Thank you for the opportunity to appear before this inquiry.
I’ll make a few brief remarks about declining rates of business investment in Australia, and the role that public policy has played in that decline.
Public policy should be aimed at giving all Australians the opportunity to succeed based on their own hard work and merit. Earned success – the process of applying one’s skills and talents to achieve a goal of one’s own design – is the key to allowing people to reach their potential and to flourish. Business investment is key to this process.
By expanding the economy’s capital stock, business investment makes Australian workers more valuable. This puts upward demand on workers, which expands economic opportunity.
To this end, policy-makers should aim to make Australia the most attractive destination in the world for businesses to invest in.
However, bad public policy across a range of areas has made a substantial contribution to Australia’s low levels of business investment.
New private business investment in Australia is currently just 11.7 per cent of GDP, which is lower than the rate which prevailed during the Whitlam years.
There are five key areas of public policy that have contributed to this decline.
- Firstly, Australia’s high business tax rate.
Australia has one of the highest business tax rates in the OECD and according to the World Economic Forum, out of 134 nations, Australia ranks 94th worst for the negative effect that taxes have on the incentive to invest.
- Secondly, Red tape.
Each year red tape reduces economic output by $176 billion, which is around 10 per cent of GDP. This adds to the cost of setting up new businesses, expanding existing businesses, and taking on new staff.
- Thirdly, Subsidisation of weather dependent, high cost renewable energy generation.
Wholesale prices have tripled in the last three years, while retail prices are up 130 per cent since the RET was expanded in 2007. High energy prices are having a deleterious effect on business investment. This is driven by subsidisation of wind and solar at the expense of coal.
To give just one example of many. In June last year, a family-run recycling business in Kilburn, in Adelaide’s inner north, announced it would be closing after 38 years, putting 35 people out of work. The trigger was a spike in its monthly electricity bill from $80,000 to $180,000.
- Fourthly, High and rising public debt
Gross government debt has grown by some 380 per cent over the past decade to reach a record an expected $561 billion next financial year. Every dollar of public debt will be paid back via higher future taxes. This reduces the expected return on investment and so deters that investment.
- Finally, Rigid and inflexible workplace relations
Australia has one of the worst workplace relations systems in the developed world. According to the world economic forum Australia is the 109th worst nation for flexibility of wage determination and 110th worst for hiring and firing practices, meaning Australia is one of the hardest places for businesses to recruit and keep talented workers.
To rejuvenate business investment, the government should implement a series of reforms, including:
- Reduce Australia’s high corporate tax to at least 25 per cent, and ideally to 10 per cent.
- Introduce a one-in-two-out approach to red tape reduction.
- Exit the Paris Climate Agreement and end all subsidies to weather dependent energy generation.
- Implement a series of modest changes to the Fair Work Act, including allowing for increased use of individual flexibility agreements and removing the conveniently belongs provision which allows unions to monopolise workers and give them bad deals.
Thank you again for the opportunity to appear before this inquiry.
We would be happy to take any questions.