to investment. Again, we're trying to reassure stakeholders that this is what we would do were a more competitive tax rate passed into law.

CHAIR: At the moment you've committed to 10 to 20 new full-range Woolworths supermarkets per annum in Australia. If you get the tax cut, does that figure go up?

Mr Bennett : That reflects the current financial outlook, based upon legislative settings and the like.

CHAIR: A 30 per cent tax rate. So, if you are moving towards a 25 per cent tax rate, what does that do to your target for new Woolworths supermarkets?

Mr Marr : I think I covered that earlier. It may very well go up. It may be at the higher end of that. It may be 30. This is about what we've got in the plan, not the opportunities. The opportunity is far greater than 10 to 20.

CHAIR: So do you have a plan?

Mr Marr : We have a plan based on what the current settings are—yes.

CHAIR: But do you have a contingency plan if the tax changes go through?

Mr Marr : We have plenty of opportunity to invest further, whether it is in new stores—

CHAIR: No—my question is: you've committed to doing more and accelerating your investment, so do you have a plan as to what you would do if enterprise tax plan round 2 were implemented?

Mr Marr : We have very clear areas for investment. It is very difficult, six years out to 10 years out, to give you specifics on exactly how many new stores we would open and exactly how many new employees we would have. I can't think of anyone in government—

CHAIR: But, Mr Marr, a big company—

Mr Marr : The question here is: how many stores would we like to open? We see an opportunity well beyond 10 to 20. Does this give us capacity to do more? Yes. Does it give us capacity to accelerate our level of store renewals? Yes. Will they create more jobs? Yes. Being more specific than that this far out is difficult, which is why we say: just look at our history; look at our track record of investment and jobs creation. We would see that only increasing, given the competitive retail environment we're operating in. I understand the question. It's just very difficult to be more specific six years out. I find it incredibly—

CHAIR: I am sure big companies like yours have to plan six to 10 years out.

Mr Marr : Of course, and, as I said, we have plenty of areas of opportunity. We have a network plan. Despite the fact that we have 1,000 supermarkets, there are many catchments where we have low representation or no representation. We are somewhat constrained by the level of capex we have to be able to invest. Should this change go through, it would provide more capacity.

CHAIR: Is it more the issue that you're constrained by ASX continuous disclosure rules or concern of—

Mr Marr : That is clearly a factor. We take our continuous disclosure obligations incredibly seriously. We can't say something here that is not in the general market more generally. That is selective disclosure and not something we would entertain. More to the point: even if that weren't the case, being really specific on something six to 10 years out is incredibly difficult. I just don't think you could be more specific. We've tried to highlight the areas, we've tried to give you a quantum in terms of the proportion of our profit before taxes it would generate and I struggle to see how much further we could go, other than to say we want to invest and that investment will create jobs.

CHAIR: I'm going to ask you the same question, Mr La Spina. What is your commitment under the levy you've signed with the BCA oblige you to do that you wouldn't otherwise be doing if enterprise tax plan mark 2 were implemented?

Mr La Spina : I think I answered that before. If we're looking at a growth in GDP, as has been forecast, of one per cent, will that flow through to increased traffic? We think that it absolutely will. Any investment plans that we have cause us, just as they cause you, to look at what might happen going forward. We raise the same questions in our forecasting. It goes to the question of forecasting certainty and stability. At the same time as we're sitting here talking about a reduction in the company tax rate, there's talk of potentially repealing that legislation. That just creates more uncertainty, which is particularly unhelpful because we're looking at a particularly long period and making investment decisions today. When we buy an aircraft, we don't get it today; we'll get it in two years time at the earliest. So we're relying on the settings at that point in time and looking forward. If we're talking about having tax cuts and certainty as to policy, that's fundamentally important for infrastructure type investment, which has long lead times and long lifelines of 20 years. It is difficult, especially with the load of the fact that it currently doesn't have bipartisan support. That makes it even harder.

CHAIR: Unfortunately, time has—

Senator RHIANNON: I have two quick questions, please.

CHAIR: We're very close to time, Senator Rhiannon.

Senator RHIANNON: We'll see how we go?

CHAIR: Just keep it very tight.

Senator RHIANNON: Yes. The Treasury have given us modelling that talks about the $750, the stated increase that workers would receive. That's something that's certainly been a selling point for the Prime Minister. I'd like to take you to page 17 of your submission. This is on the first page of attachment 1. This is under your second heading, 'Company tax cuts will flow through to workers'. I note that in that section there is no language about wage rises. I was surprised, considering so much has been made about wage rises, and we've even got the specific figure of $750. The closest you come to this in your first dot point—

CHAIR: Senator Rhiannon, I did ask you to keep it tight and I think you've had a fairly good go. I understand that the gentlemen from JBS have to leave. This is probably the most appropriate time for us to have a five-minute break. Thank you very much for appearing before us.