Why corporates must make a case for tax reform

Minister for Immigration Peter Dutton. Picture: AAP

Peter Dutton has a knack of saying what many Australians think. Fellow Liberal MPs may nod their heads in agreement, but they rarely speak up as the Home Affairs Minister does. Last weekend, the Queenslander criticised corporate Australia for posturing over social issues rather than focusing on issues that improve the lot of shareholders.

It is a timely observation because the Turnbull government has a chance in coming days and weeks to add some real bite to Dutton’s spirited bark.

There are two reasons the government should quickly dump the corporate tax cuts for big business. Without bipartisan support, the Coalition is on a political hiding to nothing if it pursues a company tax cut from 30 per cent to 25 per cent for companies with a turnover of more than $50 million. The Senate is determined to vote it down and there is growing resentment towards the proposal within the government, too.

Malcolm Turnbull and Scott Morrison can rid the government of this political headache and, more important, deliver an overdue lesson to big business, which had this coming for opting out of politics and policy. If well-resourced Australian companies won’t make the case for policies that boost their bottom line and benefit shareholders, don’t expect government to wear the political pain for their gain.

It is true that the Prime Minister’s retail political skills amount to spasmodic waffle compared with Bill Shorten’s cut-through lines about “better hospitals, not bigger banks”. If more voters were convinced about the case for corporate tax cuts, more vote-grabbing crossbenchers in the Senate would agree to this ­tranche of tax reforms.

That said, the Opposition Leader is backed by rich and focused unions driving home Labor’s agenda, with additional help from GetUp!. Turnbull has his Treasurer, Morrison, and a few ministers who occasionally mutter about the benefits of tax cuts for “jobs and growth” — three words that relegated the Turnbull government to a one-seat majority at the 2016 election. The government’s cupboard of powerful political supporters is otherwise bare.

The historic shift by corporate Australia away from sensible economic policy and towards social policy comes at a high price, not only for companies but also for our future prosperity. In the most recent World Economic Forum’s global competitiveness index, a survey of our business leaders pointed to rigid industrial relations and uncompetitive tax rates as among the biggest problems for the country. But why take their gripes seriously if they don’t engage in policy battles to make the case for reform? There is something seriously rotten in the state of corporate Australia when big companies put their name to full-page newspaper advertisements in favour of recognising indigenous Australians in the Australian Constitution (even before the means of recognition has been settled) but say nothing about tax cuts or industrial relations reform.

How can we hope to compete with Chinese companies focused on maximising shareholder wealth when Australian chief executives and directors have their eyes on gender targets, diversity plans and the so-called social licence to operate? It is a train ride to economic demise.

Here’s what BHP says about its approach to corporate participation in political activities. “We do not contribute funds to any political party, politician, elected official or candidate for public office in any country.” It is not alone. Nine of the top 20 ASX-listed companies no longer make political donations, up from six last financial year.

National Australia Bank stopped making political donations in 2016; a year earlier NAB donated $91,600 to the Liberal Party. When companies do donate to politics, they want to look fair. ANZ donated $300,000 in the last financial year, splitting it equally between Labor and the Liberal Party.

This all sounds terrifically fair on paper but it’s plain dumb in practice. Arguments that donating money to one side of politics may offend shareholders who vote differently don’t rate over at unions, where money from members flows freely to Labor regardless of how union members vote.

There are also questions as to whether directors, who call the shots on donations, are acting in the best interests of shareholders when they opt out of politics or divvy up donations equally.

It is surely contrary to shareholder interests if it results in poor economic policy that drives down shareholder returns.

When one party has a policy of tax cuts for big companies and the other party is opposed, it is a no-brainer to support the former.

Alas, business has withdrawn from politics for myriad reasons. Industry super funds routinely tell boards of companies they invest in to stay out of politics, while the industry funds are tethered to politics through union leaders on their boards. Most corporate chief executives are a risk-averse bunch, scared of retribution if they stick their necks out, and more concerned with tomorrow’s media headline and next year’s bonus than long-term policy.

There are exceptions but, sadly, not enough to get serious public traction.

The result of corporate Australia’s supine approach to corporate participation in political activities is that the political playing field has never been more uneven. And the upshot is increasingly unhealthy politics, and poor policy, in the future.

Shorten’s political success, even though voters dislike him personally, is the direct product of powerful unions and a weak business community. He has declared war on Australian companies because he can. Without pushback from corporate Australia, Shorten or the next ALP leader and the union movement will only ramp up economically disastrous class-war politics. And in a vacuum, Labor will win over even more voters.

Even if business leaders don’t want to make donations to political parties, they could become serious contributors to economic debates. It would be in the best interests of their shareholders, for example, for boards to donate much more money to the Business Council of Australia.

Jennifer Westacott does a terrific job at the BCA. She understands the consequences of corporate Australia being on the nose.

Issues that once were settled — that big and small businesses create jobs and together drive the nation’s economic prosperity — are now highly contested in public debate.

But starvation rations from corporate members means that the BCA barely touches the sides of these debates compared with vast amounts of union money that explains union influence.

And then there’s the Australian Institute of Company Directors, a flimsy shell of its former self under Elizabeth Proust’s leadership. Her history as a staff member to Joan Kirner, dubbed Mother Russia during her time as premier of Victoria, should have been a clue to AICD members that she was a poor choice as AICD president.

They can hardly be surprised that Proust refused to throw AICD support behind the Turnbull government’s corporate tax cuts. Her argument that the AICD supports future comprehensive tax reform instead of corporate tax cuts on the table right now is an insult to corporate Australia. It’s like saying I’d prefer to dream about winning a Ferrari in a lottery than take a free BMW on offer today.

But in the end, you get what you pay for. Pay peanuts and you get monkeys.

And that is what the country will get from both sides of politics if corporate Australia maintains its silence on economic policy. The long-term danger is that not even the Liberal Party will support tax cuts and other sound economic reforms, now or in the future, because the biggest beneficiaries go missing in action.

[e-mail]