12 May 2021
Laura Jayes: Hello, I'm Laura Jayes and welcome to PwC Australia's federal budget podcast, the 2021 budget has been handed down by the Treasurer, Josh Frydenberg. So I caught up with PwC Australia's chief executive, Tom Seymour, to discuss how the budget will help propel the nation from a state of economic rescue to a position of economic growth.
What do the announcements mean for the future of Australia's economy, society and you? Let's find out.
Tom Seymour, good to see you and thank you for your time. The government has said that this budget will seek to drive unemployment below five per cent. Has it got what it takes to do this?
Tom Seymour: I think it has. It's got a couple of different levers when you sort of work through it. There's a big jobs package in terms of training, apprenticeships extended, so a lot of stimulus packages that go to employment. So that's the first sort of element. But if you then look at where a lot of the spending is going on initiatives in terms of areas; childcare, health care, aged care, NDIS, they tend to be large employers, they’re very service orientated industries.
So as that money gets spent and stimulates those sectors and provides those additional services, that's also going to drive increased employment. And then probably the last bit is female participation, because you've got to create the jobs. You've got to have the people there to actually fill the jobs and one of the issues that we're hearing from a lot of businesses at the moment is they can't get the people.
So the workforce participation around childcare that links into more females coming back into the workforce. If that works, there'll be almost a supercharged element to that at the moment because there is actually real demand for people at the moment.
So if you sort of look at that and you put the different levers together, both from the sort of, you know, the incentives and the training side to just where the money is getting spent, it's in quite labour intensive areas. So you stand back from that and it does give you quite a high degree of confidence that the unemployment rate will go down.
Laura Jayes: Will there be a flow on effect to the private sector?
Tom Seymour: There will be a flow on effect but ultimately, one of the things that sort of is a problem still in the economy is low business investment. So if you look at the business investment, it's really now at its lowest point in the last 30 years, 40 years. And ultimately those government funded support services to Australians which are critical, will create jobs, but they're also baking in long term fiscal expenditure for the government.
You want to see jobs that don't require government expenditure in the long run and that will come from business investment. And that's that's a bit of a gap still in the budget. And it's well before the budget, and it was a gap prior to COVID frankly. That remains a problem in Australia and that hasn't been solved in the budget.
Laura Jayes: There's no structural reform. What we see is recurrent expenditure for CEOs. What are the top three things Australians say should sit up and take notice of in this budget?
Tom Seymour: I think everyone will be interested in the extension of the immediate asset write off, that does encourage what I'd refer to as, I think, the medium term investments. So is that going to encourage someone to build a new 500 million dollar facility?
No, but will it upgrade tools, upgrade technical equipment and offices, etc. I think that will see what I'd call kind of small ‘i’ investment, and that will be something people sit up and take notice of. Together with probably the second one will be the change in how you can claim a deduction for a tax deduction for software. Most businesses, large and small, they're IT costs have gone up rapidly through covid. You know, their customers are buying more things online. The staff are working more remotely, all those sort of good things. As your ability to sort of write off your expenditure on software at a quicker rate, I think that will get a lot of interest.
I think that the last one is that access to talent. When I go around, talk to CEOs at the moment, the most common limiter on growth, put aside the really kind of negatively affected areas of the economy through COVID like travel, international travel, etc. but most of the economy is doing pretty well and the biggest limiter is access to people and access to talent. And I think certainly already today, a couple of CEOs have said, how do I tap into the female workforce better with some of the stimulus.
Which is why I do think that will drive unemployment down, but also provide a real boost to the economy if that can work. So they're probably the three; access to female talent, the investment allowance and then how you treat your technology costs.
Laura Jayes: This budget had to look inwards because our borders are closed. And that talent pool that you speak of, what sectors do you think this budget and this government identifies are the ones that are going to propel that growth?
Tom Seymour: I don't think anyone expected immigration to come back tomorrow. Everyone understands that keeping Australia safe and managing the health crisis requires us to have a sensible approach on borders. What I would have liked to have seen, though, is a statement in the budget that says when it is safe to reopen borders, per the assumption in 2022, the government's going to go to a position on immigration, which, for example, doubled immigration that was at pre-COVID levels to catch up on the million lost.
And I think we're going to have to get to that at some stage in that access to talent. Businesses like ours we move probably 1000 people in and out over the year. And secondments around the world when it's busy in the UK, we send people there, they send people back here.
That's all stopped, we've heard about the rural challenges around workers on rural hospitality struggling, but I think people go to hospitality and rural; it's actually the services sector struggling.
Cyber is a massive opportunity. It's a challenge for the world, but it's an opportunity for us as a well-educated workforce to be the cyber professional hub of Asia Pacific. Very hard to get people into that, foreign students have stopped, so I think that immigration piece is a really big question mark.
Laura Jayes: So is this special skilled visa category as it stands sufficient given the new environment?
Tom Seymour: I think it's got to be expanded. The government is doing a lot of work, like the Peter Verwer, the special envoy to the PM, is focusing on talented Australians, that's right at the sort of pointy end of the pyramid. So really kind of high net wealth or sort of uber talented people and the sort of very pointy end.
But there's a big sort of slice below that where you've got, you know, tradespeople, professionals that will go in and be really productive not only in earning income, paying tax, but creating the sort of the skills ecosystem that you can build out around other sectors. So I think they've got to go a lot further on that.
Laura Jayes: The budget does help business embrace digital opportunities as a $1.2 billion package that's for upskilling artificial intelligence, enhancing government services, unlocking the value of the data economy. How does the country take lessons from COVID-19 to help accelerate that digital transformation?
Tom Seymour: I think businesses are rapidly doing that at the moment in terms of how do you have a whole different approach to how you manage your data. I'll give you one example and it sort of links to the cyber issue and it's a huge opportunity for Australia in a sense.
