Executives reject Treasurer’s plea for investment

Business leaders have pushed back against a call from Josh Frydenberg to prioritise investment over capital returns to shareholders.

Fortescue CEO Elizabeth Gaines. Picture: Colin Murty

Business leaders have pushed back against a call from Treasurer Josh Frydenberg to prioritise investment over capital returns to shareholders, with Boral chief executive Mike Kane warning the nation’s political leaders should not tell corporate Australia how to run their operations.

In a speech to a Business Council of Australia breakfast yesterday, Mr Frydenberg said corporate Australia must act to lift flagging national productivity rates, and wages with them, in preference to returning cash to shareholders through share buybacks and special dividends.

Mr Frydenberg said renewed investment in technology and business-led capital spending was needed to spur productivity growth, telling the business audience “we cannot simply rely on high commodity prices to boost national income”.

However, the head of the $5 billion construction materials giant Boral said companies were already juggling the twin demands and did not need direction from the government on how to run their businesses.

“I don’t wait to be told by politicians what we’re supposed to do,” Mr Kane said.

“We’ve always paid a dividend and an attractive dividend and will continue to do that. We don’t think that inhibits the ability to grow the business.”

Fortescue Metals chief executive Elizabeth Gaines said the mining industry was doing its fair share to boost national economic growth, contrary to the Treasurer’s suggestions shareholder returns were crimping investment in companies’ future growth.

Fortescue delivered a record profit and a bumper final dividend yesterday, joining BHP and Rio Tinto in handing back the bulk of windfall profits from this year’s iron ore price surge to shareholders.

But Ms Gaines said the mining sector was also pulling its weight when it comes to investing in Australia, pointing to Fortescue’s $US2.4 billion ($3.55bn) capital spending budget for the year, the two major projects it has under construction, and the industry-wide push to improve productivity through automating mining operations.

“The mining sector across the board is paying significant dividends. There have been big share buyback programs — some of that on the back of asset sales. But we’re also investing significantly in the future our business,” she said.

“We’ve announced over the past 18 months two significant projects, Eliwana and Iron Bridge, totalling $US3.875bn — creating 5000 jobs during construction and 1400 jobs once operational.”

Ms Gaines said Fortescue’s decision to invest in growth and innovation had positioned it well to thrive through the commodity cycle, but said the federal government needed to examine its own policy settings.

“If you want to encourage investment then you need to have the policy settings in place that mean companies can invest with confidence. Some of that is around approvals — for example, cutting some of that red tape is important … ensuring you have access to the right people and the right skills, particularly if you want to develop down the innovation path and do R&D,” she said.

The boss of BHP’s Australian operations, Mike Henry, said the company supported the federal government’s renewed focus on productivity, but said both industry and government had a role to play.

BHP is building a massive new mine in the Pilbara, South Flank, worth $US3.6bn, and has recently flagged a $US800m push to roll out autonomous haul trucks across its Queensland coal mines, hoping to replicate the success of the technology in iron ore, where driverless trucks have reduced accidents and delivered productivity gains of up to 20 per cent.

“BHP will continue to make disciplined investments in its Australian operations, supported by a focus on technology and innovation, as we seek to create value for both Australia and our shareholders over the long term,” Mr Henry said, when questioned on the Treasurer’s comments.

“Business and government have a shared role in making sure Australia remains internationally competitive, and we look forward to pursuing further productivity improvements.”

In his speech yesterday, Mr Fydenberg also ruled out revisiting cuts to company tax rates.

However, Ms Gaines said the federal government should consider tax policies in other areas to help stimulate the economy.

“We take on board the fact that corporate tax cut is off the agenda, but there are other means by which the government can help companies invest with confidence — accelerated depreciation for certain investments, and a genuine R&D incentive that encourages innovation, I think, are really crucial,” she said.

Rio Tinto also defended the industry’s record on investment, pointing to the more than $10bn in capital spending the company has allocated for its Australian operations, much of it on technology-intensive growth.

“This year, we’ll begin the construction of our most technologically advanced mine — the Koodaideri iron ore mine in Western Australia. We’re investing $3.5bn in the operation, which has been designed to use the latest techniques in automation and digitalisation, making it safer and more productive while ensuring it creates value for businesses and communities throughout Australia,” he said. “We are also spending $US3bn on sustaining capital in our Western Australian iron ore business, from 2019-2021.”