Building Brand Australia
Australia’s wish for a new government may be granted at the next election but its dream for a more competitive, more productive and more efficient country may remain just that – a dream.
I despair for Australia. A Laissez-faire approach to the economy and to regulation held by the opposition – making people responsible for themselves and allowing companies and people to make their own choices – may work to help large companies (the Libs have previously had to deal with accusations of favouring big business) but left to their own devices, a ‘light touch’ produces legislated abuses of market power. More on this another time.
But my despair comes from a philosophical position held by some in Canberra that may be too reliant on the idea of playing to our self-labelled “strengths”.
On the one hand, we are told by our politicians that we have to endure a structural deficit in our balance of payments current account – the value of our imports are always higher than the value of our exports. This makes the speaker sound like they know what they are talking about. Say ‘deficit’ and everyone agrees, throw in the word ‘structural’ and you can really sound like you know what you are talking about. We are also told that our strengths are resources and agriculture. If the next government is going to focus on our strengths, then that means focusing on low return on equity businesses that have no enduring competitive advantage because they are price takers rather than price makers.
The bloody reason the value of our imports is higher is because other countries are taking our raw materials (which nobody values very highly) and turning them into products we all want and do value highly.
Only when Australia starts to add value to raw materials and builds brands for which people are willing to pay a premium, can we be a price setter. The best businesses are those that can charge a higher price for a product than the competition, even though the competition may produce essentially the same thing. Think Tiffany diamonds. Diamonds are the same all around the world, but Tiffany’s can charge more and people are willing to pay up. They have a brand, they have a story, they have a reputation, there is desire.
This is a real and enduring ‘strength’.
Andrew Robb MP told me last week at a breakfast function that if, for example, as a country, we are good at ‘sport’, we should play to our strengths and focus on getting better at sport. But without the incentives in place to encourage those who aren’t great at sport we will end up with an economy populated with a few jocks and little else. Those that are good at science, IT, or have other skills are not given the incentives to even try if the focus is only on ‘sport’. In Singapore for example there are attractive incentives to get people started in new endeavours.
This paragraph from Singapore’s Tax Portal tells the story of how they are encouraging new businesses to set up, to innovate and to create jobs.
“The tax exemption scheme for new start-up companies was introduced in Year of Assessment (YA) 2005 to support entrepreneurship and to help our local enterprises grow.
Under this scheme, a newly incorporated company that satisfies the qualifying conditions can claim for full tax exemption on the first $100,000 of normal chargeable income* (excluding Singapore franked dividends) for each of its first three consecutive YAs.
Starting from YA 2008, a further 50% exemption is given on the next $200,000 of the normal chargeable income* (excluding Singapore franked dividends) for each of the first three consecutive YAs.”
So a new business gets a tax holiday on the first $100,000 of profit for the first three years and the next $200,000 is taxed concessionally. That’s up to $900,000 of seriously low tax rates over three years and you pay zero tax on the first.
I enjoyed breaky with Mr Robb but I do think it is inadequate for a hopeful opposition to simply believe that encouraging resource investment and agriculture (our ‘strengths’) will do anything to change the long term narrative of our country.
Why? Because digging up stuff out of the ground is not highly valued by the rest of the world and so they won’t pay much for it. Our ‘structural’ deficit will remain.
If instead, we think about tax reform that produces incentives for value adding industries to start up and prosper, the value of our exports will rise and the structural deficit might just be a thing of the past.
I fear that the opposition currently have resigned our country to perpetual balance of payments deficits, which therefore make us dependent on foreign investment. We are told that we as a nation are dependent on foreign investment because the capital account must offset the deficit in the current account. The deficit on the current account can be fixed but we need courageous leaders willing to make long term changes rather than those focused on political marketing and self preservation.
If we don’t have to be dependent on foreign investment then we don’t have to sell off our farms and our mines and our infrastructure either. Our government could also balance its own budget because it could preserve the cash flows from these assets. But we need to start by getting real tax reform that incentives our smartest kids to stay in the country and develop value added products and services so the value of our exports is more than what someone will give us for our dirt.
The discussions about efficiency and productivity will then be in the right context rather than some abstract concepts cobbled together to make people think we have solutions.