Good morning, everyone — thanks so much for that warm welcome.
I am delighted to be here today at the fifth CFO Forum, addressing the topic Fortifying Australia’s Economy for a Global Future, an undeniable focus of last week’s Budget and a consequence of our obsessive commitment to our jobs and growth agenda.
As Minister for Revenue and Financial Services, I worked closely with Treasurer Scott Morrison, Finance Minister Mathias Cormann and the Prime Minister on the Expenditure Review Committee (ERC) in the preparation of the Budget.
Like all of you, all of us on the ERC shared a similar objective: ensuring that our organisation – be it a nation, or a company – is in the best position possible to deal with whatever comes our way.
We parliamentarians don’t get much sympathy from the general public about the long hours and the enormous preparation that goes into the Budget. This is afterall our job, so it is certainly not for us to complain about that.
But I know that if there is one group of people in the country who has some understanding of the grinding nature of a Budget process, the fractiousness of competing interests, the thousands of individual decisions that have to be made, and the work that goes into finding savings – it will be the CFOs.
So while you might not agree with every Budget measure – at least you have some insights about the journey.
Last week’s Budget was our plan for a stronger economy that is delivered by putting in place the fiscal discipline Australia needs while funding the essential services that Australians demand.
Budgets arrive with a deluge of commentary; even before they’ve delivered the commentators have made their verdicts. So today I’d like to return to the source document – the Budget itself. By outlining what is in there, specifically for individuals and businesses, I think you will agree it sets the right fiscal policy framework for Australia.
The foundation of the Budget is the Government’s five-point plan to:
- Provide tax relief to encourage and reward working Australians and reduce cost of living pressures on households,
- Keep backing business to invest and create more jobs, especially small and medium sized businesses,
- Guarantee the essential services that Australians rely on, like Medicare, hospitals, schools and caring for older Australians, and lowering electricity prices,
- Keep Australians safe, with new investments to secure our borders, especially at our airports and, as always,
- Ensure that the Government lives within its means, keeping spending and taxes under control.
First, the headlines.
Australia has entered its 27th year of consecutive economic growth, a remarkable achievement considering the momentous events of the past three decades.
As the Treasurer announced, the deficit on 2017-18 is $18.2 billion – less than half the deficit we recorded two years ago and the strongest expected budget outcome since Treasurer Costello’s final budget of the Howard Government in 2007-08.
In 2018-19 the deficit is forecast to fall to $14.5 billion and the Budget to return to balance in 2019-20.
In 2020-21 the projected surpluses start.
This is the sixth successive economic and fiscal update where the underlying cash balance is projected to reach a surplus in 2020-21 and be sustained over the following decade.
Over the medium term gross debt will be $126 billion less in 2027-28 than was estimated at the mid-year update in December.
There’s a better story behind the numbers – and they are a reflection of what is happening in many businesses here today: robust growth and a strong balance sheet.
The Australian economy is strong because businesses are strong, because consumer confidence is strong, because our plan for the economy is right.
This is also why revenue is strong.
Since last year our expectations for company tax receipts have increased $20 billion. More than 1,000 jobs have been created every day on average over the past year.
It’s important, but there’s more to the story.
Of the 415,000 jobs added in 2017 – the largest calendar year increase on record – around three-quarters were full-time jobs.
Better still, Australia’s workforce participation rate is on the rise. This shows confidence. It means more workers have been encouraged to enter the labour market to look for a job because they are confident that there are more jobs to be had.
As Minister for Women, I’m proud women accounted for around 60 per cent of the jobs created in 2017. Underlying this was a strong rise in the female participation rate, which increased by 1.3 percentage points in 2017.
Women’s workforce participation is at record levels, with 6.2 million, or 60.5 per cent of women, participating in the Australian workforce as of March 2018.
Australia has also passed a significant milestone in the last year – we are now living within our means.
Today, Australia’s operating expenses including the National Disability Insurance Scheme (NDIS), are funded by revenue, not debt.
Living within our means is a symbolically important step forward that is also great news for our children and grandchildren. After all they are the future taxpayers who would otherwise be forced to repay the increased debt rather than have the ability to spend their taxes on infrastructure and services from which they will benefit.
Our budget puts us on the path to paying down debt so we can position Australia to take greater advantage of future economic opportunities.
And in an uncertain global economic and political environment, it also means we can create a buffer to withstand any future economic shocks that could impact on the living standards of millions of Australians – something that the Labor Party was able to rely on when they inherited a $20 billion surplus and no net debt from the previous Howard-Costello Government.
We have managed to do all of this whilst reducing the tax burden on Australians by sticking to our tax-to-GDP ‘speed limit’ of 23.9 per cent.
As we approach this speed limit we want to provide tax relief that is fair, fiscally responsible and affordable by:
- Providing tax relief for middle and low income earners now;
- Protecting what Australians earn from bracket creep; and
- Ensuring more Australians pay less tax by making personal taxes simpler.
Step one provides tax relief to middle and low income earners of up to $530 per year on what they would have paid in tax from next year.
