Introductory remarks
Thank you, Eliza. I am honoured, and privileged to be the second Liberal key note speaker for the ACT chapter of the Women in Media network here at the Press Club, following my good friend and colleague, the Minister for Foreign Affairs, the Hon. Julie Bishop. Let me start by congratulating Emma MacDonald and your dedicated team on an outstanding initiative.
To my colleagues who are here today - I thank you.
As I look around the room, let me begin by asking each of you to reflect on a simple question – where will the jobs of the future come from?
Some of you will no doubt have immediately thought of IT, others of renewable energy, and others of healthcare. Anticipating the likely answer of the Assistant Treasurer, some of you will have thought of financial services.
The temptation to answer the “Jobs of the Future” question by identifying particular industries is strong - although, it places the emphasis of policy making in the wrong area.
The truth is that the jobs of the future will come from the same place as the jobs of the present, and indeed the jobs of the past. From free enterprise. From the dreams and aspirations of individual Australians, given a chance by a willingness to take risk; and seen to fruition by hard work and investment.
Even public sector jobs ultimately owe their existence to free enterprise, depending as they do on taxation revenue raised from the private sector.
I am not saying that the nature of jobs won’t change. Of course they will. Just as they have over the course of Australian history – wheelwrights and farriers giving way to car mechanics; the milk delivery service giving way to the convenience store and now evolving to online shopping services; or textile manufacture increasingly giving way to fashion design.
But it would be a grand conceit to think a government can anticipate the twists and turns. Looking back, when I entered parliament in 2009, the iPad hadn’t been released and the first generation iPhone hadn’t even turned two and a half.
That highlights the importance of focusing policy efforts primarily, and so far as possible, on allowing free enterprise to flourish in this country.
This means getting the pillars which support free enterprise right - like effective institutions, a strong financial system and a tax system which rewards effort, investment and risk-taking.
If we get the framework right, sustainable jobs and growth will follow. If we get it wrong, we are in for a bumpy ride.
Small Business – Free Enterprise at its purest
As Minister for Small Business, and as someone who worked in my parents’ small business, it will hardly surprise you that I have a particular focus on ensuring that small enterprises can flourish. But it is equally true that we need to ensure that medium and large enterprises can as well. After all, I hope that many members of my small business constituency will be able to outgrow me!
That said, any discussion about free enterprise, jobs and growth in this country must start with small business – after all, small businesses represents 97 per cent of all businesses in Australia. These businesses span our economy – from corner shops to scientific and technical services; from cafes to healthcare; from agriculture to construction.
In 2014, small business contributed around $340 billion to Australia’s economy. This is an increase of $8 billion on 2013 levels.
Importantly, in 2014, small business employed around 4.7 million people. This is an increase of 146,000 people employed by small business from the year before.
These businesses are employing people because it is in their interests to do so – not because the government has decided that they should.
These businesses are employing people because they have identified a market opportunity – not because the government has.
That said, imagine – imagine if we made it that little bit easier for new businesses to form and that little bit more attractive to start a new enterprise. Imagine if we made it that little bit easier and attractive for each business to employ someone.
Seventy-four per cent of employing small businesses employ one to four employees. If each of those businesses employed an additional employee that would create over half a million new jobs.
There are over two million small businesses in Australia. If that increased by five per cent per year for the next five years, that would create over half a million new jobs.
This would be on top of the already 300,000 new jobs created in 2015 alone.
The potential is enormous.
But small business and free enterprise isn’t just about the quantity of jobs created; it’s also about their quality.
Small business can provide the freedom and flexibility that so many women in particular say they want after starting a family. And thanks to technology, it is even easier to have a home based business. It is perhaps unsurprising then, that the number of women business owners has increased 5.6 per cent in the 12 months to November compared to 4.9 per cent over the same period for males owners.
Small business and free enterprise can unlock genuine social mobility – including the capacity to build financial security for both employers and employees.
They are also very often innovative and nimble – fulfilling society’s unmet needs.
They are also touchstones of our entrepreneurial spirit – the hardworking, dynamic men and women who have an aspiration somewhere between providing an income to support their families and conquering the world.
There is much to be done to better unleash the power of small business and free enterprise more generally in the Australian economy.
This Government has already made significant steps – not least in the area of market access, where Andrew Robb has successfully negotiated a suite of agreements with South Korea, Japan and China to open up or expand access to new markets for any number of our small businesses to export.
Given that by 2030 there will be more than 3 billion middle class people in Asia, representing over 60 per cent of the global middle class, the prize is great.
