Speaker: Jennifer Westacott, Business Council of Australia chief executive
Venue: Online event, Sydney
When: Wednesday, 12 May 2021
Topics: Budget 2021, business investment, economic growth
***Check against delivery***
I would like to start by acknowledging the Traditional Owners of the land we are on today, for me that’s the Ngunawal and Ngambri people, and pay respect to their elders past and present.
Thank you for the introduction.
Budgets are more than numbers, they’re both philosophical and structural.
They are about a vision for the country and in a structural sense they are about whether we’ve done the work to deliver that vision.
On vision, we’re looking for whether it gives people a sense of direction, our level of ambition and what type of country we’re going to be over the longer-term.
I’m always curious on budget night what the average Australian thinks before they’ve switched over to Masterchef.
Instead of noise and numbers, acronyms and animosity - they’re looking for hope and something that speaks to their aspirations for the country.
In our view, this budget’s vision had to begin laying out the process of the kind of country we are going to be over the next 40 years – not the next four years.
It had to give us a sense that we were going to come out of this recession in a way that was going to position us for a new era of prosperity.
And that we would begin to shake off the shackles that were coined by the Economist that we’re “one of the best managers of adversity the world has seen – and the worst manager of prosperity’’.
So, let me go to the philosophy of the budget.
The first glimpse we got of the Treasurer’s vision was in his pre-budget speech.
He outlined a similar position to ours: that it is growth – not austerity – that will bring unemployment down, repair the budget and help build a better society.
We need to wrestle the unemployment rate below five per cent to drive higher wages.
And he stressed that it’s private sector growth that is the essential ingredient in maintaining a strong economy.
Last night’s budget reflects that philosophy.
The budget finds itself in better shape because the economy has rebounded more quickly.
The budget deficits for 2020-21 and 2021-22 have been revised down by almost $60 billion compared with last year’s budget.
This budget has done some important work in beginning to shape the kind of society we want and the economy we need to achieve that ambition.
There are important steps to build a dynamic economy for the future that will allow us to fashion the kind of society we believe Australians want.
The budget has the right philosophy - the challenge is whether it has put forward the right structural measures to deliver on that vision.
We have judged the budget’s progress against five key metrics:
- is there a plan for growth?
- are we set up for success in the medium term?
- are we addressing labour market issues?
- are we adequately funding social priorities, and
- have we set out a credible fiscal plan.
I’ll now turn to each of these.
Like everyone, we wanted to see the budget support significant growth in the near term that can be sustained into the medium term.
The budget forecasts growth of 4 ¼ per cent in 2021-22 and growth around 2.5 per cent the following years.
But growth is a relative concept both over time and in comparison to other countries.
The budget forecasts show a strong bounce back in growth this next financial year before returning to growth around 2 ½ per cent from 2022-23.
But as we show in our pre-budget submission we need to sustain growth above 4 per cent to restore the lost GDP compared with the pre-COVID outlook to make up lost ground.
We have to remember growth averaged around 3 ½ per cent a year across the 80s and 90s. That helped deliver a doubling of income per capita over the 40 or so years prior to COVID.
So, anyone who thinks reverting to growth figures with a two in front of it is good news is mistaken – and we must lift our ambition on this front.
This bring us to our second metric of success, whether growth can be accelerated and sustained over the medium term.
Here, we were looking at two things: firstly the budget’s broader investment signals and secondly the specific spending measures that can underpin strong growth and begin repositioning the economy.
Let me go to the overall investment environment first.
Right now, business investment as a share of the economy is sitting at 28 year lows.
There is no private sector led recovery while investment remains stuck at these levels.
The budget forecasts show investment down by 5 per cent in 2020-21 and it is expected to recover by 10 per cent in 2022-23 – but it is still as low as it was in the 1990s recession as a share of the economy.
And, we still have more investment dollars leaving Australia than coming in, which I’ll return to later.
The extension of the immediate expensing and loss carry back measures will continue to lift business confidence, especially for small to medium sized businesses.
The extension of the low and middle income tax offset will put money in people’s pockets and help keep momentum in the economy as other measures end.
It’s great to see the budget continue to respond to our consistent calls to act on removing the regulatory red tape burden that stifles innovation and adds to business costs.
Building on these measures and continuing to reduce regulatory red tape will be an ongoing challenge.
What we remain constantly concerned about is that unless we turn around the 28-year low in business investment as a share of the economy – and more importantly unless it encourages investment in new job creation and new industries – we run the risk of a false dawn.