Where businesses now and governments want to know where the data is all the time. And if you ask a lot of CEOs two years ago, do you know where your data is at any point in time? Most would probably tell you they don't. If you don't know where your data is and you have a cyber attack, you don't know how to respond to the cyber attack.
So where is your data that's now led to a risk based conversation about, well, do I want my data offshore or onshore? And Australia is seen as a really safe destination for housing data, which leads to data centres, which leads then to having large data centres, you then tend to have ecosystems built around those data centres, which are high tech, data driven, new industries; new era industries. So I think there is the opportunity to do that, but it comes back to skills and access to talent.
Laura Jayes: Let's talk tacks. It does seem reasonable that the government wouldn't go down the path of wholesale tax reform at this point. But what conversation does need to be had?
Tom Seymour: Wholesale tax reform is inevitable. It's just a question of when in my view. Australia's tax base is totally atypical for the economy. We're very reliant on profits based taxes; that's both corporate tax and how you tax individuals; if you think about salary and wages as an individual way of earning profit so that drives our tax system.
At the corporate level the issue with that is a lot of our economy is very cyclical. And now you see this year it's been a big windfall gain for us because iron ore prices have gone up. I think for every ten dollars, an iron ore price increase it delivers is about one point three billion in extra tax revenue. Great, now, but if iron ore goes back down, it's not so good.
So managing a revenue base, which is highly cyclical, that's very exposed to that, makes it sort of a risky proposition. And then at the individual personal tax level, we've got an ageing population. So the amount of people actually paying taxes shrinking every year as people retire.
So the need for the revenues is increasing, but the base is shrinking. That will have to push Australia to a more broad based consumption tax shift. It has to, over time. It's a question of the burning platform. When the burning platform gets so hot, it can't be avoided, in my view.
Laura Jayes: As a tax expert. How did you react to some of the measures that drive down compliance, maintain growth and ensure fiscal management? What did you identify those management issues as?
Tom Seymour: The changes announced in the budget around providing greater certainty are really positive. Businesses like certainty. They want lower taxes, everyone wants lower taxes. But what they don't want is starting off on a plan where they think taxes are going to be five dollars and that ends up being eight dollars.
So the mechanisms around certainty and there were two in the budget; one was around for small business, the ability to intervene in disputes with the tax office and then for large business, like it's almost a concierge service. I think they're good, they're good measures. Time will tell how effective they are, though, because you're still dealing with the same regulator. But I think they're a good start.
What I would say there was another announcement in the budget where another 130 million dollars for the deregulation agenda or the modernisation of regulation. One of the I think almost free options for the government, at least from a fiscal perspective, is a massive focus on modernising regulation in this country.
Ben Morton has been leading this on behalf of the government, an example that they have done is if you're a tradesperson, doesn't matter what state you are, you'll have national recognition of your licence. That gives mobility of talent, so if you're a plumber in Byron Bay and you want to move to Brisbane, you can do it and you don't have to reapply. So it makes it easier for people to move, but it also makes it safer for consumers as an example, because if you're a bad plumber in Byron Bay they'll know you're a bad plumber when you get to Brisbane.
So I think that's a simple example but one of the really strong pieces of consistent feedback we get from our global clients is that Australia is a materially more difficult place to do business than places like the UK and the US. And an example of that, I think you're seeing play out a little bit at the moment is property prices. So property prices are running, how do you increase and speed up supply of property to the market? Well, it's regulation, so modernising and streamlining regulation, not taking it away because regulation has an important role to protect communities, environments, etc. But how do you modernse that process and improve it and speed it up. If governments can do that and actually save the money, it would have a massive economic dividend.
Laura Jayes: Well, that said, what was missing from the budget?
Tom Seymour: I talked about a strong positive statement on immigration intent. And look, that could come outside a budget setting as well. But certainly if you look at the forward estimates, it's not in there.
There's not a lot missing from an expenditure perspective. This is a big spending budget, so it's hard to sort of sit back and go, well, I could have spent money on this or that. I think they missed an opportunity with fringe benefits tax around CBD that was talked about a little bit leading into the budget, certainly I was pushing for it.
I think CBD’s are under pressure at the moment with the new remote working model. Most businesses are running at sort of 60 percent of capacity to what they were before with staff working from home a couple of days a week.
If you're a cafe, a coffee shop, a bar, a hairdresser, I think exempting some sort of fringe benefits tax, even if it was temporary, to stimulate two things; one, people spending, but two, employers trying to encourage people back in. I think that would have paid for itself, frankly, for the government.
Laura Jayes: And finally, what's a small measure that maybe didn't get so much press that will actually make a big difference?
Tom Seymour: Look, I think two; the $10 extra per day for aged care is immediate, that will hit as of budget night money flowing into the economy. So I think that's a very quick win to a targeted area that needed it. So it's probably on the expenditure side, on the policy change side, quite a technical rule; but there was an announcement around that changing how you define what is a tax resident. If they get that right, which I think they will, that will make it easier for US and European expats and executives to come to Australia and spend time here. And if we can make it easier and clearer for how they could be here and do their work from here for a while, they're probably going to stay. There's a good chance you're going to keep them, which goes back to skilled migration. So I think that's a very clever change and it's a sort of techo change, but it'll have a pretty big impact.
Laura Jayes: Tom Seymour, thank you.
Tom Seymour: Thank you very much.
Laura Jayes: Thank you for listening to the 2021 PwC Federal Budget podcast, we hope you enjoyed our commentary. For additional in-depth analysis, head https://www.pwc.com.au/federal-budget.html, where you find articles and information about the 2021 federal budget and what it means for the economy, our society and you.
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