The Government has cut over $4.5 billion dollars worth of red tape - much of which frustrates small business. But we are also tackling red tape a different way - with technology. The innovative work of the ATO and the Digital Transformation Office is developing a new portal that will make it easier to set up a small business and obtain the various licenses needed, whether in Toowoomba or Templestowe.
Further technology solutions to some of the problems that continue to plague small business are just some of the exciting innovations we will be announcing in the coming months.
We have delivered on our important election commitments - including giving small business the power to push back against unfair contract terms. This is one of the single biggest game changers in levelling the playing field.
During the current sitting period the Parliament will consider our world class crowd-sourced equity funding legislation that will provide a platform for small business to access Mum and Dad investors.
And just this week we have given small business a formidable advocate and a person with real powers to resolve disputes in the Small Business and Family Enterprise Ombudsman - the energetic, plain speaking and well qualified Kate Carnell AO, a former small businesswoman herself. Kate will be assembling her team for commencement in March and I am delighted Kate could be here today.
Small business and growth
But without question, one of the most important policy areas to encourage free enterprise is taxation. Tax policy affects decisions on whether to go into business.
It affects decisions on whether to grow businesses and generate jobs. It affects decisions on whether to invest. In a global world, it affects decisions on where to do these things.
In so doing, tax affects growth.
Against a difficult budget backdrop last year, we began the task of changing our tax system to unleash the power of free enterprise. At its heart was our $5.5 billion Growing Jobs and Small Business package - the biggest small business and jobs initiative in the nation’s history.
In that package we lowered taxes for all small businesses – with a 1.5 percentage point cut to the company tax rate for small companies and a 5 per cent tax discount for unincorporated entities. In this regard, it is worth noting that most small businesses are taxed under the personal income tax system rather than the company tax system – some 70%.
We introduced an immediate asset deduction to encourage investment that had small business people cheering around the country. From the night of the Budget until the end of June 2017, all small businesses can immediately deduct every eligible asset they purchase that costs up to $20,000.
This has proved very popular in practice, and stimulated real investment in the growth of small businesses across Australia. Claims by small businesses of the instant asset write-off for the 2014/15 year have increased substantially – even though the new, more generous allowances were only in place for the last 7 weeks of the 2014/15 year.
The total number of claims is up 29%; and the dollar value of the claims is up 69%. The number of claims by first year claimants is up 90%; and the dollar value of the claims is up 163%.
The instant asset write-off will continue to be available until 30 June 2017, but the benefits from businesses investing in their futures will last well beyond this time.
Importantly, we’ve also increased the pay-as-you-go (PAYG) instalment thresholds, which have removed 565,000 taxpayers from the instalment regime. Of these, around 450,000 are small businesses that no longer have to pay tax in monthly or quarterly instalments.
This week we are scheduled to introduce into Parliament a practical measure to help small businesses to more easily reorganise their affairs. Small businesses will be able to change the legal structure of their business by transferring assets to a different entity without immediate tax consequences. This will complete the package of small business tax measures announced in last year’s Budget.
We know small business innovation is critically important - and the Government’s recently announced tax and business incentives under the National Innovation and Science Agenda will encourage smart ideas, risk taking and strengthen an entrepreneurial culture in Australia.
The new measures will:
- provide tax breaks for early stage investors in innovative business start-ups; and
- reform insolvency laws which currently focus on penalising and stigmatising business failure.
The Government’s important developments are all designed to drive economic growth and jobs.
Taxation
In case you missed it though, we think there is more to be done in the tax system.
A lot more.
As we think about improving our tax system – as we think about making it fit for purpose - there are two key areas to concentrate on: structure and integrity.
The structure of our tax system includes issues like our tax mix, tax rates and tax concessions. This is where the debate focuses on what we tax, how much and what is the impact on our economy – on our competiveness, growth and jobs.
When we think about structure, we need to address topics like bracket creep, which doesn’t just hit PAYG wage earners but also small business.
Remember what bracket creep is – more and more wage earners getting dragged into higher tax brackets, getting hit with higher marginal tax rates as their nominal wages rise, even though their real wage remains unchanged. It hits those unincorporated small businesses directly, and the owners of incorporated small businesses when they seek a distribution from their businesses.
We have to get serious about tackling increased income tax from bracket creep, because it’s a tax on effort. It’s a tax on the potential rewards that encourage risk-taking. It’s a tax on the very things we need to drive our economy forward, to grow and to create jobs.
