Another round table
With Jim Chalmers’, Treasurer of Australia, three-day roundtable kicking off yesterday, I thought it would be interesting to hear what different parts of the community were seeking. Of course, while collaboration is expected, consensus will be impossible, partly because of the diverse attendees, which includes representatives from the unions, government, business and civil society.
The other issue is that solutions require an understanding of the problem’s root cause. And when we are talking about labour productivity, most cannot even agree on first principles.
What is productivity? The amount of product produced over a given period of time by the same amount of labour. Seems easy enough? For example, one equation might go like this: same labour + artificial intelligence (AI) = greater productivity.
But what if: AI = less labour? The unions won’t want that.
And that’s even before the difficulties associated with measuring labour productivity are considered. How, for example, do you measure productivity when the bulk of labour’s aggregate output is services rather than products? Manufacturing today accounts for just six per cent of our output, as measured by gross domestic product (GDP).
Finally, which comes first, the chicken or the egg. Consider this: For productivity to rise, workers need the latest technology. To obtain that new technology, businesses need to make investments. What motivates them to invest? As an aside, tax is certainly part of the equation. But some say rising wages force businesses to invest in tech to lower total costs. Others argue that rising wages render businesses unable to afford the new technology. So do we work towards lifting wages, or do we cap wages?
That’s why I think practical outcomes are less likely than this being yet another gabfest.
What everyone can agree on is that Australia’s productivity has been in decline. Our GDP has risen much more slowly than our labour force. Reserve Bank governor, Michele Bullock, mourned the decision last week to downgrade its labour productivity forecasts for the nation. Elsewhere, falling business investment has everyone worried, which is why they’re meeting in Canberra this week in the first place.
Businesses in Australia have clear priorities for Treasurer Jim Chalmers’ Economic Reform Roundtable, which runs from Tuesday to Thursday. Their expectations are focused on boosting productivity, reducing regulatory burdens, and fostering economic growth, with a strong aversion to tax increases.
Here’s a brief summary – let’s see if they’re addressed over the coming days.
Reduction in red tape:
Businesses are pushing for a significant cut in regulatory burdens, with groups like the Business Council of Australia estimating a “red tape burden” of as much as A$110 billion. They’re seeking faster project approvals, streamlined planning processes, and clearer regulations, particularly for small businesses and major projects like housing and infrastructure.
Businesses also want regulations that are outcome-focused rather than prescriptive, avoiding layers of compliance that hinder innovation, such as in AI or environmental approvals.
Lower or reformed taxes:
Businesses, especially small and medium enterprises, are advocating for lower company tax rates. The Productivity Commission proposed a 20 per cent tax rate for companies with revenue up to A$1 billion, to boost investment and competitiveness.
There’s interest in tax incentives for research and development (R&D) and capital investment, such as immediate deductions for new capital rather than depreciation over time, to encourage innovation and growth.
Tax increases are explicitly not on businesses’ list. The opposition and business groups, like the Australian Chamber of Commerce and Industry, emphasise budget-neutral or revenue-positive reforms, opposing any overall tax hikes. And the Shadow Treasurer has stated the Coalition would not support packages that raise taxes overall.
Boosting productivity and investment:
Businesses want policies to address Australia’s stagnant productivity, identified as a key barrier to higher living standards. They’re seeking incentives for private investment in productivity-enhancing assets like machinery and technology, as current levels are insufficient.
There’s also a call for a more competitive tax system to attract investment and make Australia’s economy more dynamic, noting the current system is “outdated and a drag on productivity.”
Practical and immediate reforms:
While businesses expect practical, actionable outcomes rather than abstract discussions, such as speeding up housing approvals to address the backlog of 30,000 homes under environmental regulations, I believe the latter is all that will come from this week’s discussion.
To be fair, they’re pretty cautious about expecting immediate sweeping changes. Indeed, lobbyists like Bran Black of the Business Council of Australia is viewing the roundtable as a starting point for long-term solutions rather than an instant fix.
Avoidance of anti-business measures:
Businesses are wary of ‘reforms’ that could disadvantage them, such as tax increases on large companies or “rent” profits (e.g., a proposed 5 per cent cashflow tax by the Productivity Commission), preferring reforms that balance support for new entrants while not penalising established firms.
There’s also concern about policies like taxing the family home or increasing goods and services tax (GST), which businesses fear could dampen economic activity or consumer spending, though these are not their direct focus.
Final thoughts
It’s safe to presume tax increases are not on businesses’ list. Business groups and their representatives, such as the Australian Chamber of Commerce and Industry and the Business Council of Australia, consistently advocate for tax settings that enhance competitiveness and investment without raising the overall tax burden.
The Productivity Commission’s proposal for a revenue-neutral tax reform package – a progressive company tax structure that lowers rates for smaller companies while introducing a cashflow tax for larger ones has sparked caution among big businesses wary of paying more.
A progressive tax rate for companies would also see a lot more restructuring to avoid moving into a higher tax bracket, with spin-offs and demergers the likely outcome.
Business would like Chalmers’ roundtable to deliver practical, growth-oriented reforms that cut red tape, lower or optimise taxes, and boost productivity without increasing the tax burden. It’s a nice wish list but transformative outcomes are highly unlikely.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
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