Don’t hobble Victoria with complaints about taxes, debt and deficit

Citing a new report from the Business Council of Australia (BCA), the Australian Financial Review is claiming that Victoria is the worst place in the nation to do business and bemoaning the state’s “uncompetitive” taxes. BCA chief Bran Black warns Victoria’s taxes “drag down businesses and drive investment from the state”.

This kind of simplistic ‘tax is bad’ analysis is reminiscent of the International Tax Competitiveness Index for 2024, published by the Tax Foundation which shows Estonia is much more competitive than Australia because its business taxes are much lower, even though Australia has much higher GDP per worker and much lower unemployment than Estonia. Clearly, giving business the tax cuts they always want doesn’t guarantee higher growth or lower unemployment, but it’s an easy way to boost after tax profits.

Big business never tires of saying taxes are bad, yet those same companies thrive on the very services taxes pay for: educated workers, reliable infrastructure, the rule of law and police that keep order. These things aren’t free, and when was the last time you heard the BCA calling for less infrastructure or less investment in training?

To be clear, Victoria’s deficit is relatively high at the moment because of its investment in:

• The E-Class Tram Infrastructure Program
• The Metro Tunnel
• National Water Infrastructure Development Fund
• The Princes Highway renewal program
• The Metropolitan train infrastructure renewal program
• Building a better hospital for the inner west (Footscray)
• The Frankston Hospital, and
• The Warrnambool Base Hospital

to name just a few. Which of these does the BCA suggest should be axed to pay for tax cuts for its members? Victoria’s critics rarely nominate specific projects they would like to see abolished if Victoria followed their advice. It is also a safe bet that at least some of the BCA’s members are direct beneficiaries of the spending made possible by Victoria’s tax and the taxes of the other states and territories.

Governments taking the BCA’s advice would result in another race to the bottom like the old tax wars which saw states compete with each other to harm their revenue bases. Victoria’s budget deficit is largely due to big investment in roads, hospitals, public transport, all of which will make the state a better place to live and do business. The BCA never tells BHP to stop borrowing to invest in growth, so why should the Victorian Government, or indeed anybody, listen to them?

If the BCA really cared about productivity, it would be proposing “growth taxes” that grow with the economy and the population. If we stopped giving our gas away for free, taxed the big banks and the big tech companies more and reintroduced taxes on wealth then Victoria, and indeed all the states, could easily invest even more in infrastructure and training while delivering even smaller budget deficits if they wanted to.

But rather than admit that, Australia’s business lobby group wants the magic pudding of better trained workers, better infrastructure, lower taxes and smaller deficits. They simply call for some tax cuts and hope governments are silly enough to deliver them.