Jennifer Westacott - Australian Economic and Social Outlook Conference
24 July 2017
BUSINESS COUNCIL OF AUSTRALIA
REMARKS TO THE AUSTRALIAN ECONOMIC AND SOCIAL OUTLOOK CONFERENCE
GRAND HYATT, MELBOURNE
Topics: Budget 2017
JENNIFER WESTACOTT, BUSINESS COUNCIL CHIEF EXECUTIVE:
I thought I’d start with the issues that this conference has grappled with - and you asked me this question the other day David (Uren) - why, given the economy is performing well, is political reform so hard?
I wanted to start by putting a slightly different perspective on the economy. Yes, it’s generally good. But we have got ourselves, I think, into a bit of national group think that 26 years of uninterrupted growth, that is 26 years without a recession, means job done.
I think, as the Prime Minister rightly said yesterday, job not done. The reforms that we make over the next short period will dictate the living standards we have in a decade or more. Conversely, the reforms we don’t do, or the reforms we get wrong, will have the same effect.
If we look at the GDP growth, we’ve got numbers in the twos. But the community’s expectations about the level of government services and, to some extent, on income growth are built off long-run trends of numbers in the threes.
This requires, certainly on the budget front, adjustment and we know that has been extremely difficult to do. If you look at some of the detailed numbers:
○ Wages growth is the lowest for 18 years
○ Per capita GDP growth is flat
○ Business investment as a share of GDP - a key driver of productivity and, in turn, income growth – stands at 1994 recession levels
○ Household debt is the second highest in the OECD
○ Housing affordability is a huge issue in some of our major cities, particularly in Sydney
○ And there is widespread concern about job adjustment from technology
I think this sits behind a lot of the community’s frustration and anxiety but also, I think is a fertile ground as a cocktail of things for simplistic popularist ideas which generally don’t work and, I think curiously, are often not very popular either
Many of these are global problems. The to do list to tackle them:
○ Competitive economy
○ Open markets
○ Incentives to invest
○ Disciplined budgets etc
That to-do list hasn’t changed but the context is very different.
So, how do we respond to that?
Well, the greatest risk, of course, is you do nothing. Or you surrender to calls to put up barriers and increase protection, which will just be a sugar hit.
But we do need to package reform differently
First, I think we have to get a much clearer sense of purpose and, collectively, better explain to people -
○ What are we doing
○ Why are we doing it
○ What problem will it solve
○ How will it impact on a person, a family, or a community.
Secondly, we have to make the growth story more locally relevant.
Stephen Harper, the former Prime Minister of Canada, when he was here this year made a really interesting observation that he thought the big kind of divide in the world was not between the haves and the haves not, it was between the people with a global orientation and the people with a local orientation.
I’ve reflected on that a lot and I think we all need to try and make the growth story more locally relevant.
The aggregate numbers do not mean a lot to people at a community level and we are all guilty of using numbers as a surrogate for more relevant set of explanations.
Thirdly, and importantly, reform may have to be more incremental and more staged.But incrementalism is not a substitute for heading in the wrong direction. We have to be honest about the consequences of failing to take relevant action.
The implications of doing nothing
The Prime Minister is right about his doona analogy: “we can’t hide under the doona and hope the big changes of our time will stop or go away”.
And there will be people who are cynical about whether reform is truly needed to drive growth.
But consider what will happen with these numbers:
If GDP annual growth stays on its current trajectory of 2.4% rather than 3.1%, which has been the average (over the past 20 years).
In five years’ time the economy would be $70 billion worse off and GDP per person would be $3,000 smaller.
We are now into our 10th year of the "temporary deficit", which has seen gross debt build to $600 billion and net interest payments annually of around $12 billion.
So in five years’ time, we will have paid at least another $60 billion in interest alone. That’s three NDISs. That’s three times the contested amount (of funding) under the Gonski deal.
And of course if we are contesting paying $60 billion over ten years for company tax change which will grow the economy but we don’t seem to worry about paying the same amount in five years on the interest bill.
Some might say none of this will happen because we are going to return to surplus in 2020-21. But this assumes stronger economic growth, stronger revenue growth, higher wages growth, lower unemployment and higher profits.
I guess the question that you’ve been grappling with, and I grapple with all the time, is can that be achieved under the current policy settings? Can we achieve that with one of the highest company tax rates in the developed world? Can we achieve that with the plethora of regulation that’s stifling business? Can we achieve that as our competitiveness rankings head in the wrong direction? Assuming this will just sort itself out is pretty naïve.
The role of business
Clearly business has to step up. We’ve got to think more locally about helping to create value.
We have to get our house in order. No one is walking away from that.
We’ve been doing some things like trying to get suppliers paid on time, trying to get companies to sign the tax transparency code. But that is not a substitute for ignoring the things that have to be done in the economy.
We of course need to dial ourselves into the social compact, have a broader purpose, have a clearer purpose. We have to own the transition that’s under way in our work places. We’ve got to take responsibility for skilling our people. We’ve got to own and deliver the real diversity agenda …that is a mix of views and ideas. We’ve got to own the license to operate.
And we’ve got to, as I said, translate that into a local agenda. We’ve got to honestly communicate with our staff and our stakeholders. We’ve got to face into our reputational issues. And we’ve got to work with governments and the unions on the conditions that will drive higher incomes, which is not a simplistic wage increase with all the economic complexities that surround that.
Finally, and I will just make this point, I think in this debate it is extremely unhelpful, but tempting, to characterise business as villains and big business as big villains. That is not helpful, it is not accurate, and it is an extremely destructive way of getting the community onside with the major reforms that need to be done.
The crucial thing is reform can't stop in the post-globalisation world, what ever that means. We have got to make the case for change more compelling.
And we’ve got to look at some of the examples that are before us now. GST distribution and energy policy are sadly cases where we end up doing very bad policy.
We’ve got to make sure we really grapple with the right direction. Incrementalism as I said is not great if it’s in the wrong direction.
We have got to take some risks… We’ve got to do the things that are right… Got to use the data and evidence, and we’ve got to be open to ideas and then fight for them. Risk will come with every decision. But it’s got to be weighed up and calculated.
My final point is on fairness, which I know has been talked about at length today and dominates so much of the current political discussion.
So let me ask these questions:
How fair is it to let the country fall behind and be unable to compete globally and attract the investment to create jobs, more jobs and better jobs and drive higher incomes?
How fair is it to spend all of our policy focus distributing an ever diminishing pie and then having very little left?
How fair is it to lumber our future generations with debt if we go on spending and expect them to pay for it?
How fair is it to leave our workplaces and communities facing massive disruption and not give them the right incentives and productivity changes and invest in skills that is going to drive higher incomes?
How fair is it to continue to put huge amounts of money into a skills system that actually needs major reform and is not delivering the results that are commensurate with the money that’s been put into it.
Two key messages that have been at this conference have been about the need for growth in productivity and investment.
One of the best ways of getting investment is that company tax cut. And how fair is it to attack the case for company tax cuts but have no alternative plan to get investment going again?
To me, the fairness debate is about honesty confronting the community about what needs to be done but, moreover, honestly telling people the consequences of not doing it.
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