Watches and wages

Oct 29, 2020

It’s easy for the public to understand and get enraged about executive gifts of Cartier watches but the far more important issue is the steady shift of wealth to a privileged minority.

Two months ago former prime minister Paul Keating drew attention to the huge increase in the share of Australia’s economic cake flowing to profit and the long-time decline in labour’s share of the country’s national income.

What Keating did not say was that when he was in government he dismissed those who expressed concern about this decline. All that mattered was achieving economic growth – the rising tide would lift all ships. As a result the share of national income flowing to employees has fallen from 60.8 per cent in March 1983 to 49.4 per cent in June this year.

Keating was not alone in dismissing the issues of income and wealth distribution. The ideology behind the Greed is Good way of thinking came out of United States in the 1980s and won support from British Prime Minister, Margaret Thatcher.

Conservatives in Australia embraced the cause. With the alternative ideological threat of the Soviet Union gone, business could get going maximising profit and shareholders’ returns.

Along the way, executive remuneration sky-rocketed and tax avoidance/evasion became a duty, not a crime.

Addressing a Senate Committee in 1991, media baron Kerry Packer said as much: “I don’t know anybody that doesn’t minimise their tax. I’m not evading tax in any way shape or form. Of course I’m minimising my tax. If anybody in this country doesn’t minimise their tax they want their head read.”

And two decades later in May 2013, Microsoft founder Bill Gates, who has sought to build a reputation as a philanthropist, told the ABC’s Q & A audience: “It’s not incumbent on those companies to take shareholder money and pay huge amounts [of tax] that aren’t required.”

Executives across the Anglo world thought nothing of preaching to their workforce that wages had to be held down to ensure that their companies remained competitive.

They felt no obligation to justify their high rate of return on capital. The higher the better. There is apparently no such thing as a “fair” rate of return, or an unacceptably high profit.

In fact the opposite. Sky-rocketing executive packages are justified on high profits.

The global financial crisis and a host of major leaks of documents – the Panama Papers and the Paradise Paper – revealing tax avoidance and evasion operations, awakened the world briefly.

But the Covid-19 pandemic has distracted attention from these problems.

And finding a solution is not easy. Propose a tax on mining super profits and see what happens?

In democratic Australia we all supposedly vote free as we please. But those with money can manipulate the electorate. Currently Clive Palmer is running a huge advertising campaign in Queensland trying to frighten voters from voting Labor because he says the state government will introduce a death tax. The Premier, Annastacia Palaszczuk, has denied the claim.

It’s a pity there’s not going to be such a tax, but she has no option. We used to have death duties and they could make a contribution to making Australia a fairer society. But by 1984 all states and the Federal government had abolished death and gift duties. The change was led by Joh Bjelke Petersen in Queensland in 1977. Once he moved, other states had little choice but to follow, lest every asset in Australia end up domiciled in Queensland.

Not surprisingly, the corrupt Bjelke Petersen was supported by many wealthy Australians, including Lang Hancock.

Campaigns, such as those run by Palmer and the mining companies, maintain “legal corruption”. They enable the invisible, ever-increasing rise in the share of national income going to a tiny minority.

This is a world problem and well-nigh impossible for any single country to tackle. It doesn’t take a capitalist conspiracy to engineer a capital strike. All it takes is the threat of action by a government or the imposition of a new tax and ordinary business people decides to invest elsewhere.

Following the global financial crisis, which was in part the result of gambling on financial markets, a number of countries proposed a financial transactions tax. This would be most effective if adopted worldwide and, if nothing else, would raise some revenue from wild speculative financial activities. One early estimate suggested it could raise 57 billion Euros per annum if implemented across the EU.

You would think that the Rudd Labor government would have embraced the proposal. But you’d be wrong.

The first proposal for the whole of the EU was presented by the European Commission in 2011 but did not win majority support. In 2013, member states were authorised to come up with their own proposals and Germany and France pressed on, despite British objections and threats to take legal action against the tax. In 2019 Germany and France released a proposal and German Chancellor Angela Merkel continues to support the idea. But it’s not yet law.

The Australia Post executive gifts of Cartier watches and the ASIC executives’ expenses claims and payments reveal a way of thinking at top corporate level. In a privately owned company, nothing might be thought of their actions. An individual, solely owning a business, might choose to have his business buy him a luxury car that is nor essential for work purposes. No one in the business would object.

Shareholders own publicly listed companies but boards and the management team often have a lot of discretion in how they attract and award executives.

This is not the case for government-owned businesses.

The fact that Australia Post chief executive Christine Holgate did not understand this is astounding. Asked if the Cartier watches given to executives were paid for with taxpayer funds she said: “We are a commercial organisation. It was a recommendation from our chair that these people get rewarded.”

Australia Post is owned by the Australian people and its corporate gifts come out of the pockets of its owners – the people of Australia.

The Cartier controversy follows the widespread criticism of the remuneration for Ms Holgate’s predecessor Ahmed Fahour, who was paid $10 million for his last year at the top of Australia Post.

There’s a commonly repeated false view that such high salaries are essential to attract the right people from the corporate sector to manage a business like Australia Post. But, as Thomas Piketty pointed out in his monumental book Capital in the Twenty-First Century, in the private sector there’s no evidence that executives’ performance determines the success of the firm.

More often than not, external factors beyond their control determine sales and profit. Those who get big bonuses because of a high profit are getting what academics studying corporate performance call “pay for luck”.

No year makes this clearer than 2020. Woolworths and Coles executives did not generate the massive supermarket sales in the Covid panic-buying months; and nor can the executives of firms sent broke by the lockdown be held responsible for the company failure.

There’s also no evidence that executives brought in from the private sector make the best CEOs in government enterprises. There’s every reason to believe that competent people can be found in the public sector to handle such jobs. (If anything, the stresses and strains at the top of government departments are greater than those encountered by a private sector chief executive. Certainly there is more scrutiny.)

Able public servants may well be put off from applying for government enterprise positions because of the outrageous packages offered – they think the job is out of their range.

But what of the government regulators? Must they be paid huge sums to regulate the gambling industry and take on the devious tax accountants, lawyers and executives endlessly trying to get around and manipulate our laws? Do we need someone who has come from the private sector and has a knowledge of corporate shenanigans to head an agency such as the Australian Securities and Investments Commission?

Those working in agencies such as the Australian Tax Office, Austrac, ASIC and the Australian Competition and Consumer Commission are at times wrestling with individuals and corporations that stand to gain millions from their schemes.

But Austrac, which earlier this year won the highest civil penalty in Australian history in a Federal Court order to Westpac to pay a $1.3 billion for breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act, is headed by Nicole Rose, who has a long public sector history.

And she is not paid millions. According to Austrac’s latest annual report she performs her job for a base salary of $434,425 and “other benefits and allowances” of $2,083.

We need more straight-forward, loyal, honest public servants like this.

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