We run the risk that we are not going to drive productivity.
Let’s go back to basics – investment drives productivity and productivity drives wages growth.
Going back to the people who switched over from the budget to Masterchef – their biggest issue is that their wages are not going up and they do not feel they are getting ahead.
We need to become more attractive to global capital and start sending the right messages to the rest of the world that we are open for business.
So, now let’s examine some of the specific structural measures in the budget that drive the medium term results – looking at these in tandem with polices that have already been put in place.
These include the modern manufacturing strategy and the research and commercialisation agenda – both are important policies that will help us start to diversify our economy and create new industries and new jobs.
We wanted to see initiatives in the budget that built on these measures.
The most notable of these is the government’s strategy to drive digital innovation and investment, which we fully embrace.
The government’s package brings government services more fully into the digital world, reinforcing digital uptake through the community.
It provides incentives for all businesses to make the most of digital platforms and makes a modest but important step towards modernising the tax system by making the system more friendly towards businesses who want to upgrade their technology.
It’s also good to see targeted infrastructure investment to drive structural change and fulfil the potential of regional Australia.
The government’s investment of more than $1 billion in low-emissions technologies, including hydrogen hubs in regional Australia, will help reduce our emissions, create new industries and new jobs.
It’s good to see the government investing in closing the gap on things such as the cost of hydrogen.
This is hugely important to get this industry going – and we need to get it going at export scale and at a size where it genuinely does become a substitute for traditional energy sources.
This is how create we create new industries, new jobs and the technological solutions to lower our emissions.
Now, I’ll turn to our third metric – whether the budget addressed key labour market issues, including skills and female participation.
It is good news that the unemployment peak was lower than expected and the rate has come down in recent months.
We need to do more to move the 1 million people on JobSeeker into meaningful work and to reduce long term unemployment which has risen to 245,000 people.
Long-standing issues still remain – it’s not good enough to have over 30,000 people out of work for over a decade.
Skilling up Australians, of course, is one of the keys to becoming the more innovative, competitive and smarter nation that I’ve just spoken about.
It’s how we help people get back into the workforce.
It’s how people can advance into better jobs.
It’s how we create high-paying jobs, capture lucrative new markets and creative new industries.
We therefore welcome the budget’s strong focus on skilling up Australians and supporting jobseekers package.
- the government doubling its commitment to the JobTrainer Fund
- support for more than 450,000 new training places to upskill job seekers and young people
- the creation of more than 170,000 new apprenticeships and traineeships
- another 5,000 places in higher education short courses, and
- a huge investment in job services reform.
With Australia’s population growing at its slowest rate since World War 1, we endorse the Treasurer’s move to lift female participation by fixing the barriers for women who want to get back to work.
This doesn’t just help make a fairer society, it’s also an economic imperative.
Smoothing some of the financial cliffs means more people can work to their full potential and advance in their chosen fields.
We still believe more needs to be done, including addressing the remaining cliff in the child care subsidy system.
We will continue to work with the government to improve our child care and paid parental leave system so that women can get back to work, families have more flexibility and we can make our economy more productive.
And finally, of course, we continue to remain concerned about the length of time it will take to restore skilled migration back to its pre-COVID levels.
Stagnant population and a lower population number is a low growth number.
Let’s be super clear: skilled migrants create jobs - they don’t take them away.
They create the skills density to drive investment into the country.
What companies across the country are telling me – they can’t get the skilled people they need, so they can’t expand.
We cannot be a growing, advanced economy if we let our gaze turn inward, away from the rest of the world.
Now, let’s look at whether the budget adequately funds social priorities – our fourth metric.
The way you judge a society is not how it looks out for its strongest members but how it cares for the people who face the biggest obstacles.
The social dividend of a strong budget is how you give back to your citizens – and the priority must always be our most vulnerable and disadvantaged citizens.
I don’t believe we can all lead lives of dignity and purpose if we are willing to turn a blind eye to the indignity of others.
The Royal Commission into aged care told us about abuse, the lack of quality care and funding, and it told us about the indignity we were expecting our grandmothers and mothers, our grandfathers and fathers to live with.
We also know that people with disabilities and people living with a mental illness face enormous hurdles throughout their lives.
Aged care, disabilities and mental health combined represent big structural spends, adding collectively to the bottom line by $33 billion over the forward estimates.
The challenge in these big ticket spending areas lies in getting the long term funding models right, considering the role of government support and personal contributions where appropriate.
We also need to consider the capacity of these sectors to deliver services to an acceptable standard, including through expansion of the carer workforce.
