Calls for company tax cuts are part of a fabricated productivity crisis

Big business will invoke any spurious economic rationale to prevent an overhaul of workplace laws

John Kenneth Galbraith once noted that “trickle-down economics” was not a recent invention but had been tried before in the United States in the 1890s. The brilliant economist explained that it was referred to as “horse and sparrow theory” by “an older and less elegant generation” because “If you feed the horse enough oats, some will pass through to the road for the sparrows.”

2018 has barely begun and the Business Council of Australia, the peak lobby group for big business, is at it again; promulgating horse and sparrow theory to support its perpetual calls for business tax cuts.

In July last year, close to one million hospitality workers had their pay cut. The pay cut had its genesis in a bogus campaign launched seven years earlier. In 2010, the BCA declared that new workplace laws enshrined in the Fair Work Act had decimated productivity by inhibiting workplace “flexibility”. This situation, the BCA proclaimed, jeopardised economic growth and thereby constituted a “crisis”. The productivity crisis campaign (“PCC”) was born.

The PCC was embraced by other lobby groups including the Minerals Council and the Australian Industry Group. The bogus story was on high rotation in the Australian Financial Review and the Australian. Veteran journalist, Paul Kelly, wrote that the “entire economic debate is shifting against the productivity deadening” workplace laws installed by the ALP government. ABC journalists fretted about how to deal with the “productivity problem”.

A procession of business leaders gave keynote speeches invoking the mantra, and the campaign spread. The Reserve Bank and treasury joined the fray, urging yet more labour market deregulation. Even the industrial relations umpire, the Fair Work Commission, succumbed to the pressure. In 2013, it established a “productivity program” to encourage unions and employers to make industrial agreements that addressed the problem.

The Coalition didn’t waste the crisis. When the Abbott government was elected, one of its first acts was to direct the Productivity Commission to undertake a review of workplace laws to deal with “the productivity problem”.

There was one fatal flaw with all of this. There was neither a productivity problem nor a crisis. The PCC was a fabrication. All the while, productivity was rising, not falling. In fact it was rising faster than it had for decades. The campaign neatly coincided with a strong and sustained rebound in labour productivity. Throughout the five years of the PCC, that much neglected fact checker, the Australian Bureau of Statistics, published quarterly data showing a sustained increase in productivity. A recent paper by treasury bureaucrats, Simon Campbell and Harry Withers, “Australian productivity trends and the effect of structural change”, confirms that productivity between 2010 and 2015 grew more strongly than it has done over the last 30 years.

And yet, the BCA’s campaign was a resounding success.

By the time the Productivity Commission review of workplace laws began, its bureaucrats were being asked to address a problem that did not exist. Strong growth in productivity under the Fair Work Act was staring them in the face. What to do? Returning the brief was out of the question.

In its desperation to provide the government with something of substance, it went in an entirely different direction. It recommended cutting penalty rates for hospitality and retail employees, a measure that is irrelevant to productivity. The 2015 Productivity Commission report reasoned that the cuts were consistent with “changing community standards” about irregular hours of work. At the same time, it avoided recommending cuts to the penalty rates of nurses and emergency services workers.

Nevertheless, the Productivity Commission report armed business group and the Turnbull government with the additional firepower and political momentum needed to support an application to the Fair Work Commission urging penalty rate cuts for hospitality workers.

The industrial relations umpired duly delivered. It determined to cut penalty rates, reasoning that they no longer provided “a fair and relevant minimum safety net”. The tribunal’s decision took effect in July 2017, just in time for the Reserve Bank governor, Philip Lowe, to declare for the first time in living memory that record low wages growth represented a “wages crisis”.

The BCAs work was done. A campaign about a non-existent crisis had produced an outcome that poured petrol on a real crisis for low-paid workers – and the broader economy.

The BCA is welcomed onto the front pages of national newspapers and into the hallowed halls of our democracy, all the while preaching what it does not practise. Companies cannot be expelled from the BCA. If a BCA-affiliated company is engaged in bribery, corruption, insurance fraud or tax evasion, the BCA doesn’t seem to see the need to comment.

2018 will see more of the same. The BCA’s ceaseless demands for “reform” in the form of tax cuts for business and laws that suppress wage increases for its workers will continue. It will fervently support the Turnbull government’s proposal to reduce company tax to 25% and it will just as fervently oppose the ACTU’s campaign to radically overhaul workplace laws.

Notwithstanding the overwhelming evidence that many large Australian companies pay nothing like the nominal company tax rate of 30% (and one third of private companies pay nothing at all), the BCA and its members will invoke any economic rationale, however spurious, to further their rent-seeking.

If a bogus campaign about a faux crisis is required, it will be deployed again. The BCA continues to succeed because its methods have been normalised and rewarded within our political system.

This article originally appeared in The Guardian.