Address by BCA CEO Jennifer Westacott to the Prime Minister’s Economic Forum

Opening remarks made by BCA CEO Jennifer Westacott to the Prime Minister’s Economic Forum held in Brisbane on 13 June 2012

Introduction

In considering Australia’s current economic circumstances and prospects, the Business Council sees four main things that need to be done:
1. We need to get a better understanding of the so-called transition
2. We need to get on the same page on the language and importance of economic growth, competition and productivity to achieve our shared objectives to raise the living standards of all Australians
3. We need to take stock of the policy fundamentals to achieve those objectives
4. We need to commit to working together to restore confidence.

Understanding the transition

First, the transition. We really need to get a better handle on this. Is it structural? How much of it is temporary? While there is no denying the changes, we shouldn’t overstate their magnitude.

Take one example: employment trends. Over the past ten years, about 20 per cent of the 2.2 million new jobs created in Australia have been in healthcare and social assistance.

This is important but we should keep it in perspective – the proportion of the total workforce employed in the sector has only climbed from 10 to 12 per cent. Recent trends in the composition of the workforce are likely to continue but we should expect the changes to be incremental and not overwhelming.

But the fact remains that we need to have a better sense of what we are transitioning to. We must always remember that for some Australians, transition is the loss of their job or the loss of their business. And this affects confidence.

Part of the answer, of course, is that ongoing change is the normal state of affairs within a dynamic, growing economy. The challenge for us all is how can we adapt to this change.

We remain of the view that the rightful role for policy should be to help with the adjustment process, rather than trying to slow it. This means pressing ahead with reforms that enhance the flexibility of the economy, make it better able to adapt to external shocks and allow us to cope with the inevitable structural changes that do occur.

Australia has always had mechanisms to deal with these issues, including a process of fiscal equalisation amongst the states, an efficient and targeted welfare system and, in some instances, the provision of direct adjustment assistance.

The importance of growth, competitiveness and productivity

It is our view that a strongly growing economy is the best mechanism to do the heavy lifting to raise our living standards and provide a social safety net. There are two aspects to growth. The first is we must unleash the wealth creating parts of the economy, and support those sectors that are doing the heavy lifting for overall strong growth.

There is a legitimate conversation about how the whole community benefits from that growth and whether that is best achieved through short term redistribution or the long-term productive capacity building through infrastructure and skills. We ought to do both but it is a question of getting the balance right.

The second point about growth is it must be inclusive. We believe we must not lose sight of the fact that inequality is an economic issue as much as a moral and social issue.

This is why the Business Council is joining the ACTU and the Australian Council of Social Service on an initiative later this year to better understand the causes of inequality and the options to address it.

So, if we in this room can agree that economic growth is fundamental to preserving our way of life then there are two ingredients we should also agree on today. The first is the need for our economy to stay competitive. And we are starting to see some worrying signs here.

They won’t show up in economic statistics immediately, and the risk is that by the time they do show, it will be too late to turn things around.

The competitive landscape IS changing, our costs ARE increasing, we must get to the bottom of this. Our infrastructure report released last week was designed to remind us that high costs and declining productivity will put at risk our current and future pipeline of growth.

If we are to be a high-wage, high-productivity economy then we must look at all aspects of our competitiveness. And addressing productivity is the key to that competitiveness.

The first thing we know about productivity is that it’s complex, that it’s probably sectoral and probably micro-economic. But, once and for all, if we can achieve one thing from our conversation today on productivity, can we put an end to the myth that what business means by increasing productivity is having people working harder for less wages.

This is not what we mean at all.

We mean creating the conditions and the leadership and management capability to drive home innovation and change at the firm level. Clearly the labour productivity numbers that came out last week need to be read with some caution.

Achieving productivity growth of 4 per cent per year – as reported by the ABS – would be terrific if it could achieved consistently but we think that’s a little unrealistic.

We can and should aspire to annual productivity growth of 2 per cent per year. And with the free kick to national incomes from the terms of trade coming off, we need to look back to the fundamentals of labour force participation and productivity.

The business community recognises that driving productivity improvement is really something that needs to happen at the firm level.

We have been talking about this with the ACTU about how we work together increase opportunities to lock in high-quality and sustainable jobs and improve Australian workplaces to increase productivity in the key sectors. We also know that innovation and investment are key.

But firms will only innovate if they can capture the cost savings and therefore commercial benefits of their actions. So the question becomes what is the right incentive environment for companies to capture those benefits.

Getting the fundamentals right

If we are to succeed in our aspirations to be a high-wage, high-productivity country, we have to get the policy fundamentals right. The next wave of reform, as the Deputy Prime Minister said last night.

So how do we actually drive that reform? In Australia today it is fair to say that we have bi-partisan support for disciplined fiscal policy settings with an eye to the medium term. Surely there are other fundamental areas of reform that we can reach bipartisanship and broad community agreement on, even if there are differences over some of the detail about how to achieve them.

The Business Council has an expectation that there might be a bipartisan response to Ken Henry’s Asian White Paper process. It would be disappointing if this was not to occur.

We all know the reform fundamentals: comprehensive tax reform; labour market reform; skills; infrastructure; reducing regulation.

We are going to talk about some of these today, some not. We’re making progress on some of them, some not. Some are going to take a long time. But we should never lose sight of the fact that we have to address all these things together.

The challenge is to reset the fundamentals in the context of a longer term plan, get the reform to be comprehensive, and take the incremental steps to get there.

For example, the Prime Minister’s commitment last night to lowering the corporate tax rate is very welcome, but it will stand for little if it is not part of broader tax reform that delivers a net benefit to business right across the economy.

Restoring confidence

Confidence is a crucial cornerstone of our market based economy. It is a key ingredient in the recipe for growth and improved living standards.

Confident businesses will invest, grow and hire. Confident investors – here and overseas – will provide the financing for this to happen.

And a confident community will spend, start families, build houses and invest in their own education and training.

Economic policies need to be set and communicated in a way that builds confidence and minimises unnecessary uncertainty.

The business sector is prepared to be fully aligned with government in meeting the objective of rebuilding confidence. But let’s be real about it. Papering over weaknesses or concerning signs is not a way to build confidence.

The community is smart and well informed. We have to give them the full story – the good bits and the worrying ones. And as we know from Europe, notwithstanding the enormous differences in our circumstances, it is far preferable to implement reform while an economy is strong.

The challenge is winning community support for change that may not seem to be urgent.

I think we can go a long way towards building confidence AND support for necessary change by working together to develop that picture I mentioned earlier of where the nation is headed. And even more importantly, a sense of how we’re going to get there.

While most people can agree on the what, the how is the hard bit. That’s what this group needs to work on today.

Let’s defy the cynics and show we can stop the divisive debate – some of which we have contributed to, some of which other people have contributed to.