Cut company tax and funds will flow, says BHP

BHP’s Andrew Mackenzie has pledged to scale up spending in Australia if a broad-based corporate tax cut is passed.

BHP chief executive Andrew Mackenzie. Picture: AAP

BHP chief executive Andrew Mackenzie has pledged to scale up spending in Australia from a potential $25 billion investment pipeline “within months” if a broad-based corporate tax cut is passed.

Mr Mackenzie’s commitment came as new KPMG economic modelling showed Donald Trump’s tax reforms would cost the nation more than $5bn and 25,000 jobs if counter measures were not taken, as lower investment and fewer exports hit wages growth and consumer spending.

The BHP chief executive called for more widespread ­support — beyond the business sector — for Malcolm Turnbull’s plans to cut the corporate tax rate to 25 per cent for all companies.

“This idea that we can’t afford it — we can’t afford not to,” said the head of the nation’s biggest company.

“It’s of fundamental importance for a country that wants to compete internationally that it renews its capital base, it’s at the leading edge of technology so it gains market share and is able to pay its people better, create more jobs.

“Our investment at BHP is not just two or three projects; it’s a myriad of projects big and small that go everywhere from building a mine to freight and shipping.”

Mr Mackenzie stressed that tax cuts would make marginal projects more appealing and that while much of BHP’s $25bn projects would not be dependent on a tax cut, some would.

“More of those projects would undoubtedly go ahead in ­Australia if we had a lower tax rate, and that would be apparent, I think, in a matter of months, not years,” he said.

BlueScope and Shell also said they were more likely to make extra Australian investments if the tax rate were cut.

The KPMG modelling says that national gross domestic product would be cut by 0.3 per cent, or $5.1bn, in the medium term, with the loss of 25,400 jobs, based on current Australian policy. KPMG chief economist Brendan Rynne said the figures were conservative because they did not include the potential loss of ­investment of unallocated global capital as the US became a more attractive place to spend.

“That’s a concern, because as a small, open economy, we are ­dependent on foreign investors because we don’t save enough to fund our own investment,” Mr Rynne said.

“We need to make sure we have a globally competitive company tax rate … to make opportunities for investment in Australia attractive from a global perspective.”

BlueScope Steel chief executive Mark Vassella said that even though there was not the local steel market for the company to make big-ticket capital investments, an improved tax rate would spur more spending.

“Anything that lowers costs in Australia is a good thing and a cut would allow us to think more about further employing more people, investing in people and products,” Mr Vassella said.

“The growth would be ­incremental, there would be ­further product enhancements, minor movements around the supply chain.’’

Shell Australia chairman Zoe Yujnovich said the benefits of tax cuts would be widespread.

“Strengthening Australia’s ability to attract investment from highly fluid international capital markets benefits our entire ­nation,” Ms Yujnovich said.

“Reducing corporate tax rates is a key growth lever for the ­economy and boosts confidence to ­invest in not only new projects, but also brownfield options.’’

Mr Mackenzie has repeatedly called for Australian company tax cuts since early December, when US tax reform was passed into law.

BHP revealed a one-off ­income tax hit of $US1.8bn ($2.4bn) last month as a result of the changes, although it will pay lower taxes on its US business in future.

Mr Rynne said that marginal investment was important.

“Projects that were possibly marginally not attractive in the US before the tax cuts are likely to be marginally attractive after the tax cuts,” he said.

“The margin matters in global capital flows.”

KPMG’s $5bn GDP loss is based on the Trump tax reforms that include cutting company taxes from 35 per cent to 21 per cent, hitting the exchange rate and boosting the cost of imported good and services here.

This is forecast to boost Australian inflation and result in higher interest rates that affect ­investment.

That lower investment and ­declining medium-term global exports (as the US provides more of its own goods and services) is expected to pressure Australian wage growth and combine with higher import prices to reduce consumer spending.

“The net effect of these ­impacts is a reduction in Australia’s GDP by about 0.3 per cent in the medium term, after experiencing a slightly stimulatory ­effect in earlier years owing to higher export demand,” the draft KPMG report says.

In the US, the Trump tax cuts have fuelled expectations of a boom in corporate spending on wages and bonuses, capital investment and shareholder returns.

Goldman Sachs forecast a 15 per cent spurt in cash spending by US corporates this year.