Accelerating economic growth


Event

 

Australian-British Chamber of Commerce, Business Lunch

Speaker

Jennifer Westacott, chief execute, Business Council of Australia

Venue

The Westin, Perth

Delivery

12.55pm (AWST), 13 August 2019

 

I would like to start by acknowledging the Traditional Owners of the land we are meeting on today, the Noongar people and pay respect to their elders past and present.

Thank you for that kind introduction.

It’s great to be talking in Western Australia.

A state that has seen the real benefit and risks of fluctuating economic cycles.

Much of what I have to say today really goes to the issues that affect all Australians but they are particularly amplified here in WA.

People will have their own views about the election result, but there is no doubt it has given us an unusual period of political certainty.

This throws up a welcome challenge – how do we use this period to set up the country for the next wave of prosperity?

For me, that centres around improving productivity and that’s the focus of my speech today.

The Prime Minister recently called on us to help identify the roadblocks that are imposing the “largest costs on key sectors of the economy’’ and serving as a hurdle to investment.

The Prime Minister has also said that business must make the case for change and I hope this speech today begins that process.

Business needs to come together around some practical bite-sized measures we can take now to drive higher living standards and increase wages growth.

We must bring the community with us and begin to focus on the things that really matter.

Our job is to convince the community at the grassroots level.

Instead of talking about how we punish people who get ahead, we should be rewarding them.

The first was in this line in the intro: Instead of talking about casualisation of the workforce, which of course the data doesn’t support, we should be making sure every single Australian has a meaningful job - and they have the skills to keep working for as long as they want.

Instead of talking about some nebulous concept of a living wage, let’s actually do something to lift the wages of every Australian through higher productivity.

Instead of pitching Australians against one another, we need to bring the country together, particularly focusing on our regions.

Above all, we need to act to make ourselves a more productive nation.

It is through being a productive country – not just the lucky country – that we can continue to be resilient against global forces, competitive and lock in higher wages and better living standards.

So, if we are to focus on the right things, we must also use the right language.

Nobel prize winning economist Paul Krugman said: “productivity isn’t everything, but in the long run it is almost everything’’.

We know productivity matters, it matters for all of us.

Increasing productivity is not about people working harder for less.

Instead, it is about people working smarter and more effectively by making the most of every ingredient that goes into producing our goods and services.

Productivity happens when employers have the capacity to invest and innovate in expanding, training workers, updating machinery, and adopting new technologies.

They’re able to produce, sell, and export more, allowing them to employ more people and pay them more.

Nurses spend 50 per cent of their time currently on administration.

Think about the benefits if they were able to get the best technology to allow them to spend more time with patients at their bedside.

Improving productivity can be investing in innovation – whether that’s developing a medical device like the Cochlear ear, MYOB software for accounts, or phone apps to book Qantas or Virgin travel.

Mango growers Manbulloo, which operates out of Queensland and the Northern Territory, is currently trialling the use of block chain technology to provide real time monitoring of the quality of its fruit.

This is reducing the costly and time-consuming duplication of quality checks along every stage of the journey from the farm to the shelves of Coles or into overseas markets at a premium price.

However, if we are to have an honest conversation about innovation we need to acknowledge that it does produce changes to the labour market.

We can’t pretend that it doesn’t result in some jobs disappearing.

For those affected, the personal toll is enormous and we must do all we can to help them get back on their feet and reduce the risk of them losing their jobs in the first place.

But let’s get some facts on the table.

We commissioned research from AlphaBeta last year to do some work on this.

The first point is that forced reduced redundancies have almost halved over the last two decades.

The second thing is that the focus will be on task change, not job loss.

So, we have to recognise that adopting technology and innovation are essential to allowing companies and workers to compete and survive in a global economy.

If we don’t recognise this, we place our national prosperity at risk.

Anything that holds people back from changing their skills and anything that holds business back from adapting to change is the greatest risk to somebody’s job.

I now want to turn to why productivity matters so much.

The best barometer of living standards we have is the long-running Household, Income and Labour Dynamics in Australia survey, which is known as the HILDA survey.

Recent data from the survey demonstrated what a lack of productivity means for Australians.

