SUBSCRIBE TO OUR FREE NEWSLETTER
PUBLISHED |

Why is no-one talking about the economic value proposition?

Author:
Why is no-one talking about the economic value proposition? article image

If anything is a certainty from the Trump ascendancy it is that issues deemed unthinkable as discussion points weeks ago are now on the table, in-play and up for vigorous debate.

On balance of probability this may very well be a good thing.

On its current course, many believe Australia was on a trajectory to become a narrowly based politically correct crony economy where pay packet purchasing power for more than 90% of Australians falls to subsistence levels. 

An economy where quotas, influence peddling, insider information and patronage are in the process of relegating commercial merit to the level of a distant or quaint afterthought.

Increasingly, far too many business investment decisions are already made not on any form of commercial merit but for the influence they can buy.

Similarly, a nation of “basket weaver” college sociology graduates is not an educated workforce but simply one where expectations far outstrip ability and reality. Moreover, a society where social mobility is determined by one’s ideological victim power status destroys and perverts rather than creates commonweal value.

In the changing political environment of these “Trump Times” the business lobby has wasted no time on getting out demanding various dispensations and special concessions citing US President Donald Trump’s proposed policy initiative of reducing US federal corporate tax to circa 20% or less.

To remain commercially competitive, so the argument goes, Australia must also substantially reduce corporate tax rates.

Dire Armageddon style warnings of huge job losses, reduced business investment and a sci-fi channelled wasteland are issued with well-rehearsed gravitas should the sermons not be duly heeded.

When any western business group claims their only path to profitability or even survival depends on unfettered access to third world cheap labour, the lowest of the lowest taxes and protected oligopolies one must wonder if they are even trying to create new wealth or just focused on re-diverting existing wealth with as little effort as possible?

Further, the use of camera palatable public spruikers who may never have needed to work for a living or never taken a commercial risk in their lives.

But why is no-one talking about the economic value proposition?

The value proposition is creating new industries or rebirthing more mature industries. It is about producing the best quality engineered products (including IT software, 3D Printing, advanced robotics) with the most efficient advanced manufacturing techniques and processes.

It is about successful marketing and selling these products to the world.

Minor revolution

To bring about such success will require a minor revolution in businesses organisational development and close cooperation between Governments at all levels, unions, and business lobby groups along with education reform.

The notion Australia can remain a wealthy first world nation with meaningful worker purchasing power depending on a mining/agricultural economy is misguided in the extreme.

Keep in mind concessions to bigger business whether in the form of lower taxes or anything else where no corresponding commitment or obligation to greater effort and new wealth creation typically feed into the laziness quotient and not renewed commercial vigour or innovation.  

The concessions and any net gain resulting from them are often frittered away resulting in exponential salary growth in the executive suite and generous gifts and patronage to a small inner circle.

Similarly, the more “guaranteed” commercial outcomes become the more the executive clique descends into the realms of extravagantly paid cocktail party socialites and entitlement obsessed lobbyists.

Insurmountable challenges

The curve of managerial/organisational optimisation plots the amount of commercial hard work and risk required to achieve a certain notional return. Beyond a certain point the commercial hard work required just isn’t worth it as conditions present an oversupply of insurmountable challenges.

Yet the reverse also holds true where the players have such a low threshold of tolerance for any commercial challenges (such as in the case of say oligopolies, cartel pricing power and cosy Government deals) that the most minor challenges are viewed as unspeakable impositions.  If it isn’t easy and risk free it’s not worth doing.

For Australian business, this is among the bigger attitudinal hurdles to be overcome.

Moreover, the many harmful economic distortions that have crept the Australian economy such as an international real estate money laundering service for illicit profits causing real estate prices in our small market to go ballistic also include perversions in business structure and employment. Minority group community liaison officers are paid more than three times the average wage.  Many senior construction engineers are not paid that much.

Today, Government and NGO executive jobs are often better paid and more numerous than private sector executive jobs.  Unthinkable 10 years ago and an indicator of a heavily distorted economy.

Flurry of administrative orders

To be sure, while President Trump has begun his Presidency with a flurry of administrative orders the much bigger and more complex undertaking of re-working the tax system cannot be handled administratively. It will take time and will require a majority vote in both houses of congress as well as drawn out debates through various house and senate committees.

One suspects leaks to the press will be frequent, fantastic and imaginative stoking the fires of high drama, political opportunism and tortuously trod political pathways will be the norm.

The reworking of any tax system in any advanced-mixed economy is a mammoth task.  Those who believe it is easy are stupid.  Those who believe it’s all a case of a magical balance between pulling levels, pushing buttons and flicking switches are among the ranks of the bravely misguided. Those who are prepared to attempt it and painstakingly work through all the issues are merely persons of great courage and unbridled optimism.

If corporate taxes are reduced, then either compensating revenue raising taxes must be introduced or the Government goes into deficit or services are cut. Raising taxes elsewhere in the economy simply moves the burden around and does not actually solve anything or create a situation of general utility.

The bigger the tax cut the larger the deficit it produces.  Alternatively, to balance the budget the Government must reduce ongoing spending by a large amount which hits the big-ticket expenditure items such as medical care, retirement pensions, defence, upkeep of roads and bridges among others.

Minority lobby groups

One area of expenditure President Trump may target is the estimated $50 plus billion annually that is handed out as political patronage to radical misandrist feminist and sundry activist minority lobby groups – not to mention the hundreds of thousands of Government artificial patronage “diversity” positions and jobs.

In the possible event President Trump succeeds in substantially reducing the US corporate tax rate it will most surely be part of a raft of tax adjustment measures with many interlinking compensatory calibrations and wide ranging interactive knock on effects. We will need to see the details and likely practical realities before taking any action.

Moreover, Germany with one of the most competitive value add export economies in the world, for example, has a federal corporate tax rate of 29-30% but this is closer to 35%+ when regional and local taxes are considered.

With this relatively high tax rate Germany competes very successfully with nations that have a substantially lower tax rate.

How does Germany compete so effectively in the world of advanced value add manufacturing? By producing superb quality, expertly engineered, imaginatively thought through, useful, value for money products that customers want to buy. 

Could there be a lesson for Australia here?

Tax rates in isolation are not the issue and in Australia we should not allow the tax debate to divert us from the most important challenge of our times, creating a successful wealth creating value-add export economy.

David Gray is lead consultant at BizTechWrite providing export and business development advice to Australian Exporters as well as language translation and technical/business documentation services.  David can be contacted at biztechwrite@gmail.com.au

Tags

Leave A Comment

Spinning icon Saving your comment, please wait...
Spinning icon Saving your comment, please wait...