Event: Business Council Chief Executive Bran Black interview with Patricia Karvelas, RN Breakfast, ABC Radio National

Speakers: Business Council Chief Executive Bran Black, ABC RN Breakfast Host Patricia Karvelas

Date: 6 September 2024

Topics: Interest rates, GDP, economics, government spending, student caps, productivity

E&OE

Patricia Karvelas Host, ABC RN Breakfast: The Reserve Bank, Governor has all but confirmed interest rates won't be cut anytime soon, despite acknowledging that some Australians can't make their mortgage repayments. Michele Bullock spoke about families and homeowners struggling with high interest rates, but said fighting inflation is extremely important … And of course, that's Michele Bullock speaking yesterday, the Australian economy is growing at its slowest pace since the 1990s recession, excluding, of course, the covid pandemic, where it all but shut down. Bran Black is the Chief Executive of the Business Council of Australia. Welcome.

Bran Black Chief Executive, Business Council of Australia: Thanks so much for having me.

Patricia: Michele Bullock highlighted owner occupiers on variable loans, saying 5 per cent or, you know, one in 20 borrowers couldn't cover basic expenses and mortgage payments, seems quite worrying, particularly for those people. What impact is it having on business and the economy?

Bran: Well, it's telling you, I think it's fair to say, a pretty significant impact. You know, we're seeing that insolvency rates are the highest they've been on record, that since records were kept in 1999, but we know everybody's doing it tough. We also know that we need to support the idea that we've got to get that inflation under control. You know, I'm over 40. I think for anybody who's over 40, they'd remember the hardship associated with the 70s, the 80s and 90s, where inflation was so very high. I can remember as a child sitting around the kitchen table with my parents and just the challenges that they had in terms of paying bills. But the critical message that came through then and comes through now is that we have to control inflation. We have to use interest rates as a means of doing that, and whilst this is extraordinarily hard, it's the best way to get back to a point where we have sustainable long-term growth.

Patricia: Okay, so let me ask it this way, are interest rates smashing the economy?

Bran: Well, I think interest rates are obviously hurting people. There's no question about that.

Patricia:  But in terms of their economic impact, which has a big impact on what the work you do at the BCA, representing businesses (is) inflation smashing businesses?

Bran: Well inflation is absolutely making it extremely difficult for businesses at the moment, but we are seeing, of course, that there are sort of challenges right across the board for businesses. We've been saying for some time that we need to have a more competitive and more productive economy, and we know that increasing productivity is the best way that we can go about dealing with inflation. You know, right now, it's sitting at a six-decade low. The figures just this week confirmed 0.5 per cent over the course of the year. That’s against the long run of 1.2 per cent, so we need to be doing more to try and increase our productivity.

Patricia: On Radio, national breakfast, we're talking about Australia's slow economic growth. My guest is Bran Black from the Business Council of Australia. So, we got the numbers of our sluggish GDP, it rose just 0.2 per cent as we've been saying, right? What investments do you think Australia is missing out on because of that weak growth?

Bran: Well, it’s a great question because I think one of the sad facts is that we’ll never know the full extent of that. You know I hear from businesses constantly, and I really do stress that, week in and week out, I hear that we are seeing Australian businesses deciding not to continue further investments in Australia, and I also see that international businesses are choosing not to invest in Australia, and they're doing that because the consistent message is it's just not as competitive a place to do business as it used to be. And that can be tracked. So, the IMD rankings show that 20 years ago, our international competitiveness was ranked fourth. Now it's 13th. So, we've declined, and my worry is that we're going to continue to decline, unless we invest in those productivity enhancing reforms that are so important.

Patricia: Productivity has become a bit of a buzzword …  I feel like it's thrown around with little detail. Just give me an example of something that you think the government should immediately be doing to try and lift productivity, which you are right, is in a dire station.

Bran: Well, I might just say it is one of those words that's thrown around and so many people just think…

Patricia: And can become meaningless.

