31 January 2018

Address to the Sydney Institute 2018, Sydney


Old Wine In New Bottles – Strengthening Liberal Values

I want to thank the Sydney Institute for the invitation to address its first dinner event for 2018.

Think-tanks like the Sydney Institute are enormously important in playing a role in promoting and deepening the national policy conversation.

The twittering phenomenon has many fans and skilled practitioners, not least of whom is the Tweeter-in-Chief, but the downside to social media is its tendency to polarise thinking rather than be an illuminating influence.

A cranky mob can lead the debate down the regrettable path of anonymous mudslinging and vitriol which is detrimental to longer-term policy development.

I will refer to this in relation to taxation, which is the softest of soft targets, further in my speech this evening.

In any case I do think think-tanks like the Sydney Institute are ever more vital for the more thoughtful conversations properly grounded in public policy issues.

I want to talk this evening about the enduring values of the Liberal Party within my portfolio areas of responsibility with reference to the founder of the party, Sir Robert Menzies, who was a more progressive Prime Minister than many people give him credit for.

For example, Menzies appointed the first woman, Dame Enid Lyons, to Federal Cabinet.

And among a raft of social measures to improve the lives of women in Australia, the Menzies Government also founded a special policy unit in 1963 to monitor and promote women’s employment in the Department of Labour and National Service.

This unit evolved into the Women’s Bureau by 1968, it monitored trends in women’s employment which was undergoing a fundamental and permanent advancement at that time.  The Bureau’s work also included the examination of equal pay and childcare policy for the first time.

During the recent reshuffle the current Prime Minister saw fit to give me two new portfolio responsibilities in addition to my role as Minister for Revenue and Financial Services.

These additional responsibilities make me Minister for Women as well as Minister Assisting the Prime Minister for the Public Service.

It might seem an eclectic mix, but I am thrilled to have these important responsibilities and believe there are some obvious synergies.

For example, as Minister for Financial Services I work closely with ASIC to improve financial literacy education in Australia and I want to make improving financial literacy among women as well as economic empowerment priorities as minister.

Poor financial literacy is an impediment to the independence of women - it narrows life options for women.

We also know that financial problems are a primary source of family conflict.

Even marginal improvements in this area, particularly when teamed with this Government’s commitment to boost women’s participation in the workforce by 25 per cent by 2025, can have a real, practical and measurable benefit for millions of women and their families.

Improved financial literacy, the ability to seek out good independent advice, and having active engagement with financial matters can give women greater choices and control over their lives and enhances their standard of living now and into retirement.

And there are synergies between the Women’s portfolio and the Australian Public Service which, after a hiccup or two in earlier decades such as forcing women out when they married or fell pregnant, has arguably done more for the professional advancement of women than any other single institution in the country.

Today, women make up 59 per cent of the Australian Public Service employment overall, and 43 per cent of the Senior Executive Service.

Eight out of 18 Departmental Secretaries are women and 43 out of 106 Agency heads are female.1

As Minister I want to work to find ways that further accommodate the professional and career needs of women in the public service, and in Australia more broadly.

Turning back to my role in taxation.

Over Christmas I took some time to re-read Robert Menzies weekly radio talks during World War II for a chapter I am writing for a forthcoming book.

While Gerard Henderson’s book, Menzies’ Child, remains the seminal work on the history of the Liberal Party, Menzies’ wartime radio talks were essentially Menzies mulling over whether or not to have that baby.

The exercise was cathartic for someone who was at that time a failed Prime Minister, yet it was through this writing and speaking that Menzies drew together the threads of a political philosophy that was to guide the Liberal Party from its actual formation three years later to the present day.

Reading over those talks again, though some are dated and others discuss social norms of a past era, the core political message speaks to contemporary Australians just as they did in the darkest days of World War II.

They speak to the great bulk of Australians who love their country, who work hard at their jobs and in their businesses; who pay their taxes; who contribute to their communities and help out in times of bushfire, cyclone and flood; and whose paramount concern is their children’s and grandchildren’s future.

And it speaks to those Australians who believe in their right to retain as much of their hard-earned income as they can, and who aspire to a better future for the generation that comes after them.

