Event: Jennifer Westacott interview with Kieran Gilbert, Afternoon Agenda
Speakers: Kieran Gilbert, host; Jennifer Westacott, chief executive Business Council of Australia
Date: 12 May 2021
Topics: Budget 2021
Kieran Gilbert, host Afternoon Agenda: Let's get some reaction from the head of the Business Council of Australia, Jennifer Westacott. Let's start first of all with your overall assessment?
Jennifer Westacott chief executive Business Council of Australia: We think it's a very strong budget. We think it shows what happens when you get a growing strong economy. We think it does two things really well. It drives a whole lot of initiatives around the private sector led recovery, which the Treasurer talked about, which we agree with. The tax incentives. The extension of expensing. The huge skills package, to try and drive that skilling up of the population more quickly. The participation initiatives. The infrastructure. The big spend on digital and that's all off the back of the other things, modern manufacturing, that were announced last year. So that's the kind of private sector led recovery. And then on the flip side of that is the social dividend, huge investment into aged care, mental health disabilities. The only thing that I am anxious about is when I look at those growth figures in the outer years. You know, 2.5 per cent GDP growth. I mean, obviously the budget comes back firing in the first years. But over time, it gets back to a pre COVID level. That's actually below the pre COVID level. Now that worries me quite a bit because that's not enough to drive wages and it's not enough to drive the kind of growth that allows you to pay down the debt. Now, clearly that's driven off the back of population growth, lagging productivity, very conservative assumptions about iron ore obviously, but we've got to have a more ambitious growth agenda. We've got to think big.
Kieran: And it goes to that. One of those points on the graphic that we just ran for our viewers. The migrants not returning until mid-2022. That's a huge economic problem. Isn't it? Because of the labour shortages and the number of sectors?
Jennifer: Exactly the labour shortages. I mean, the population has driven a lot of GDP growth for quite a long period of time. And there is an assumption that somehow we'll get wages up, you know, because we'll have labour shortages. It doesn't kind of work like that because you've got mismatches in certain sectors. So farmers are telling me they can't get people to pick their crops. ICT companies are basically cannibalising themselves because they would normally be bringing people in from overseas. The other point is that if we want to get some of these sectors really growing in Australia, manufacturing and so on, you need to bring the skilled people out who train people on the job, who then expand our capability. So we continue to press for a considered roadmap of gradually opening up the economy internationally based on the vaccine rollout. But in the first instance, stopping further shutdowns in the domestic economy, but then gradually rolling out more international border exposure. Starting with international students, and there's some flagging there could go a bit further, skilled workers and obviously we need to make sure that's in line with the risk factors as we roll the vaccine out.
Kieran: With skilled migration, it can be a competitive space. And so, Australia comes at this from a good position now, because it's not just about the tax environment, it's the health environment.
Jennifer: Absolutely. There are many companies that I think if we - and there's some good stuff in the budget about attracting global talent - but what people say to me, when they think about coming to Australia is, ‘I need to be able to get the skilled workforce that is able to do X, Y, and Z.’ Particularly for new things, those skills won't always be in Australia and they want to bring people from international markets so they can train other people. And then you build up that skills density they call it. That allows them to then expand their operations in Australia. Now, you can't do that with the borders closed indefinitely. The other point Kieran is we've got to start sending a signal. That’s why we need a kind of more transparent roadmap because something like Qantas or Virgin, their schedules are six months. The international airlines, they’ll be looking at Australia, will I start scheduling? And then international students, there's some stuff there which is really good. But there's a lot of students where we don't necessarily need to bring them in by the end of the year, but we need to say, ‘term one next year, all these things being in place, you can re-enrol.’ And that would see the universities, I think, kick up their enrolments.
Kieran: How comfortable are you with the debt and the deficit trajectory? It's better than it was in October, but still substantial.
Jennifer: Look I think on the debt side. I mean clearly we are in an extraordinarily low interest rate environment. So the debt is not in and of itself expensive. Secondly, we've got a low debt to GDP ratio compared to other countries. But the third point really is that growth is actually what matters here and you can see the impact of growth. The budget position is $60 billion better off from last year's budget because we've been able to bounce back harder, drive higher revenues from companies which goes into tax revenue. So growth has got to be the answer there. But over time and I think everybody who has commented on the budget has made this point. We've got to start thinking about fiscal consolidation. Because if we don't we're very vulnerable. Let's not forget one of the reasons we've been so successful in this pandemic is we were so strong, had such a strong budget position going into it. We've just got to start the careful process of prudent spending, efficient government services but focus on growth. Because it's growth that allows you to start paying down that debt.
Kieran: One of the problems has been sluggish investment. Corporate investment. Do you think this rollover of the instant asset write off and loss carry-back. Is that going to be enough to drive investment over the next 12-18 months?
Jennifer: I don't it's going to be enough. I think, first of all it doesn't apply to the really big companies. And look, you know, there will be different views about that, but the reality is they've got the big balance sheets. They're going to do the big projects. They're going to do the projects that aren't just buying some equipment from somewhere else that doesn't actually generate a job. They're going to be doing the big construction projects. So we continue to want that applied to the bigger companies. But secondly, we need to send a permanent signal to businesses all over Australia. Whether they're large or they're small that we are more competitive to invest in Australia than international competitors. We need to be sending a message to those companies that look at Australia at the moment and they go really attractive place to go and set up, but can I get the skilled labour? Can I get the right return on my investment because I'm going to be paying a lower tax rate? So I know the company tax stuff was fought hard and the senate didn't agree to it but let's at least look at something like a broad scale investment allowance. And things like encouraging SMEs to put their data in the cloud, invest more in digital, the digital package is good. But we could do so much more of that and supercharge the economy. So it's great what was announced last night. It's hugely significant. Could we go further? Absolutely, and I think we will have to because we're going to be in a race for capital. This is my point about ‘think big’. You've got to think big about modernisation, think big about expansion, think big about productivity, think big about skills because it's that big thinking driving big investment that gives you a much higher growth rate that gives you a capacity to pay down the debt.
Kieran: Is this what you were talking about in those outer years? To be more ambitious in the growth rate?
Jennifer: Much more ambitious. But you need the policy tools to do that. And that's the investment, permanent change in investment. So a company looking around the world at the moment thinking about Australia says well actually, a 20 per cent investment allowance, good access to skills there, good skills programs there and I can bring some of my skilled people over who can train up other people. Suddenly you've got, when people take these cases to their global boards, suddenly it's looking pretty attractive. So we've got some of the tools but not all of them.
Kieran: When it comes to the health story which underpins the whole thing. We're talking about migration, the borders, the government reticent or cautious maybe is the word. But you need...they also need to ensure that the vaccine rollouts done and they have the appropriate quarantine reserves. What's your thinking on that?
Jennifer: The mindset that we've just got to get ourselves into is that we've got this thing for a long time. I mean the idea that you're going to get the entire world vaccinated and you're getting these emerging strains that are unpredictable. So we've got to fix quarantine. In the short-term it's got to be that we fix the system that we've got. In the long-term or the medium-term maybe some more innovation there. Like these quarantine centres that people have talked about. The universities have said that they could come up with their own arrangements for international students. But we've simply got to make sure that we keep the vaccine on track and that we start telling people how many people are being vaccinated. Most importantly and we know it's about 2.5 million people. But what we don't know or I don't know is how many people in the high risk cohort have been vaccinated? How many people in the next age group have been vaccinated so we can say well at that point we should be never closing a state border again.
Kieran: Jennifer Westacott, chief executive of the BCA. Thanks as always.
Jennifer: Thanks very much.