Jennifer Westacott interview with Will Koulouris, Mandy Drury and Martin Soong, Squawk Box Asia, CNBC

12 May 2021


Event: Jennifer Westacott interview with Will Koulouris, Mandy Drury and Martin Soong, Squawk Box Asia, CNBC

Speakers: Will Koulouris, host; Jennifer Westacott, chief executive Business Council of Australia; Mandy Drury, host; Martin Soong, host

Date: 12 May 2021

Topics: Budget 2021

Will Koulouris, host Squawk Box Asia: I'm very pleased to be able to welcome Jennifer Westacott. She is the CEO of the Australian Business Council and she's joining us live from Canberra. Jennifer, thanks so much for being here. Now. This is a huge budget. Some people have called it a spendathon, even though the Treasurer might not like that term. But in terms of the impact this is going to have on business here in Australia, you've got your finger on the pulse when it does come to that. So do you think that we're going to hit that 10 per cent in two years’ time?

Jennifer Westacott, Business Council chief executive: Well, I hope so but don't forget hitting that 10 per cent is still got business investment where it was in the 1990s when we were in a recession. So we need to do a lot more on business investment. Look, the budget is very good. It's a very strong budget. It does the right things, of driving the private sector recovery, which is what needs to happen now, we need to get off the government recovery. It does that through those investment incentives that you've talked about, it does that through a huge infrastructure spend, through a very substantial skills package for some activities that are targeted to labour market participation and things like a big digital package. So that's all the stuff around driving a private sector led recovery. At the same time, it pays back through a social dividend, huge investment, unprecedented investment in aged care, a big investment in mental health and disabilities. The only concern I've got about the budget is the outward years growth forecasts, where we're forecasting 2.5 per cent GDP growth, off the back of 4 per cent in the near term. I'm concerned about that because that's driven off assumptions around population growth, assumptions around iron ore prices. And I'm assuming it's been mostly driven by our pretty woeful productivity. We've got to think bigger. We've got to actually put the foot on the pedal in terms of driving innovation, driving further digitisation, driving the expansion of business, driving investment even harder and driving deregulation because we need a bigger number at the end of those forward estimates because that'll give us higher wages.

Will: Yeah and Jennifer, I was going to ask you about that. What was missing from the budget in terms of what business was hoping for? You mentioned that the raft of good things in the budget, but what were you looking for that wasn't necessarily there? Sorry to put you on the spot as well.

Jennifer: Look, I think pretty much everything we asked for was in there. The only thing that's missing is a big investment package for the larger companies. Now I understand the politics of that, I get that. But the reality is it's those companies that have the big balance sheets, it's those companies that can unleash the really substantial projects that have that transformational effect, whether it's in decarbonising the economy, growing the hydrogen sector, driving the digitisation of the economy, obviously our mining giants, which continue to kind of enjoy the benefits of huge iron ore prices. That's the bit that's missing. I understand why there is a view that these very profitable companies don't need assistance, but the reality is they make decisions as you know about long run cashflow projections and the IRR on projects and we've got to make those investment of equations better for them. And we've also got to be a more attractive destination for foreign capital and a very high company tax rate and no investment incentive for large companies, I think that's a missing link. We would still prefer to see a broad scale 20 per cent investment allowance that would drive those long-term investments in things like SMEs and large companies putting their data in the cloud. All that productivity driving stuff that actually is the way you get higher wages.

Mandy Drury, host Squawk Box Asia: Jennifer, obviously at the moment the borders here in Australia are largely shut, which means that we can't rely on immigration to support the Australian labour market in the same way that we used to, at least not for the moment, do Australians have the skills necessary and can we skill them up? You know, retrain people up, train people at a fast enough pace?