These are the people the Liberal Party has always stood for.

The values Menzies articulated in 1942 – personal and community responsibility, work and family, security, liberalism, patriotism, thrift, enterprise, opportunity – are enduring values we share today.

As Minister for Revenue I know that then, as now, excessive taxation saps the entrepreneurial spirit and the incentives to work hard and to get ahead. 

It saps the motivation to build, to invest and to innovate, and ultimately it denies people the jobs they deserve.

Menzies understood that even in wartime.

Singapore had fallen a few weeks before his first broadcast, food rationing was being introduced and the whole nation’s industrial complex was being mobilised for the war effort.

Nevertheless, Menzies was casting forward to the tasks of restructuring “after the war”, and the kind of nation Australia should become.

Menzies’ new political philosophy spoke to the “forgotten people”, as encapsulated in his Forgotten People speech.

Fast forward to Australia today, when it comes to tax, who are the forgotten people?

There is no shortage of people who would put their hands up.

Everyone thinks they pay too much tax, even those who pay none, and everyone seems to point to another group who should pay more.

And it is easy for various non-governmental organisations, union and church groups, that all enjoy privileged tax-free status, to take pot shots on who, other than them, should be paying more tax.

You only need to look at the twittersphere and their campaign blogs to see their answer -  which is ‘companies’ or ‘business’.

All taxpayers should be paying the tax they owe to the Australian people – and this is especially true of overseas companies that earn money here. 

Any perception that the tax system is unbalanced and unfair erodes tax morale and robs the community of revenue to provide services and a safety net to the vulnerable.  Hence the Turnbull Government’s strong tax integrity measures that are already adding more than $7 billion in sales revenue to our tax base annually, and have caused 38 multi-national companies to change their tax affairs.

But the truth is that while the higher tax cheer squad talk about increasing business taxes, the rest of the world are reducing those taxes, including the United States, the United Kingdom, France and Belgium.

The United States corporate tax rate is going from 35 per cent to 21 per cent; the UK’s has gone from 30 per cent to 19 per cent today and 17 per cent by 2020.

The OECD has reported that the average corporate tax rate in OECD countries has fallen to 24.7 per cent in 2016 – and that was before the US dramatically reduced its corporate tax rate.

Why are they doing this?  Because business taxes raise the cost of investment, lower wages and cost jobs. They inhibit economic growth and drag down living standards.

Whilst some like to pretend that corporate income taxes mean that ‘business’ rather than ‘people’ pay the tax, the fact is that the payments that businesses remit to the Australian Tax Office don’t really tell you whose bottom line is affected by it.

It could be the company’s shareholders, including superannuants, in lower dividends.

It could be the workers in lower wages.

The tax could be passed through to consumers in the form of higher prices.

Or it could be some combination of shareholders, workers and consumers.

And yet the policy discourse, or what passes for it, pretends no one is hurt by high business taxes.

Well, Menzies knew better!

When he delivered his broadcast on tax on 31 July 1942, Menzies was critical of Labor’s proposed policy to limit profits to 4 per cent, after which the Government would take the rest.

Menzies knew this was naïve, unworkable and displayed a misunderstanding of how business worked.

But he wasn’t arguing the case for the well off, who he said were fully able to look after their own self-interest.

Rather he was arguing the case for the people the companies employed, the share holders, the people who saved to build share portfolios in Australia’s public companies. In his own words:

“I am not a bit concerned to defend the position of the rich. As I’ve said to you on previous occasions, they can as a rule look after themselves, and their hardships are in any case relative and not absolute. But I am concerned, and increasingly concerned, with the ordinary middle range of people in this country, those who are not rich and yet, urged on by a spirit of independence, endeavour in spite of every parliamentary discouragement, to provide for their own future.”

Sadly, Labor doesn’t seem to have learnt their lesson. 

At last count the Leader of the Opposition Bill Shorten had committed to $164 billion in additional taxes on the Australian economy, including higher company taxes on small and medium sized businesses in particular.

The reality is, when in government the Labor Party has an addiction to spending your money, and their solution to dealing with their addiction is to take more of your money from you in taxes.