Consider this, 15 years ago, 80 per cent of Australians were paying 30 cents or less in the dollar in income tax. By next year, the average full-time wage earner will be in the second highest tax bracket.
Separate to structure, the other aspect of tax reform we are continuing to address is the integrity of the tax system – whether the system is really capturing the income, benefits, consumption and taxpayers it is intended to.
Structure and integrity are not unrelated. Some taxes are much harder to evade than others.
For example, stamp duty on land transfers is a horribly inefficient tax, but it is difficult to avoid. On the other hand, enforcing income tax in a cash economy is extremely difficult. Income tax is also increasingly difficult to enforce in a digital age where capital and labour can flow across borders to low or no tax jurisdictions.
Nothing makes fair-minded Australians angrier than having to pay more tax as a result of someone else not paying the tax they are supposed to pay.
It makes small business people angry. It makes mums and dads angry. And it makes me angry.
It isn’t right.
That’s why the Government has acted to close loopholes for multinational tax avoidance, strengthened the powers of the Australian Tax Office to enforce the law and doubled penalties on large companies that are ripping off the Australian taxpayer. These changes make Australia one of the toughest countries in the world on multinational tax avoidance.
It’s a simple matter of fairness.
Fairness for every Australian who is paying the tax that they are supposed to pay. Fairness for future generations who risk tax increases if we don’t fix the tax base.
When we came to Government, we inherited a tax system from Labor that had failed to keep pace with the changing times and with the growing importance of intellectual property, digital technology and integrated global supply chains.
Our government has changed our tax system to help it keep up – because we are absolutely committed to shutting down tax avoidance strategies used by multinationals, such as large IT or sharing economy companies, who have exploited gaps and mismatches in the international tax system.
That is why in 2014 we tightened thin capitalisation rules to stop multinationals claiming excessive debt deductions, so they pay more Australian tax.
That is why we introduced the new Multinational Anti-Avoidance Law to stop companies artificially structuring themselves to move profits from doing business here to low tax countries.
And that is why we acted to introduce a whole raft of other measures such as country-by-country reporting and the common reporting standard.
Penalties for profit shifting have also now been doubled so that large companies caught out have to pay 100% of the tax they sought to avoid. All up the ATO estimates that they will raise $700 million over the coming year as a result of the multinational compliance program and hundreds of millions over the forward estimates as a result of the Multinational Anti-Avoidance Law.
And yet Labor voted against the legislation that allows the tax office to target this sort of behaviour.
For all their big talk on tax – they put their base political interest ahead of the national interest.
Not only have we ensured that tougher laws are in place, but we’re ensuring the tax office has the resources to enforce them.
The ATO has expanded its international team. It is now larger than it was under Labor.
The Government committed to the full funding of the ATO to pursue its International Structuring and Profit Shifting project which has raised over $400 million in liabilities since its commencement. There are 43 audits of large multinational companies in progress including 12 technology companies and three in the pharmaceutical industry.
Following introduction of the Multinational Anti-Avoidance Law, which came into effect on 1 January this year, the tax office has already identified 80 taxpayers as having arrangements in the general scope of the law and a further 300 taxpayers are being profiled. Significantly, while the law came into effect at the beginning of the year, the ATO can also pursue arrangements that were entered into before 1 January 2016.
Already, the Australian Taxation Office has been approached by companies who are keen to correct their arrangements and sort out their liability to the Australian taxpayer as a result of our new laws.
This is prudent. The alternative for these companies could be significantly worse.
You only need to look to the recent ruling by the Federal Court in favour of the ATO and the Australian taxpayer against Chevron for $180 million of primary tax and around $85 million in penalty and interest, and you just need to consider that this ruling applied the old law, not the tough new laws as they stand today.
Australia used our position as Chair of the G20 in 2014 to lead the global action plan on multinational tax avoidance.
In the year ahead, the Government will continue to work with the OECD and other countries to implement other OECD Base Erosion and Profit Shifting recommendations in a way that maximizes their effectiveness.
Last week, we joined 30 other countries in signing a multilateral agreement to share tax information on the activities of multinational companies.
We are also introducing GST on digital goods and services provided from overseas and low value items which are currently exempt. This will mean that foreign multinationals can no longer choose to sell their goods or services from overseas and avoid having to remit Australian GST – from next year they will have to compete on the same playing field as local Australian businesses.
But it doesn’t stop there.
