Finance Finance News Benefits of profits boom flow offshore

Benefits of profits boom flow offshore

offshore profits
Is this the right time for corporate tax cuts? Photo: Getty
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Big business is booming. This week’s profit figures show the current surge in corporate mega profits is rapidly accelerating.

Robust revenue and low costs are yielding record profits. But, as Tuesday’s finance data proves, the benefits are flowing straight offshore.

The big miners

Mining profits in the first quarter of this year were a thumping $30 billion. That is up by $15.9 billion, or 113 per cent, from profits in the first quarter last year. That’s according to the Bureau of Statistics (ABS) report on company gross operating profits (see table 11).

This confirms that the fourth quarter rise last year – up 74 per cent on the year before to $26.5 billion – was no fluke.

The combined profits for the last two quarters, Q4 2016 and Q1 2017, are a staggering $56.5 billion. That’s the highest in Australia’s history. And that’s just the mining sector.

Manufacturing

Profits in the 2017 first quarter were an excellent $7.7 billion, the highest in six years. That is up by 26 per cent from the first quarter in 2016.

Financial and insurance

First quarter profits this year were $1.6 billion, up 170 per cent from the same period last year. That is the highest in six years. The combined profits for the last two quarters were $3.2 billion, the highest in eight years.

Record earnings in several sectors

First quarter profits in rental, hiring and real estate services were the highest in history. Profits in transport, postal and warehousing were also best ever.

Other industries producing near-record profits include information media and telecommunications, electricity, gas, water and waste services and professional, scientific and technical services.

Corporate profits overall

The magic number, of course, is total profits, which the ABS reported at an extraordinary $82.6 billion, an all-time high, fully $23.5 billion – or 40 per cent – above the same quarter last year. This is $4.7 billion higher than the previous all-time high, which was the quarter just before.

So there is no question whatsoever these are boom times for the big corporations.

Corporate boardrooms are ecstatic. BHP announced joyfully “record production for the nine month period achieved at Western Australia Iron Ore and five Queensland Coal mines”.

Monday’s Commsec report was headed “Record profits. Strongest sales growth in 6 years.”

Booming exports

The trade balance the ABS released last month showed Australia’s trade surplus – the difference between the value of exports and imports – at an impressive $3.1 billion. That is the third highest ever, the two highest being in December and February. This makes five consecutive hefty surpluses after a streak of 31 monthly trade deficits.

Benefits going offshore

One would expect with record revenue and profits from the vast exports that money would be flowing in to Australia at an unprecedented rate. The opposite is the case.

Tuesday’s ABS figures on capital flows actually show the capital and financial account for the March quarter at just $3.7 billion, the lowest level since 2001, in the depths of the early 1990s recession. So net money flowing in is close to an all-time low.

How is this possible?

The answer appears in the monthly accounts under income tax revenue. This shows the Tax Office expects to collect just $68.7 billion in company tax this financial year – far below the quantum expected if company tax were not being evaded on a massive scale.

The Rudd government collected $66.6 billion in 2011-12, during the global financial crisis. The Howard government took in $61.7 billion back in 2007-08. If similar collection rates applied today, company tax revenue would be about double the current actual collections.

The budget big picture

Australia is now well and truly in the economic phase of strong national income and high profitability which the heads of Treasury and Finance predicted before the 2013 election.

They forecast in their Pre-election Economic and Fiscal Outlook (PEFO) that in 2016-17 there would be no deficit at all, but a surplus of $4.2 billion. They forecast net debt at the end of 2016-17 down to $217.3 billion.

Instead, according to last week’s Finance Department report, Australia at the end of April had an appalling budget deficit of $36 billion and net debt at $317.4 billion.

So what has gone so horribly wrong, during this unprecedented profits boom? Why are workers losing hours, pay and conditions? Why are welfare benefits being cut? Why is there no money for urgently-needed infrastructure? Why is yesterday’s economic growth level the second-lowest in the developed world? And why has net debt blown out just this financial year by $31.7 billion?

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