Treasurer Josh Frydenberg has worked out that Australia has a productivity crisis, and he’s worked out what not to do about it. But he’s still clearly at a loss about how to get a stagnating economy moving, if his speech this morning is anything to go by.
Tax cuts off the agenda
The low-profile Treasurer spoke to the Business Council this morning and he deserves credit for bluntly telling the most parasitic and rapacious business lobby in the country that it won’t be getting company tax cuts any time soon. Frydenberg and Treasury, it seems, have finally worked out what some of us have been saying for years — that company tax cuts will simply be wasted in share buybacks and higher dividends, rather than extra investment, if the evidence from the United States and Australia is anything to go by.
If you recall the debate — or what passed for the debate here — over the Coalition’s proposed tax cuts, you’ll remember that giving large companies a tax windfall of tens of billions of dollars was touted as a panacea for every economic woe, including low productivity. Now, Frydenberg admits, businesses have been using spare cash to reward shareholders, rather than invest. “Share buybacks and capital returns are becoming increasingly prominent and the default option for corporates but is a buyback always the best option for the future growth of the company and therefore the economy? Over the last 12 months, approximately $29 billion has been returned to shareholders in the form of buybacks and special dividends compared to an average of $12 billion over the previous four years – a 140% increase.”
Productivity collapse
It’s surprising to hear a Liberal Treasurer uttering such words, particularly to the perpetrators involved, but most welcome. Welcome, too, is a little bit of honesty about the productivity crisis that has occurred on the Coalition’s watch. “Our productivity growth has started to slow, averaging 1.1% over the last five years,” compared to a long-term average of 1.5%. “The last five years” is entirely within the lifetime of this government — five years doesn’t even get us back to that budget. Frydenberg is, if only implicitly, acknowledging that productivity has collapsed under this government. So what does he propose to do about it?
Well, nothing, really — it’s up to business. The government is doing all it can, he says. “We are pursuing reforms across the tax, industrial relations, deregulation, competition, education and health systems to enhance our ability to produce more with what we have. It’s a full-court press.” Anything more is up to the states and territories, but mainly business. “A more positive approach to investment and growth by Australian corporates would not only lead to a stronger economy but would contribute to the goal of capital deepening.”
What’s next?
There’s a broad sense in which Frydenberg is right to put the onus on business. Australian corporate management is generally poor, as the banking royal commission, billions in writedowns by mining companies, mismanagement in the media industry, our poor record in innovation and the epidemic of wage theft illustrate. Australian business is good at ripping off workers and pressuring governments for handouts and regulatory advantages, but poor at innovating or serving their customers well. And it’s been that way for long enough that even back during the last “productivity crisis”, which turned out to be a false alarm, right-wing economists were admitting Australian business were duds.
But Frydenberg is wrong, and quite misleading, to say that the government is providing any sort of “full-court press” on productivity. We know that because Scott Morrison, as treasurer, asked the Productivity Commission two years ago for a set of reforms that would enhance productivity growth in Australia — a set of reforms that the government has entirely ignored since the PC responded. A “full-court press” would entail congestion pricing, land tax, proper cost-benefit analyses of infrastructure spending and better targeting of education and health spending. If Frydenberg is going to go to his meeting with his state and territory counterparts with an agenda to accomplish those things, then all power to him, but we’ll believe it when we see it. Instead, it’s all on business to invest more. As a productivity strategy, it has little to recommend it.
Bernard, every now and then you really hit the nail squarely on the head, as you have now when you rightly say that, despite so many goods and service being committed to the market because the government thinks that always gives the best result, the fact is that business is good at ripping off workers and customers, prompting Royal Commission after Royal Commission. The productivity commission might have some answers but I prefer Frydenburg’s capital deepening and the examples of companies that invest in new technology to the PC’s “better targeting” of spending in education and health, unless that means don’t waste so much money on private schools in education and spend more on prevention than increasingly expensive “cures” in health.
Frydenberg’s comments, to my mind, show him and his incompetent government’s policy vacuum in its full and rich glory. The evidence that business would reinvest tax cuts was, at best threadbare and that is evidence gathered over decades, but there is also a very clear recent example of the US and all of that was ignored because the LNP cling to its flawed ideology that tax cuts f0r the wealthy and business promotes jobs and growth. History shows overwhelmingly that such gains flow to the rentiers and business as more wealth and profit.
So what does the Treasurer do? Well folks, the LNP have left it to the Reserve Bank to implement actions to boost the economy when the LNP won’t (in order to protect their sole economic policy raison d’etre – the surplus), and he now blames business for Australia being in the economic mire. Sure, business should be handing back productivity gains to workers and has a sordid history over recent decades of refusing to do that, but the government had all the evidence it needed to know that rewarding a greedy business sector with more cash from tax cuts was going to fail and it persisted anyway (expect more of the same with tax cuts going to higher-income earners). This is in the same way that business and the government proclaimd to the Fair Work Commission that a reduction of penalty loadings would result in more jobs. The actual outcome, according to a study by the University of Wollonging – yep, no new jobs or so few that it makes no difference to unemployment.
An extraordinary display of incompetence and petulance from a nitwit Treasurer who is part of the worst government this country has seen in living memory.
Penalty loading reduced but 10% Sunday surcharge when dining out remains.
Ill Fares – exactly. The LNP’s mantra that tax cuts will lead to more jobs has been totally discredited, with even Frydenberg now conceding it only led to share buybacks or higher dividends.
Spare a thought for Emma Albericci who defined this recently in a brilliant bit of journalism that showed international examples where tax cuts failed to lead to more employment. That undermined the LNPs major re-election strategy at the time.
She was pilloried in parliament by Turnbull, Morrison and the Belgian Blatherer who we know can’t work the numbers out anyway. ABC management were pathetic in defending the 95% accurate content and decided to focus on minor faults in her article to appease the LNP’s fury.
Mainstream media seems unwilling to give priority to the news that the hospitality industry, who easily lobbied the LNP and Fair Work Commission to historically remove exisiting weekend penalty rate, yet has failed to create more jobs. Well, if anyone believed that, I have a bridge in Sydney I’d like to sell them. So now the evidence is in, will weekend penalty rates be re-introduced? Hah!
It is always for these boys to play the woman.
Well the stiletto is on the other foot, now, Joshie and Matty and Schmo.
When we drop into the recession we didn’t have to have; I’m sure Emma will be there, ever so politely, asking the pertinent questions, while you try to blame anyone except yourselves,eh?
Will you still be attempting to be famous for delivering a surplus, rather than pilloried for causing a recession? I know what my two bobs on, good luck, boys!
You will not be forgiven.
Good luck with getting Australian business to do anything smart or innovative, even sensible. Next the BCA will be saying that business needs to be incentivised to improve business performance on innovation. With few exception, Australian business simply looks at what others are doing to be successful and just do that. There is clearly no culture of excellence, because achieving excellence entails too much risk for visionless Australian business.
Stretch your minds across the retail sector, as we walked along a street in South Australia, I sighted one business, a coffee shop, that was not a franchise or a branch of a large chain.
For all of this, BCA still demands tax cuts.
After the absolute disaster of the Retail Food Group franchises, why are these business in a box banned?
I had to look up the meaning of “full-court press”, and not being a huge basket ball fan I am still not much wiser – but it appears to be a rather useless analogy in this context.
There is a clear implication of a positive strategy, when we know Frydenburg and Morrison are just sucking on their handkerchiefs and thinking of England.
Why doesn’t Frydenberg ‘hereby order’ Australian business to do more to address productivity?