It showed that the income of middle Australian families, after taking into account taxes and inflation, was lower in 2017 than it was almost a decade ago.

I don’t use slides very often in speeches but this one tells a very powerful story.

It shows what is behind our stagnation in living standards.

It’s a lack of real incomes growth. 

Real incomes can be driven by external factors, such as higher commodity prices, which by their nature are volatile.

Or they can be driven by productivity growth.

In the 1990s, productivity growth ran at an average 2.2 per cent a year.

This was also the pace of real income growth.

In the 2000s, real income growth ran at about the same rate, but slower productivity growth was offset by the record terms of trade.

Now, the terms of trade boom is over.

Productivity growth has been around 1.2 per cent a year since 2010.

And real income growth has also slowed to the same rate.

Until the Morrison government’s welcome income tax cuts, bracket creep had worked to erode those modest real income gains.

Right now, we have the 11th highest GDP per capita in the world.

What happens if we slip to 30th?

To improve our productivity and our living standards, we need to take action on:

  • lifting business investment
  • getting an infrastructure pipeline flowing
  • giving Australians access to the skills and training they need
  • making sure workplaces operate in the interests of employers, workers and enterprises
  • attacking unnecessary red tape and regulation
  • and, getting our energy and climate change settings right.

The first problem we have to solve is investment.

It is through investing in new plant and equipment, expansion, technology, innovation, and skilling people that employers and workers can become more productive.

But investment is falling.

New business investment fell 1.3 per cent over the year to March.

And, as a share of GDP, business investment is at its lowest level in 25 years.

We need to dispel the myth that lower interest rates alone will lead to greater investment.

It won’t.  It hasn’t.

Instead, it’s about improving the rate of return for every single investment decision for every single business that will drive change.

And, the best way to do that is to change the after-tax return on a project.

At some point, parliament will need to come to terms with the drag effect of our company tax rate of 30 per cent.

The rest of the world is moving to reduce their rates and we are stranded with the second highest effective marginal company tax rate in the OECD.

Our bizarre two-tier company tax system is holding back smaller businesses from growing.

Given the Senate’s resistance, we’ll leave this fight for another day.

Instead, we can – and we should – consider introducing a permanent broad-based investment allowance.

For any eligible investment that a business makes, it can immediately deduct a proportion of the asset’s value today.

This is on top of depreciation.

Say we have a banana grower in Cairns looking to invest in a few sheds for packing, packaging and grading bananas.

The whole fit out could come to $1 million.

While this can be depreciated, with a 10 per cent investment allowance they would also get a $100,000 extra deduction this year.

Imagine if it was 20 per cent?

That’s money they could reinvest into growing their business or employing more people.

I’d now like to turn to infrastructure, which is a great enabler of productivity.

Whether it is a major road or rail project, port or airport facility, improving infrastructure means we can more effectively get our goods and services around the country, and also into lucrative export markets.

Fresh produce from Margaret River, the Atherton Tablelands or the Darling Downs can get onto the tables of Japan, South Korea and China.

And, Australians get from A to B without being stuck in transit.

We know from HILDA that commuters are spending longer travelling than they were fifteen years ago.

The median time people spend commuting each day has increased 60 per cent over this time – up from 30 minutes a day to 48 minutes.

That’s time they’re not spending with their families and it’s time they’re not at work because of traffic delays.

Nationally, we are making huge investments and improvements in infrastructure with NSW leading the way but we can do more.

An initial step would be having the Commonwealth and states agree on the extent and sequencing of national public infrastructure projects.

A strategic pipeline of projects developed from the ground up can deliver what places and communities need.

We must also act to reduce the amount of time it takes for major project approvals.

Now, if I turn to skills.

The most important ingredient to manage the task change I have talked about is rapidly upskilling as the world of work changes.

It’s why we are constantly calling for a rethink of the post-secondary education and skills system.

We need to remove the cultural and funding bias that treats vocational education and training like a second-class system.

This is a big area for reform.

For starters we should establish a single information point for post-secondary education and skills.

Students would have all the information they need at their fingertips about courses, cost and career prospects.