Those earning up to $37,000 paying 19 cents in the dollar will have their tax reduced by up to $200 on what they would have paid in tax.
The median personal income tax paid by Australians in this tax bracket is about $1,900 per year, so a $200 cut is a significant cut.
For those earning between $37,000 and $87,000 paying 32.5 cents in the dollar, tax will be reduced up to a maximum of $530 per year.
In this tax bracket, median annual personal income tax paid is around $10,400.
This $530 tax cut will benefit 4.4 million taxpayers with an income between $48,000 and $90,000.
For middle income families with both parents earning around $50,000 per year each, this will put an extra $1,000 into their pockets.
This targeted approach ensures that the full value of the tax relief stays with middle and lower income earners.
In 2022-23 we will make more substantial changes.
The top threshold of the 19 per cent tax bracket will be increased from $37,000 to $41,000, stopping half a million Australians facing a marginal rate of 32.5 per cent and the top threshold of the 32.5 per cent tax bracket will be increased from $90,000 to $120,000, preventing 1.8 million Australians paying the higher 37 cents in the dollar.
Together with increasing the low income tax offset from $445 to $645, the increase to the top threshold of the 19 per cent bracket from $37,000 to $41,000 will lock in the tax relief from step 1.
Step three makes the tax system simpler – abolishing all together the 37 per cent tax bracket in 2024-25.
This is significant structural reform.
It means Australians earning more than $41,000 will only pay 32.5 cents in the dollar all the way up to the top marginal tax rate threshold of $200,000.
So while someone on $200,000 gets a reduction in their tax of $7,225 in 2024-25, let’s not forget that they will pay $60,007 in tax.
Our tax system remains progressive – let’s not forget, the more you earn under our tax system, the more you pay in tax.
Equally, you can’t provide tax relief to people who pay no tax.
In summary, our changes mean that, most Australians earning above $41,000 will never pay more than 32.5 cents in the dollar.
This is a good thing. Why? Because if we did nothing, with each passing year, fewer and fewer people would be in the middle tax bracket as bracket creep eroded pay rises, overtime and more days working.
Our three-point tax plan changes that.
These tax cuts are essential to ease cost of living pressures, and brings further simplicity and fairness back to our tax system.
We have to remember that this is the money of every Australian.
It is not the Government’s money.
Australians have earned it, they have worked hard for it, and they know how best to spend it.
And we will lock in our seven year tax plan with one vote in the House of Representatives and one vote in the Senate. That will deliver certainty for the seven year plan.
The Coalition believes in tax integrity, Labor believes in higher taxes – and more than $200 billion worth of higher taxes.
The integrity of Australia’s tax system is essential, not only to maintaining our revenue base and funding essential services, but also to create a level playing field for businesses operating in Australia.
This has been a focus of the Government, and of mine as Minister for Revenue.
The Government is shining a light on the black economy – an insidious and wide-ranging problem that undermines the community’s trust in the tax system.
There is a common misconception that the black economy is a victimless crime. Almost harmless. But it’s far from that.
If you don’t pay the tax you should, otherwise you are ripping off honest Australians.
The black economy is not limited to cash-in-hand tax fraud. It is complex, unlawful behaviour that penetrates many areas of daily life, whether in workplace relations, or our financial, migration or welfare systems.
In response to the Black Economy Taskforce Final Report we are disrupting the black economy through boosting the capabilities of enforcement agencies and establishing a multi-agency Black Economy Standing Taskforce.
We are introducing new measures to tackle the illicit tobacco market; We are going to introduce a $10,000 economy wide cash payment limit. And of interest to your companies, the Government will lead by example by enhancing the integrity of our procurement processes.
I would like to touch briefly on this last point.
We are operating in an increasingly competitive business environment, where suppliers can be outbid at the procurement stage by other businesses that have cut costs by not complying with their tax obligations.
It is not right that the Government supports suppliers who do not follow our tax laws, to the detriment of those that do.
This is an important part of the Government’s policy with regard to tax compliance.
We will engage with you as a contractor if you abide by Australia’s tax laws.
This is a basic fairness measure.
The Turnbull Government is raising the bar on supply chain integrity by requiring that from 1 July 2019, businesses applying to tender for Australian Government contracts over $4 million produce a statement of satisfactory tax record.
This is an important change to our procurement processes.
In implementing this change, we want to ensure that businesses who make a genuine mistake with their tax and who engage productively with the Australian Taxation Office to rectify that mistake, are not unduly precluded from participating in Commonwealth procurement processes.
In recognition of this, I will today be releasing a consultation paper on this measure to seek industry and community views on the design of this reform.
I know Michael Andrew, the chair of the Black Economy Taskforce, will be speaking later this morning.
So, I will refrain from stealing his thunder any further, but I would like to highlight that the measures the Government is implementing in response to the Taskforce’s report will improve Australia’s budget bottom line by $5.3 billion over the next four years.