The Government is currently finalising options for a tough new tax taskforce so Australians can be confident that no stone is left unturned to ensure that businesses that operate in Australia are paying their fair share of tax on the economic activity taking place in Australia.
The Government will ensure the ATO has the resources to test the law on an equal playing field with the world’s largest companies.
This tax taskforce will be accountable to the government through transparent reporting so Australians can have confidence in the integrity and fairness of our tax system.
We will also consider changes to the law to encourage, protect and reward whistle-blowers whose information reveals artificial tax structures and misconduct.
Big business will have to get their house in order, or suffer the consequences.
While the Government’s crackdown on multinationals will raise revenue - I want to emphasise that the Government is chasing down the tax that should be paid to the Australian people because it’s right, not because it will magically fix the budget.
Sadly it won’t.
The Leader of the Opposition and Shadow Treasurer would have you believe that we can avoid the hard decisions on spending and on more extensive change to our tax system by simply tackling multinational tax.
Yet for their entire six years in office, Labor did little on multinational tax laws, including when the now Leader of the Opposition and current Shadow Treasurer were in charge of our nation’s finances.
It simply isn’t credible.
Even if we accept Labor’s own figures about how much will be raised, and I don’t, it amounts to $7.2 billion over ten years. That’s only two thirds of what we pay in interest only every year on the debt that Labor racked up in Government. And it doesn’t come close to the amount needed for Labor to finance their latest new spending promise last week – which, again, according to their own figures, will cost around $37.3 billion over ten years.
While I would love to have a look at Labor’s magic figures, it seems that for all of the Leader of the Opposition’s talk about the importance of increased transparency, it doesn’t apply to him coming clean with the Australian people and releasing the assumptions and models on which his figures are based. It makes you wonder what Labor is trying to hide.
Superannuation
I began today by talking about where the jobs of the future will come from.
Let me conclude by talking a little bit about where the retirement incomes of the future will come from. After all, we know that our population is getting older, living longer and we have challenges in the budget in the here and now.
I’ve talked a bit today about getting some of the key pillars right to support a free enterprise economy and confidence in our tax system.
It’s also essential we get the pillars right to support our retirement income system and confidence in our superannuation system.
The performance of our superannuation system has a direct bearing on millions of Australians. It is one of the three pillars of Australia’s retirement income system. It is also a growing industry. Today it manages more than $2 trillion, but this figure is projected to hit $9.5 trillion in 20 years.
What’s more, people are forced to contribute to it, and the taxpayer supports it through concessional tax arrangements.
Its size means it is vitally important to the financial system and broader economy. The fund management sector also has enormous potential to be a significant services export industry to the Asia-Pacific region, once this sector has optimized its performance.
Compulsory contributions are legislated to rise to 12 per cent by 2025. This highlights the need to get the basics right. Otherwise we will just be throwing more and more money at a sub-optimal system.
Our system can’t be just ‘good enough’ – it must be an A-grade, 21st century superannuation and retirement income system.
We want to shift the focus away from retirement balances to retirement incomes - which means an unrelenting focus on improving choice in retirement products to better meet the needs of retirees.
We want a superannuation system that delivers outcomes for those we are forcing to contribute, not just for the industry. We want a system that encourages people to participate actively, but which protects the disengaged.
That means more flexibility, greater choice in funds and products, more transparency, the strongest possible standards of governance and competition to place downward pressure on fees. It also means being acutely conscious that we need to bed down a stable system – after all – people need to make long-term decisions with confidence.
We want a system that is fiscally sustainable, with incentives that are targeted.
We want a system that can withstand financial shocks, so that members can be confident of their retirement incomes in good times and bad. Critical to this is governance and prudential regulation.
We want a system that recognizes that different Australians have different work patterns.
That means being prepared to debate innovative policy ideas like increased flexibility for catch-up contributions. If we get this right, it will begin the process of bridging the current gap between male and female superannuation balances; currently, the median superannuation balances for women are only around 65% of men’s.
And, finally, we want to reduce the complexity of the system.
These are all fundamental to an efficient and sustainable retirement income system for all Australians.
Over the coming weeks and through the year, I’ll be unveiling a series of interconnected reforms and looking to drive a debate about the changes that are necessary to deliver on that vision.
We won’t be seeking to “favour” or “go after” industry funds, or retail funds, or self-managed superfunds. We won’t be seeking to “favour” or “go after” employers or unions either. But we will be unashamedly focused on getting the framework right for the millions of ordinary Australians who are required to contribute to superannuation and rely on superannuation for their retirement income.
Thank you.