Bran: Absolutely. And what is it? One of the things that I think is often misunderstood is that people assume that productivity means that everybody's got to work harder. The idea behind productivity is that we're getting more out of our inputs than we have been previously. So, the idea there is that you might invest as a business in new capital equipment or in upskilling your staff, and the consequence of that is that you're able to produce more for less. And that's, in an essence, what productivity is. What we can do in order to increase our productivity is give businesses an opportunity to make those types of investments in their capital equipment, in their staff. We do that by reducing their costs and their overheads elsewhere. So, the impact of industrial relations, the impact of poor planning regimes and the impact of regulation more broadly. Where we can find ways to reduce those things we can increase productivity.

Patricia: Government spending and migration are the only reasons we're still growing at all. So, do you think the government's made the right decision to keep spending where it's at?

Bran: I think what we need to do is bear in mind that ultimately, we've got to get spending under control and move towards a position of reducing government spending. Now, that doesn't mean that there's no basis for government spending now, and there are, of course, targeted programs that are important.

Patricia: But can you see the case for the Government? I mean, the case that the Treasurer has been making that if he'd cut further, if he'd done that, actually, the economy would have struggled even more than what we're seeing.

Bran: We've always been a bit concerned about the extent of government spending, and that really comes from the Government's own reporting. We know from the 2023 intergenerational report that that talked about a $140 billion a year gap between revenue and expenditure come 2060. Now that's a long way down the track, but unfortunately, the reason for that is largely attributable to our aging population. So, we'll have less people working in the economy to pay for more people who are elderly and in need of more costly health care. So, what we need to be doing there is trying to find ways to reduce expenditure. And again, that goes back to my point in terms of productivity, finding ways to get more out of what we're doing.

Patricia: The other part of this, of course, is caps on migration, particularly on international students. Will that put a handbrake on growth?

Bran: Absolutely, we are very firmly of the view that caps on international students are the wrong thing for our economy. You know, just last week, I was giving evidence at the Senate for the future Matt in Australia inquiry and what struck me as I was doing so is that this is a bill that's designed to create new industries and to give us an opportunity to grow and yet, we've got an industry right here that is growing quickly and supports $50 billion a year for our GDP. It's worth 250,000 jobs. It's our fourth largest export. It's our second largest if you group together the mining-related exports. We've got an industry here that is absolutely shooting it out of the park, and we should be backing in and we should be supporting it.

Patricia: Yes, but the Government's argument and the Opposition actually, they're one on this, whether they like to admit it or not now, and what I mean by that is the Coalition hasn't outlined for our listeners the cap that they've put on, but they certainly have talked about the need for caps. Now the Government's given us the number. Their argument is that just the infrastructure and the needs of our cities are just not up to it, cannot meet that demand. What do you say to that?

Bran: I think we need to be in a position to chew gum and walk at the same time, and the problem that we've got to address is ultimately our housing challenge, and there are ways in which we can do that. Now, some of those measures are harder and long term, but there are other measures that we can take that are short term, that help us try and encourage more housing into the market. That's the problem that we need to address, but we shouldn't be looking at taking steps that have the impact of reducing our capacity to back in really solidly performing export markets. And I just make one point in this regard, and that's the in Canada, where they've imposed student caps. What we've seen is that some universities have failed to hit that cap, and sometimes to the tune of about 20 per cent. That’s particularly problematic, because the reason for it is that there's a signal that's been sent to the market, and that signal is be very cautious about thinking about your international study here. We don't want that in Australia. If we were to have student caps and then a failure to enroll to the tune of 20 per cent below those caps, the result could be devastating for our universities, for jobs, and it goes beyond the universities. It's the foot traffic, it's the jobs within cities. It's that sense of vibrancy. Just last week, I was talking to a diplomat from South East Asia who was saying that he'd had a wonderful studying experience in UNSW and that his daughter was studying at Sydney University, and you've just got to stop and think, what's the value of that soft power that we generate through our international export market there.

Patricia: Bran, thank you for coming in.

Bran: It’s my pleasure.