You know and I know that is not going to solve the problem of politicians with an uncontrollable spending habit – it will simply fuel it.

We must remember that it will be lower and middle income Australians who will be negatively impacted by higher taxes on business.

As the latest international study published in the flagship American Economic Review has revealed, high company taxes reduce the wages of low skilled and marginalised workers.

As Richard Holden, Professor of Economics at UNSW has said “cutting the Australian company tax rate from 30 per cent to 25 per cent is not just good for business, and workers, it also helps redress economic inequality.”

Recent analysis by the International Monetary Fund also confirmed that company tax cuts would be a key growth driver for the US economy, and international growth.

These findings expose Bill Shorten’s argument that reducing company tax rates only benefits the big end of town as self-serving and false.

Just like Menzies the Turnbull Government does not advocate tax cuts as a gift to large business enterprises, but because those enterprises can employ more people, are a vehicle to higher wages and better jobs for Australians, and because these tax cuts benefit shareholders and every person in Australia who has a superannuation account.

Whilst we have had success in legislating a tax cut for small business to 27.5 cents in the dollar, it is by no means guaranteed.

Despite the fact that small business employs around 5.6 million Australians, Mr Shorten managed to dodge a commitment to keeping their tax cut in his pitch to the nation yesterday.

He refuses to back in the job creators in our economy.

And this is despite the success of such policies, which has seen employment grow by 400,000 jobs in the last 12 months.

Whilst we have had 26 years of uninterrupted economic growth, continued growth is by no means guaranteed.

As Bill Shorten revealed yesterday he doesn’t have a growth plan to expand our economy, create jobs and increase wages. In fact, he would do the opposite by slugging Australian households and businesses with a crushing $164 billion in taxes.

If we do nothing to put in place the right policy settings for continued growth we will go backwards, along with the opportunities for future generations and our living standards.

Menzies understood this and so do we.

The Turnbull Government is also committed to cut personal tax for middle income Australians, to contain cost of living pressures in this time of economic transition and encourage skilling and enhanced participation in the labour market.

We have already made a down payment on this by lifting the threshold where the 37 per cent marginal rate kicks in from $80,000 to $87,000.

This has helped more than 3 million Australians.

And we want to do more to encourage people to work harder, knowing that they will be rewarded for their effort.  We also know we have to balance this with our important responsibility to balance the budget and pay back debt, after all, debt is simply the future taxes on our children and grandchildren.

Bill Shorten, by contrast, would increase the top tax bracket to 49.5 per cent, one of the highest tax rates in the OECD, putting a nail in the coffin of aspiration, hard work, enterprise and self-reliance.

Menzies’ concern for those striving to provide for their future is reflected today in ensuring our superannuation system is sound and fit for purpose.

Longer healthier life spans require our superannuation system to do a better job in preserving members’ money and interests. And as technological advancement continues to disrupt existing business and employment practices, our regulatory institutions must adapt.

People have a right to know what is happening with their money, how their money is being used, whether it is being used to fund political campaigns or being siphoned off to associated bodies such as unions or industry organisations.

They need to know if there are being ripped off with high fees that don’t deliver benefits.

This is especially the case in a compulsory superannuation system where the government says you can’t have almost 10 per cent of your wages until you retire.

That is why the Turnbull Government will continue to prosecute the case for greater transparency in superannuation funds, so that superannuation members can have the right to know what is being done with their retirement nest eggs.

In 2017, the Turnbull government introduced into Parliament a comprehensive package of reforms to Australia’s $2.5 trillion superannuation system squarely focused on protecting members’ money and interests.

People also need choice about where they put their money.

Despite Parliamentary discouragement, to borrow Menzies’ expression, the Turnbull government will continue to put workers interests ahead of vested interests in this increasingly important part of Australia’s financial system.

True to its founding father, the Liberal Party’s economic and political philosophy remains anchored to promoting enterprise, personal initiative, and economic freedom.

Menzies political genius was his ability to identify, to understand and to stand by the values of hard-working Australians, who strove for self-reliance and better lives for their children.

From those values he devised the political credo of the Liberal Party that still stands the test of time.

1. As at October 2017