Business returns fire on red tape and tax reform

Leading businesses have called for tax reform following Josh Frydenberg’s plea for greater investment.

Productivity Commission chairman Michael Brennan. Picture: James Croucher

Leading businesses have called for tax reform and red-tape removal following Josh Frydenberg’s plea for investment in local production, warning that expansion plans are being “undermined” by global trade tensions and sagging ­competitiveness.

The Treasurer’s challenge to companies that choose to line the pockets of shareholders rather than create jobs and invest in new technologies was rejected yesterday by the Australian Shareholders Association.

The ASA warned that any move to crimp lucrative share buyback programs or special dividends could threaten the ability of Australians to amass savings for their retirement. ASA head of policy Fiona Balzer said businesses would be investing “if the current economic environment was a bit more robust”, but this was being stifled by “trade tensions” and “patchy growth” throughout the economy.

“A share buyback for the sake of having a share buyback is not a good thing,” Ms Balzer said. “But because we’re pushing everyone to save for their own retirement, in a low-interest rate environment there’s not many places you can put those funds. Shares are an important part of building retirement ­income and some (companies) will be needing to pay out dividends to sustain people.”

However, co-founder of SEEK and Squarepeg Capital, Paul Bassat said Mr Frydenberg’s call to business to increase investment was “a really important development”. “We need to increase productivity in Australia and we need to produce more globally leading businesses. We will only do that through businesses taking more of a long-term investment mindset rather than a more conservative approach of maximising returns to shareholders,” Mr Bassat said.

“Our global success stories have invested heavily over long periods and have been rewarded by shareholders for their vision. I hope other businesses follow their lead. The cost of capital is at record low levels and we finally have the political certainty that business has been craving for a long time. I really hope business responds constructively to the use of the bully pulpit from the Treasurer.”

Productivity Commission chairman Michael Brennan welcomed the decision by Mr Frydenberg to highlight the issue of federal financial relations and urged the government to keep pressure on international trading partners to limit damage caused by tensions across the globe.

Mr Brennan, who took over as head of the government’s productivity adviser last year, welcomed Mr Frydenberg’s move to put the potential reform of state-based stamp duty and zoning laws on the agenda for a treasurers’ meeting in October.

“Focusing on the federation is very important,” Mr Brennan said. “We have continued to argue for a strong focus on human capital, including skills formation and a more integrated, patient-centred health system to lift participation and productivity. Australia has enormous untapped human ­potential if we work to get our policy settings right.”

The Productivity Commission’s Shifting The Dial report is being used as a road map to bring together the states to embark on reforms to re­ignite economic growth. It was launched in 2017 with the backing of state treasurers, Scott Morrison and the RBA. However, many of the proposals from the five-year inquiry have not been taken up.

Mr Brennan said the report was a “coherent blueprint for a modern reform agenda for Australia, including regulation ­reform, harnessing digital technology and improving the efficiency of our cities”.

In a speech to the Business Council of Australia yesterday, Mr Frydenberg called on company bosses to invest more in new technologies — rather than returning excess cash to shareholders — in a bid to kickstart flagging productivity and boost wages by $3000 a year.

He highlighted the almost $30 billion that has been returned to shareholders via buybacks and special dividends over the past year — a 140 per cent increase on the average $12bn over the previous four years.

Business Council chief executive Jennifer Westacott said businesses were determined to expand and invest in innovation but their efforts were being undermined by concern about a global trade war: “Australian businesses … want to see a return on their investment but this is currently being undermined by concerns about the ­global economy and Australia’s relative competitiveness.”

Labor Treasury spokesman Jim Chalmers said the Treasurer’s call for increased investment “was not an economic policy”.