We also plan to collaborate with VET and higher education providers to identify the barriers that are stopping them from fast-tracking micro credentialing.

A more modular approach would allow workers to dip in and out of study to get the skills they need quickly without leaving the workforce.

And finally, we need to fix some basic – but incredibly important – problems that are holding us back.

It is a huge failing that 99 per cent of employers say they are affected in some way by low levels of literacy and numeracy.

It’s one of the greatest obstacles for Australians getting jobs and being productive.

We have been talking to employers and we have prepared a guide for teachers, students, employers and employees about the literacy levels and skills they expect and need.

We want young people and workers to be able to go to a page or a screen and get real-world examples of what employers are looking for.

We’ll launch our work soon but it will help better match what employers and workers need to succeed.

Giving workers access to the right skills and training is one thing, but we also need to have workplaces that operate in the best interests of employers, employees, and enterprises.

Integrity is the foundation of constructive workplace agreements.

We also need to recognise that our current workplace relations system is too rigid and it is too hard to employ people.

We’ve spent the past two years travelling around the nation through our Strong Australia Network and talking to local businesses and communities.

Everywhere we go the story is the same.

It cannot go on like this.

We continue to support enterprise agreements as the centrepiece of the relationship between workers and businesses, but we want it to work better.

Workers on EBAs get paid more.

Non-managerial workers earn on average around thirteen-dollars more an hour than workers on awards.

But has we have identified we currently have the lowest number of active federal enterprise agreements in twenty years.

EBAs are the best tool that both employers and workers have to figure how to be more productive, and then benefit from it.

To get the system working better, we need to unscramble the complexity of EBAs.

EBAs have become Downton Abbey-sized laundry lists, containing way too many items.

This bogs down negotiations, agreements take too long to conclude, and it stifles the ability of both employers and workers to respond to changing circumstances.

We also need to act on the Better Off Overall Test.

BOOT is a productivity killer.

As the Productivity Commission found it “discourages enterprise bargaining and creates uncertainty during the agreement approval process’’.

The test was originally intended to mean that your workforce was better off overall than under the award.

In 2016, the Fair Work Commission found the test effectively meant that every individual worker and prospective worker had to be better off than the award.

In practise, to meet every individual circumstance that might arise, an employer may be in the situation where their EBA may need to be better than the award in almost all aspects.

In the real world, how is this practical?

If you have a complex workforce that offers flexibility and choice to your workers, you’ll have casual and permanent staff.

But casual and permanent staff have different requirements, and they trade off different things for different benefits.

The problem with the way the BOOT is operating now is that it prevents trade-offs.

A company that cannot meet demand quickly, cannot rapidly change what it’s doing, and is strangled by an inability to make trade-offs, is a company that cannot thrive.

When it cannot thrive, fewer people are employed and some may lose their jobs.

We support the PC’s recommendation of a no-disadvantage test.

EBAs also need to last across the life of a project. Labor proposed this at the election, and the PC recommended an EBA match the life of a greenfields project.

We can’t allow the EBA system to die the death of a thousand cuts.

If the union movement is serious about lifting wages, they’ll get serious about working with us to fix the EBA process because it does – and continues – to deliver higher wages because it is delivering the foundations for higher productivity.

So why would you want to pull down the system that Labor created? It beggars belief.

But none of the improvements to the system can be achieved if the system has no integrity.

None of this can be achieved if the system is dominated by a culture of bullying and intimidation.

Nobody can come to the negotiating in that kind of environment.

So, the first thing we need to do is to get the integrity of the system back on track.

That’s why the government’s Ensuring Integrity Bill and the Proper Use of Worker Benefits Bill that requires all actors in the system to operate with the highest standards are crucial first steps.

Unions should be subjected to the same transparency and standards that businesses are.

And, we also recognise that business has a role to play in ensuring integrity in the system and a fair workplace for all.

The Senate should pass these Bills without delay so that we can begin to get the enterprise agreement system back on track.

Now, let’s look at the silent and costly deadweight of unnecessary regulation.

Australia is in a global competition, yet we make every race a steeple chase.

We keep putting up barriers to working smarter and operating more effectively.

