John Howard’s GST has helped Australia’s construction economy to be ready for the next phase of its modernisation.
The sooner construction’s shadow economy is extinguished; the sooner construction can make an even greater contribution to the economy. Perhaps it’s time to follow India’s lead and call an end to Australia’s $100 notes and their baggage.
The global construction industry is fast joining the digital economy, which consists of more than just BIM. The digital economy will affect all of construction’s pieces and parts and every one of its transactions. It's been 16 years since former PM John Howard introduced the Goods and Services Tax (GST) in July 2000. Howard was a leader. He saw the need to take modernising the Australian economy beyond the bold changes introduced during the Hawke and Keating governments. The economy is now at another crossroads.
So, what’s next? Surely the most pressing challenge facing the Australian economy is getting the national accounts under control and to make sure everyone is contributing fairly. For the construction industry, the challenge will be modernising its business and operational practices.
Modernising construction and contributing fairly to the economy are related. By 2025, the full impact of digitisation across the construction industry will have largely played out. One element that is fast evolving is the realm of digital currency and transactions. Of course, cash will always play a part in the economy, but everyone sees that the digital alternates expand their boundaries every day. By 2025, Blockchain technologies may be a big part of all this.
It’s hard to see Australia’s political leaders from either side having much to say on these matters, let alone preparing the economy for a more digital future over the next five to 10 years. Construction practices in Australia will be major beneficiaries of a digital economy. Here are a few reasons why the digitisation of construction could have a profound effect:
- Most if not all of construction’s inputs will have digital fingerprints that allow them to be tracked from source and over their life cycle. This will help to largely address concerns like the current Senate Enquiry into Non-Conforming Building Materials.
- Digital technologies will be applied to workplace safety through the deployment of smart education technology, remote diagnostics of the condition and function of construction plant and equipment, and integration with personal safety devices and wear. Lowering construction LTIs by 80-plus percent will be within reach by 2025.
- Bringing all of construction’s enterprises into better digital view will help to reward properly capitalised and invested construction businesses. These businesses will have better access to global construction markets both ways; they will invest in new technologies and their people. Construction insolvency rates will shrink. Importantly, those operators who still take a ‘business as usual’ approach and remain minded to conduct themselves with little care and no responsibility will meet a new reality. Adapt or find something else to do, as a digital economy will mark and follow them.
Mary Hardie of the School of Computing, Engineering and Mathematics, Western Sydney University, discussed the GST in an article addressing technical innovation delivery by small and medium Australian construction firms. The tax involves a system of national registration for all businesses delivering or using goods and services. The system includes the registration of the trading unit by an Australian Business Number provided by the Australian Taxation Office.
Only businesses who earn total revenue of less than $50,000 per year are exempt from this requirement, and even some of those have an ABN because it enables them to claim back GST amounts they have paid out to other businesses. As a result, there are very reliable figures about the extent of business activity. In its Counts of Australian Businesses 2016, the ABS found that the construction industry had 339,367 businesses operating at the end of the financial year 2014-2015. This figure would include sole operators, ‘own account workers’ and multiple trading identities operated by the same individual.
Since 2003, the ABS has specifically been collecting information on innovation in Australian business. In these data sets, they define a business somewhat more rigidly than the Counts of Australian Business model. Businesses are only included in the innovation survey if they lodge pay-as-you-go (PAYG) instalments with the Australian Tax Office.
This means that sole traders who operate as a business with a separate business bank account from which they pay themselves wages are included in the survey. Sole operators who accept payment for work and deposit the receipts in their own private account are not included whether or not they later submit quarterly instalment activity statements (IAS) or business activity statements (BAS). There is a resultant large discrepancy in the number of businesses listed as operating in the construction industry in the Counts of Australian Businesses and in the Innovation in Australian Business Survey. For 2012-2013 the figures are 315,617 and 128,000 respectively. More than half the businesses in the construction industry operate in a fairly informal manner and employ few people.
Will Chancellor and Malcolm Abbott found the effect of shadow economic activity on productivity growth in Australia to be significant due to use of cash-in-hand and barter trade. Construction has the largest shadow economy of any Australian industry sector, and it continues to grow. The shadow economy is harmful to taxation revenue, business competition, safety and quality standards.
They argued that it is important, therefore, to capture shadow activity as part of any approach to construction performance measurement. Chancellor also found that wages, research and development expenditure were major factors to drive growth at the national level. Unmeasured construction productivity hinders arresting this economic leakage.
Under-measurement of the industry’s impact on the economy elevates the importance of measurably lifting construction productivity. Measuring the future impact of construction in the economy may become increasingly difficult as more construction fabrication is moved off-site into a manufacturing setting, and potentially offshore. The trends indicate that construction on-site will progressively become mostly assembly orientated. Tracking future construction employment and the off-site construction related enterprises who service the sector will require further consideration in national accounting.
In their research into alcohol and other drugs in the Australian construction industry, Herbert Biggs and Amy Williamson surveyed 494 respondents. A total of 196 respondents (40 per cent) had used ecstasy or methamphetamine type substances in their lifetime, with 62 respondents having used it in the last year (31.6 per cent). Discussions with constructors suggest that as much as 10 per cent of the on-site construction workforce may be using these types of drugs in and out of the workplace. The illicit dealing of drugs feeds into a cash economy that enables dealers to hide their income, with $100 notes seemingly preferred method. This informal activity creates a background challenge to improving constructor well-being.
According to the Reserve Bank of Australia (RBA), 300 million $100 notes are in circulation, almost three times the number of $5 notes. In its discussion paper The Life of Banknotes issued last year, the RBA said, “With such little handling [$100 notes] do not deteriorate significantly over time. Indeed, less than 10 per cent of $100 banknotes ever issued have returned to the RBA as unfit banknotes.”
But some people do like them, with RBA figures showing there are now 11 per cent more $100 notes in circulation than in 2014, a growth rate of almost twice the banknote average. Together, the $50 and $100 notes account for 92 per cent of the value of all banknotes in circulation.
The RBA has a few answers to the riddle of where all the $100 notes are.
India’s Prime Minister, Narendra Modi, recently announced that 500 and 1,000 rupee notes are to be taken out of circulation. In a surprise, televised address, Modi said the demonetization of India’s highest-value banknotes, worth about UK£6 and £12, would start immediately. The move is an effort to close down the booming economy of untaxed cash transactions, which allows corruption, the funding of terrorist groups, and keeps counterfeit notes in circulation.
Modi emphasised that citizens who had 500 and 1,000 rupee notes need not panic, as cash could be deposited at banks or post offices until the end of 2016.
“These steps are a part of our battle against corruption, black money and counterfeit notes," he said.
"The ordinary citizen who is struggling, will be strengthened.
"There is no need for you to rush to the bank tomorrow, you have 50 days. Black marketeers who use black money will not be able to move large amounts of money and 500 and 1,000 rupee notes will become worthless pieces of paper. Those citizens earning honestly and with hard work, their interests will be protected.”
It’s now only nine years to 2025. The sooner the Australian construction industry is accelerated into the digital economy, the better. It’s possible that forcing Australia’s $100 notes out from under their mattresses will make an immediate contribution to the national accounts. This would be a bold political step, but I expect one that the clear majority of Australians would understand and support. Such a decision would not only benefit the construction industry. I wonder if there is a modern-day John Howard in the stalls.