It is a long lasting reform that will restore fairness to our tax system and reward the honesty of individuals and businesses that do the right thing.
Protecting Australia’s tax base
Our black economy measures align with the Government’s drive to rebuild integrity in the tax system by implementing some of the strongest multinational tax laws in the world through measures like the Multinational Anti-Avoidance Law and the Diverted Profits Tax.
This is despite opposition from the Labor Party who voted against our Multinational Anti-Avoidance Law (MAAL).
Since 2016, the ATO has identified around 40 large companies that have brought or are bringing the revenue from their Australian sales onshore in response to the MAAL.
As a result, the ATO expects an additional $7 billion in income each year will be returned to the Australian tax base.
The Diverted Profits Tax ensures that the tax paid by significant global entities properly reflects the economic substance of their activities in Australia and aims to prevent the diversion of profits offshore through arrangements involving related parties.
It also encourages significant global entities to provide sufficient information to the ATO to allow for the timely resolution of tax disputes.
These rules, together with the Tax Avoidance Taskforce that the Government formed two years back, have been instrumental in not only ensuring multinationals comply with what we see as their tax obligations. But also we are securing their moral obligations as corporate citizens in Australia.
I have outlined tax cuts for low and middle income earners. These will help families make ends meet. But for employment growth to continue and wages to rise, businesses need to be profitable and to keep profits for investment, for innovation, for employment.
Small business is the engine of Australian employment. There are just under 3.3 million small businesses that employ around 6 million Australians.
The Government has legislated tax cuts for small and medium Australian businesses with annual turnover up to $50 million, as part of the Ten Year Enterprise Tax Plan.
These tax cuts began in 2016–17 for companies with annual turnover less than $10 million, with the tax rate for companies cut to 27.5 per cent – the lowest level in over 50 years.
The lower corporate tax rate was extended to companies with annual turnover less than $25 million in 2017-18 and will extend to companies with annual turnover less than $50 million in 2018-19.
Small businesses are innovative. An entrepreneur has an idea and they form a company to bring it to market.
So it makes sense to help companies as they take those first steps and hopefully evolve from small to medium or maybe even large businesses.
Creating a business is hard and it is risky. It’s easier when government isn’t suffocating initiative so to compete on a global scale, tax rates must be globally competitive. This will make it easier for Australia to attract foreign investment, and make it easier for Australian firms to expand globally.
Consumer Data Right
Among the Budget measures announced on Budget night was a $45 million investment over four years to establish the Consumer Data Right.
The Consumer Data Right will significantly improve the provision of data driven services in Australia by giving Australians the ability to take greater control of their data and share it safely with trusted and accredited service providers.
While it is called a ‘consumer’ data right, both individual and business customers will have access to the right in respect of their data.
The right is not just for your customers, but for you as a customer.
The Consumer Data Right will commence with Open Banking, which will give more control of data relating to financial products such as deposit accounts, credit-cards and mortgages.
Implementation in banking will be followed by the energy and telecommunication sectors. The Consumer Data Right will then progressively be rolled out economy-wide on a sector-by-sector basis.
When customers choose to share their data, service providers will be better able to offer new products and services tailored to their circumstances, such as transaction analysis or accounting tools.
The right will also enable customers to save money by accessing improved price comparison and switching services in relation to products covered by the right.
Improved competition and data driven innovation will support economic growth and create new high value jobs in Australia.
The Consumer Data Right will be backed by well-funded regulators with strong enforcement powers and have high levels of privacy and confidentiality protection with robust information security to ensure that users have confidence in the system.
International experience shows that when consumers are mobile, products and services improve. Moreover, they’re respected more because providers know it’s easier for consumers to switch to a better provider.
I would like to close by drawing your attention to the Government’s infrastructure investments.
The focus of our $75 billion in a 10-year national infrastructure plan is to boost productivity, reduce congestion and improve safety.
The $3.5 billion Roads of Strategic Importance initiative will fund upgrades to key freight routes to improve road reliability and better connect sectors, such as agriculture and mining, to ports; and communities to essential services such as health and education.
One of the great ironies of global trade is that the last kilometres are often the most expensive in a product’s journey. Congestion is costly.
To tackle congestion in major cities the Government is establishing a $1 billion Urban Congestion Fund.
And around Australia, every state and territory will benefit from major investments to make cities run better including funding for the Melbourne Airport Rail Link, Port Botany Rail Line Duplication, Brisbane Metro, further funding for METRONET in Perth and the North-South Road Corridor in Adelaide, Bridgewater Bridge Replacement in Tasmania, Monaro Highway Uprade in the ACT and Central Arnhem Road and Buntine Highway Upgrades in the NT, and more across Australia’s capitals and regions.
I want to thank the CFO Forum for the opportunity of speaking with you today.
The Budget process sets Australia up for the next twelve months and beyond.
And this Budget will mean that Australia is in its best fiscal position in more than a decade. It hasn’t been easy to turn the budget around. It is a slow and grinding task. But I am confident, as I hope you are, that we have fortified Australia’s economy for a global future.