Jennifer: Probably not. And that's why we say that as part of the vaccine roll out, we've got to set a timetable for getting skilled migration back, particularly in targeted areas. I would pick things like ICT where the companies tell me they've got a 22 per cent attrition rate and they're kind of cannibalising themselves at the moment. We've got to set that plan, as we roll out the vaccine, how do we get those skilled migrants back? How do we get international students back, that is of big export value to this economy, and we need to send a signal to those students not to go and enrol in a university in Oxford or the United States, to come to Australia in the first term next year. So I do think we need to pick up the pace on that. We do not have those skills all here. The other point about skilled migration that I think gets lost on lots of people is that many people want to bring people to Australia, particularly in these specialised areas that Australia wants to get into, advanced manufacturing and so on, to train up Australians. Most people learn on the job and many people need that highly skilled person who often comes from an international destination to come to Australia and skill other people up and that skill transfer that happens when borders are open. We cannot become so risk averse about getting skilled people into this country that we lose the benefit of the magnificent way we've managed this pandemic relative to other countries.

Mandy: And you're absolutely right. It really comes down to getting the rollout of the vaccination happening faster and not just here but overseas as well. I have to ask you though, Jennifer, there is no such thing as a free lunch, right? So, all of these goodies right now in the budget are great to help support economic recovery but down the line are businesses in Australia fearful that they're going to have to pay for it some way or another and it will probably be in higher taxes?

Jennifer: Look, I think everyone has a bit of an anxiety about that, but I do think we have to put the debt into context. First of all, obviously we've got the lowest interest rates on record, so the debt at the moment is affordable. Secondly, we've got a low rate of debt to GDP relative to other countries, at 40 per cent. So, you know, it's manageable. But make no mistake, governments in the future are going to have to do fiscal consolidation. Now, the best way of doing that of course is to continue to put the engine of growth in place. And you can see that in the budget figures, a $60 billion improvement in the budget because the economy has recovered faster. A big hit to the budget from company tax receipts being higher. So we've got to keep that pressure on a growing economy. That's still the best way to sustain being able to get back into a balanced budget and to pay down debt. Obviously, government is going to have to continue to be prudent about what they spend. We have to keep looking at ways that we can innovate public service delivery so that we're not necessarily cutting costs but we're getting more value out of each taxpayer dollars spent. Those are really important things to do, and we've done it before. People forget that we're in this terrific position because we started the pandemic with a budget that had gone back into surplus and that was years of hard work, not mass austerity, not mass cost cutting but careful prudent economic management. And of course, to your point, taxing your way out of these things is never the answer and we know that. Business would be very anxious about that, but I'm not sure on company tax that you can make it any higher. It's certainly one of the highest in the world, so that would be economically very destructive. The government has made a commitment that it's not going to try and find taxes to do this. Taxes have never been the answer to these things. They give you a sugar hit for the short term, but over the long term, they just send capital somewhere else.

Martin Soong, host Squawk Box Asia: Jennifer, talk to us about the way you're thinking about demographics as well. You were talking about immigration a couple of seconds ago. I mean, that's sort of the human equivalent of mergers and acquisition, right? You are buying capacity. In this case importing human capacity, as opposed to trying to grow it organically. Australia, it's not quite the demographic crisis that China is going through right now and we'll be talking more about that a little later on in the show, but Australia's demographics are also an issue. Your population is obviously greying. In the budget, did you see, or do you think there ought to have been more focus on let's say incentives to encourage people have more and more children or is that even the right way to go about this? Or should there be more incentives to offset the demographic decline by say, encouraging investment in productivity enhancing technology or something like that?

Jennifer: It's kind of all of the above. The government just announced a childcare package, for example, that gives you a greater level of subsidy the more children you have. So, that's highly targeted in that direction. You've got to do all of this stuff haven't you? I mean, you can't just rely on one thing, you've got to drive the productivity, you've got to drive the competitiveness, you've got to get companies investing. You've got to remember that at some point, and we would say there's some pretty conservative assumptions in the budget, you've got to get skilled migration back into Australia and you've got to get population growth. Because we have relied on it, we're going to continue to rely on it. It's been a big driver of economic growth and we have to find a way to get it back and to signal it's coming back obviously carefully and safely in line with the vaccine rollout and the health advice. But a small Australia, an inward-looking Australia, in my view is a weaker Australia, to that demographic point that you've just made because it will also be an older Australia and then we'll have a narrower tax base. And all those things if you take a long-term perspective are not good. They're not good for paying down that debt that we just talked about, and they're not good for driving that economic growth that gets wages up.

Martin: Okay. Totally understood Jennifer. Great to talk to you. Thank you very much for your time.


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