Here’s some examples:

A major project in regional Western Australia that will create thousands of jobs can be tangled up in green tape by a group in Melbourne that decides it is their issue du jour.

Under the Environment Protection and Biodiversity Conservation Act, they can launch an appeal against project approvals.

We agree projects need rigorous and stringent environmental assessment, but we need to question whether the current system is working for all Australians.

We propose removing appeal rights for non-impacted third parties under the EPBC Act to speed up major project approvals.

Here in WA, the state Environment Protection Authority is considering state based carbon emissions guidelines.

We propose that we work constructively with environmental regulators around the nation to work out how we offset the emissions from large projects.

And in Hobart, the local council will ban single use plastics by businesses that provide or sell food in packaging that can be taken away and consumed by twenty-twenty.

If you are a global company, you do not have a Hobart based manufacturing base.

We propose business leads a conversation about how we can reduce our reliance on plastics and how the regulatory environment can drive that without adding costs to consumers.

On red tape, proposed changes to the rules governing the supply of chemicals in Australia is impeding research and innovation.

You can’t import sufficient quantities of chemicals to make ongoing research commercially viable with administrative and verification costs continuing to be prohibitive.

Or, the situation where Australia’s approach to approving medical devices – including the timeframe for approvals – is affecting the ability of our medical technology industry to grow and compete in global markets.

We propose recognising world-class international standards from the US and Europe to speed up approval times to register medical technologies and vital agricultural products.

And, of course, shoppers can go online 24-hours, seven days a week and buy anything, anytime.

But as you’re painfully aware in WA and other states, shops still have archaic trading hours.

This trading hours issue has just got to stop. We need to solve it.

It’s crazy to argue that we need to give the little family-owned café a chance on Sundays before Woolies and Coles open – because the café relies on people stopping in for a coffee on their way to do their grocery shopping.

I want to turn now to energy and climate change.

We need to find a way to get our electricity and gas bills down.

When we were in Bathurst for Strong Australia we heard how shopkeepers are forced to wear beanies and parkas in winter to stay warm because they can’t afford to turn their heating on.

This is unacceptable.

We need investment certainty and an end to the policy wars that have plagued us for a decade.

Our focus should now be on an energy mix driven by technology change and innovation that delivers reliable and affordable energy and reduces our emissions.

Part of this is opening up the supply of gas – a critical transition fuel for a lower emissions economy.

We have an array of policy mechanisms, systems, funds and schemes, why don’t we draw them all into achieving those three objectives?

Today I have outlined a relatively straight forward to do-list.

It’s not without complexity but it is doable.

But we need governments and political parties across Australia to come together to say: “how do we use this next 12 months to position the country?’’

Surely the purpose of public life isn’t just endless point scoring, it’s to act in the long-term interest of the country.

Surely over the next 12 months we can get things done instead of elites nit picking over data or arguing that my idea is a better idea.

I’m happy if someone has better ideas than these, but I want to see them and I want to see them quickly because we can’t just go on like this.

And, I want business to come together on these pretty simple propositions and mobilise:

  • their employees
  • their shareholders
  • their suppliers
  • and the communities they operate in.

Because we must start taking some action.

Because it is business that will drive productivity.

As employers, we cannot lecture. Our job is to make the case and bring the community with us.

So, today, I call on the Australian business community to come together on this issue and remind Australians about our greatest virtue.

Now don’t get me wrong, companies are absolutely entitled to run on social issues.

As employers, we represent 11 million of the 13 million Australians who work.

We are expected to stand for something, and for the greater good.

But this shouldn’t overshadow our true social licence to operate.

The virtue we should signal is the millions of people we employ.

The virtue we should signal is the jobs we create that mean Australians can get ahead.

The virtue we should signal is the supply chains and small businesses we support.

The virtue we should signal is the tax revenue we contribute that pays for the services we need.

The virtue we should signal is that enterprise breathes life into communities.

That’s the virtue that will underpin stronger productivity growth.

That’s the virtue that will increase living standards.

The virtuous circle is governments, business, and civil society coming together now – once and for all – to get our productivity back on track.

And then we can be proud that we showed the collective leadership to give Australians greater opportunity, better wages, and allow them to get ahead.