We must see last night’s big investment on our social dividend as a down payment on building a better society – not as the final instalment.
If we squib making the right structural decisions to address the issues of workforce, training, demand and supply we will be back here in another decade’s time.
We’ll be back here talking about the failings in our child care, aged care and disability systems – and more and more of us will have a relative in that story.
We have to future-proof these social systems.
And finally, I’ll turn to our fifth metric – has the budget set out a credible fiscal plan?
Determining a fiscal plan presents a set of difficult and confronting choices we have to make as a society.
Now more than ever, we face an enormous balancing act.
But we have committed more than $300 billion in fiscal and health support cushioning the blow of COVID with almost $150 billion this year alone.
Debt is set to rise and we will have a trillion dollar mortgage on the Australian economy.
Which brings us to a set of fiscal dilemmas.
There are heightened expectations of the role of government.
There are expectations in some quarters that there are no limits on the fiscal purse and the government can happily spend at will like a drunken sailor.
But the drunken sailor approach to fiscal policy will surely see us stumble into a fiscal abyss from which we can’t climb out.
The other end of the spectrum is the fiscal hawk approach which would see us follow the austerity route to repair the budget as soon as humanly possible.
To do that through austerity instead of growth would require a scale of austerity that Australians won’t tolerate.
We can all remember the controversy that followed the last major austerity drive – in the 2014-15 Budget – which proposed $36 billion of savings over time, which is within the margin of error of today’s fiscal numbers.
But make no mistake, future governments have to start looking at fiscal consolidation, particularly when unemployment has a four in front of it and hopefully GDP has a three in front.
Fiscal consolidation doesn’t mean no debt, it means sustainable debt.
Let’s remember what saved us during the pandemic – it was previous fiscal consolidation that gave us to capacity to throw everything at the virus.
We do not know what is around the corner.
So, we must go forward with a growth strategy combined with careful, prudent spending. We have got to get that balance right and it is not easy.
Every dollar we spend needs to be a dollar that creates a job, equips someone with better skills or improves the delivery of services.
- following prudent fiscal rules
- ensuring the efficiency of the public service
- innovation in service delivery which sometimes requires investment, and
- it’s about not making a situation worse through irresponsible spending.
Similarly, anyone who thinks taxing our way to paying off that debt is a sensible answer to this country’s current situation is sadly mistaken.
Taxing our way out of this – whether that’s through unchecked bracket creep or imposing higher taxes on big targets – they all ultimately eat into our growth story.
As Winston Churchill said: “for a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle’’.
It has never worked. It won’t work.
So, on balance this is a very good budget. Challenges remain.
The first is the fiscal challenge and I’ve already talked about that.
The next challenge is that very little of this will matter if we remain fortress Australia. Over time we will be a weaker Australia.
We must find a nationally coordinated way of gradually and carefully reopening our borders in line with progress in the vaccine roll-out.
We must continue to look outwards and capture new export opportunities, attract international students and skilled workers.
And the biggest challenge and the biggest worry I have about the budget is the outer years of growth projections and the lack of ambition in those.
We are forecasting a growth rate that is lower than the rate prior to COVID – and that’s held down by stagnating productivity and low population growth.
So the challenge for Australia is simple.
We have to think big because a 2 ½ per cent growth rate is not going to create:
- the new industries of the future
- the higher productivity driving higher wages
- the secure work
- the massive export opportunities, and
- importantly it is not going to generate the revenues that are going to pay down that debt.
We need to lift our level of ambition.
We need to think big because other countries are thinking seriously big.
We run the risk that we will be overwhelmed by our competitors and become a second order economy in a region that is powering ahead.
We need to embrace the constant modernisation, the constant diversification and the constant expansion of our economy to drive growth rates that have a three or a four in front of them.
That’s the number that will drive higher living standards.
Drive investment, drive productivity and drive competitiveness, and we need to think big on all these fronts.
If we think small, we’ll be presiding over a lacklustre economy versus a golden era of prosperity which is there for the taking if we make the right decisions.
If we think small, we’ll be presiding over contracting living standards.
And who are we talking about here?
We’re not just talking about ourselves.
We are talking about bequeathing to our children and grandchildren lower living standards and a weaker, less resilient country.
Every generation of Australians since the war have left their children and grandchildren better off.
It would be shameful if we were the first generation to fail that test.
We have a chance to deliver on a pretty simple vision that I think most Australians would share - strength through prosperity and fairness through opportunity.