‘Greed, for lack of a better word, is good,’ or so says Michael Douglas’ equally revered and reviled character Gordon Gekko in Oliver Stone’s Wall Street. Gekko became a symbol in popular culture for unrestrained greed and capitalism that seemed to grip many corporations and individuals in the 80’s and early 90’s, and is arguably still the private mantra for many venture capitalists and hedge fund managers today. But this sentiment wasn’t born out of Hollywood, the movie merely articulated the mindset of (or at least the general feeling about) the Reagan administration (so called Reaganomics) demonstrating the strong link between politics and economics. They are intimately connected because the performance of the economy is considered a true reflection of the strength (or weakness) of its leading party. Most notably, policies of a government concerning taxation, inflation, trade agreements and GDP can and do affect how supported or hampered a market, and more specifically company, is regarding profit margins. In 1980 when Reagan was sworn in as the 40th American President, there was a clear and deliberate move to privatise and commercialise many aspects of American society – from schools and public programs to healthcare. In his campaign speeches, Reagan presented his economic proposals as a return to the free market economy that had been in favour before the Great Depression. But many opponents considered his policies as trickle-down or voodoo economics that favoured ugly capitalism and profit-mongering at the expense of start-ups and small businesses with no (thick) skin in the game. In consortiumnews.com Robert Parry describes Reagan’s administration as ‘arguably the most destructive social experiment in American history, the incentivising of greed among the rich by halving their top marginal tax rates… Reagan essentially encouraged the rich to be greedy. Greed went from being a moral sin to a policy goal.’ What Reaganomics didn’t create was any shared prosperity. This was addressed in a speech by our then Prime Minister, Kevin Rudd, in 2008 regarding the Financial crisis of 2007-2010, ‘It is perhaps time now to admit that we did not learn the full lessons of the greed-is-good ideology. And today we are still cleaning up the mess of the 21st-century children of Gordon Gekko.’ Fast forward to 2016; politicians (and one wanna be politician) are promising new policies during the American election campaign, whilst in Australia, as we upload this piece, the federal election’s result is yet to be determined. With neither Labor or the Coalition forming a majority government, the final outcome is unclear. What we do know is should the Coalition narrowly win, Turnbull’s proposed legislative agenda including corporate tax cuts (the priorities including legislating income tax cuts for 2.5 million workers and small business tax cuts for 870,000 employees) will be harder to pass in the senate due to a loss of the majority seats and indeed those within the house. It appears we have learnt from America’s blunders of favouring only the large corporations. The biggest plus of the Coalition’s May 2016 Budget is the taxation boost to small business. It recognises the all-important statistic that small businesses (defined by the Australian Bureau of Statistics as ‘a business employing less than 20 people’) comprises 97% of all Australian private sector enterprises. The budget also proposed the following concessions and incentives for Australian businesses:
- An initial 5% discount to the small business tax discount, increasing to 16% by 2026;
- An increase to the small business turnover threshold from $2 million to $10 million, allowing more small businesses to access the small business tax concessions;
- An initial 2.5% decrease in company tax rates, and a decrease to 25% by 2026;
- Goods and Services Tax (GST) will be extended to low value goods imported by consumers from the 2016-2017 income year;
- Reform of the taxation of financial arrangements (TOFA) rules after 1 January 2018;
- Improving access to asset backed financing so that they are treated in the same way as other financing arrangements (e.g. loans or investments) for tax purposes.
They also proposed support for employers:
- Incentives of $1000 up front for employers to trial youth job seekers on internships for 4 to 12 weeks;
- Wage subsidy for employers of up to $10,000 paid over six months for employing people under 25 years’ old who have barriers to employment.
Whilst the jury is out on the budget’s implementation, start-up tax breaks kicked-off on 1st July. With this regime, young companies CAN get their skin in the game. Forming the centerpiece of the Turnbull government’s $1.1 billion innovation agenda, entrepreneurs with young companies are offered up-front tax offsets of 20% to a maximum of $200,000 and 10-year capital gains exemptions. What this proposes for the long term is major support from investors who can pledge money to multiple companies to give them the launch they need to steer themselves towards (healthy) profit goals as opposed to injecting a more significant lump sum with just one company. But present day policy decision makers shouldn’t have to choose between favouring small business over the corporate giants or vice versa. Both should co-exist in a prosperous economy. The US Secretary of Commerce (1948-1953) Charles Sawyer described profit as ‘the ignition system of our economic engine,’ whilst Winston Churchill wisely claimed ‘it is a socialist idea that making profit is a vice. I consider the real vice is making losses.’ There is merit in Gekko’s Machiavellian speech. It is the cornerstone of successful business to seek and make profits. But, we must orient our business principles in a way that puts the wellbeing of the broader community in equal stead: our employee’s wellbeing and the wellbeing and satisfaction of our clients. To turn to Winston Churchill again, this can be a win-win, ‘If you mean to profit, learn to please.’ Or to rephrase Gekko, not greed, but rather, generosity is good. Header Icon