4 June 2016
by Stephen Koukoulas
There is a budding theme in the election campaign that the Labor party is “at war with business” because it will reject Coalition policy cutting company taxes and will hold a royal commission into the banking sector.
But it’s time to nip that false perception in the bud.
The anti-business Labor hyperbole and the implied pro-business credentials of the Coalition flies in the face of the performance of the corporate sector when each side of politics has been in government over the past eight years.
An anti-business government would drive business investment and company profits lower, while a pro-business government would do the opposite.
Australian Bureau of Statistics data released over the past few days shed a stark light on private sector business investment and company profit trends over the past few years. It shows that rather than being anti-business, investment and profits boomed under Labor, and rather than being pro-business, they have collapsed under the Coalition.
In the two and a half years since the 2013 election, company profits have fallen 11% to their lowest level since 2010. This has occurred with the global economy registering decent growth and interest rates at record lows. In the six years of Labor government to 2013, company profits rose 28% despite the global financial crisis which plunged the world economy into a deep recession.
On business investment, the credentials of both sides of politics are even more extreme. Since the September 2013 election, private sector capital expenditure has fallen a thumping 26% and the outlook for the next year is for a further fall of between 5% and 10%. The fall in business investment is set to be more severe than during the early 1990s recession.
Under the previous Labor government, business investment rose a robust 67% to reach a record high proportion of GDP. It seems the policy settings which included the carbon price and mining tax did nothing to discourage the private sector from going out and investing.
So much for Labor being anti-business with its emphasis on better health and education, and the Coalition being pro-business with its planned tax cuts.
The election debate is framed as tax cuts being good for business, which of course is true. They will pay less tax on a given profit level and the cuts are simply a transfer of tax revenue to shareholders at a cost to the budget bottom line. Treasury modelling suggests GDP growth will be 0.1% higher as a result of these cuts, which means an almost zero impact on employment.
What is ignored is the business benefit of Labor’s plan to build a better educated and more highly skilled workforce. We would be less likely to see a repeat of the skills shortage that dogged the economy from 2005 to 2008 if workers had more skills and were better educated. Higher skills also equate to higher incomes and productivity. The OECD calculates that a fully educated workforce in Australia would add 2.8% to GDP over the medium term.
Suffice to say, both sides of politics realise that the private sector is vital for economic and productivity growth. The fact that the business sector did so well under Labor and has been hammered by the Coalition suggests that Labor could be more pro-business than is assumed. After all, it did rescue the economy from recession with its fiscal stimulus when the GFC was in full swing.
It is absurd to suggest Labor is anti-business, given the recent track record, but this will probably not stop those hankering for a Coalition election win from saying it as vocally and as often as possible, even though the facts suggest the opposite is more likely to be true.