Why big business doesn't care about deficits
Two days after demanding $48 billion worth of tax cuts, BCA president Grant King warned us that "if we don't make changes, if we don't get on top of the budget deficit, debt is going to be rising and it will be a burden for generations to come".
[This article was first published by the Australian Financial Review - here]
When faced with a choice between lower company tax rates or a lower budget deficit the Business Council of Australia didn't hesitate for a second. While fear campaigns about the budget deficit have been a great way to secure cuts to other people's health, education and welfare services, it's obvious that our business leaders think that no budget deficit is ever too big to delay a cut in corporate tax rate.
This hypocrisy is not unique to Australia. While corporate America bemoaned Barack Obama's failure to rein in the budget deficit, the Dow Jones surged after Donald Trump's election offered hopes that he would cut taxes, spend up big on walls and wars and, in so doing, deliver the kind of budget deficit that hasn't been seen since Ronald Reagan was explaining trickle-down economics.
The failure of the US Republicans to repeal Obamacare leaves a $1 trillion hole in Trump's plans to fund tax cuts but, despite the failure to secure spending cuts, Wall St is still demanding big cuts to the corporate tax rate. It's as if it doesn't really care about the budget deficit at all.
No CEO, nor BCA president, really believes that "debt is bad". When King was managing director of Origin Energy he drove its debt levels to $13.5 billion while building one of the enormous gas export facilities in Gladstone that has done so much to drive up the price of Australian gas and electricity. Origin has subsequently written down the value of the APLNG facility by $1.9 billion. Whoops.
Former BCA president Tony Shepherd has also been out again recently telling us all about the dangers of debt. Of course, when he was the chair of Transfield he sang a different tune as he oversaw a $600 million, or 60 per cent, blowout in debt.
As Origin and Transfield shareholders know better than most, it is not debt that is good or bad, but the uses to which it is put. In turn, the question facing Australian voters is not whether a country with a rapidly growing population should be borrowing to support its growth, but what kinds of investments should we be borrowing for. Ironically, BCA presidents keep putting themselves forward as the arbiters of good public sector investment despite their track record in the commercial sphere.
Australia's population has grown by almost six million in the past 20 years and, as anyone commuting in a major city each morning knows, our infrastructure spending has not kept up. Schools in Sydney are now so overcrowded that some have had to stop children running in the playground. And, despite Malcolm Turnbull's promises, it seems that fibre optic cabling might have been not just faster, but cheaper, than sticking with copper. Who'd have thought? Failure to invest in the right infrastructure harms our society and our economy.
But at precisely the time the BCA is telling us that we need to invest in infrastructure, cut the corporate tax rate and balance the budget, the federal government is proposing to use its Northern Australia Infrastructure Fund (NAIF) to spend $1 billion subsidising a rail line between the Adani coal mine that hasn't been built and a port that hasn't been built. Does King think that subsidised coal export infrastructure is the thing that will best set Australia up for the future? Does Shepherd believe betting taxpayers' money on growth in the world coal market over the next 40 years is a good investment?
If the BCA wants to have an influential voice, rather than just a loud one, it needs to work on its coherence and its consistency. If it wants to be taken seriously on the need to rein in spending then it needs to seem as outraged about boondoggles such as the subsidies for the Adani coal project as it is about the "unsustainable" cost of a pension of $444 per week. And if it wants to be taken seriously about the deficit it needs to start talking about how best to collect more revenue from its members. I won't hold my breath.
Richard Denniss is the chief economist for The Australia Institute