Speech - Getting Ahead Of The Game




"Getting Ahead Of The Game"




I would like to begin by thanking Peter Watson for hosting tonight's event, and also Steve Howard from the Global Foundation for the invitation to speak to you all on a topic so central to Australia's long-term prosperity.

Now that the Olympics have begun in Beijing, global competitiveness understandably commands the attention of the nation. But there's another type of global competitiveness that will impact on our lives long after the curtain comes down on the 2008 Games.

As events of the past year have reminded us, we live in what is an increasingly unpredictable and rapidly changing world. Our ability to thrive in this global environment depends on our ability to sustain and enhance our competitiveness. That's why international competitiveness is such a central part of the Government's mission - right across our agenda, and particularly central to the big three reforms in COAG, climate change, and tax.

I understand that some of you have been engaging in deliberations with the Chief Statistician of the OECD, Enrico Giovannini, before dinner on developing a set of national progress indicators. It's great to see our Chief Statistician, Brian Pink, here tonight as well.

I welcome this chance to talk about the long-term international competitiveness of our economy - it's something I'm a bit obsessive about. And I know this is something you care very deeply about, as well. Like you, I believe it's important that we know where we stand in the global community. Where we excel and where we can do better.

While Australia performs very well in some areas, in other areas, such as education, tax and productivity, there is room for improvement.

The Rudd Government is determined to build a more modern, competitive economy capable of meeting the challenges of the 21st century.

We are determined to build on the reforms of the last quarter century that transformed Australia's inward-looking economy into one that is more open, more dynamic and better-placed to succeed in a constantly changing world.

As we have become more open to the world, the world has become much more open to us. We have seen a near doubling in our external trade as a share of our economy. And, as it has grown our trade has become more diverse. Our exports of services and elaborately transformed manufactures are now each bigger than the rural exports which were once the backbone of our economy.

As the world economy has become more integrated, we find that there are few events that remain confined within national borders. The sub-prime crisis, which began in the US a little over a year ago, has ricocheted around global financial markets and pushed up borrowing costs around the world. And at the same time, the global oil price shock has contributed to a surge in global inflation and slower global growth.

We shouldn't be surprised that the global oil shock and the global credit crunch - together with eight official rate rises in three years - are impacting on our economy, as today's Reserve Bank Statement on Monetary Policy clearly shows.

Like the rest of the world, we haven't been immune from these global difficulties. In a globalised economy we don't expect a smooth ride. But we are better placed than most other countries to withstand the fallout.

One reason is that we are also a beneficiary of the sharp increase in global commodity prices. Oil is more expensive - but so is coal, so is natural gas, so is wheat, so is iron ore - all of which are important Australian exports.

In the Australian Government, however, we are anything but complacent. In our first Budget we made a start to remedy our shortcomings in roads, rail, ports and bridges, by setting up a $20 billion Building Australia Fund.

We recognise that our global competitiveness fundamentally depends on the quality of our workforce - on the education and skills of Australians. We have started addressing our shortcomings in education and training, by setting up an $11 billion Education Investment Fund.

This is all creating a 21st century economy, to meet 21st century challenges.

We know the boom in resource exports won't last forever, so we are responsibly and diligently building a more modern and dynamic economy. One that is better placed to both seize the opportunities and meet the challenges of a rapidly changing global economy.

Our Place in the World

It is especially important that we modernise our economy at a time when we are experiencing an immense transformation in our region.

China is now the second biggest economy in the world and there's a fair chance that, within a few decades, it will be the biggest. India is now the fourth biggest, and I have little doubt that within a few decades, it will be the third biggest. Within a few decades considerably more than half of the world's output will be produced in the region stretching from India to Japan.

Australia will find ourselves closer to the centre of the world economy than Europe will be, or North America will be. At last, the tyranny of distance has been turned on its head. This economic community will of course be trading with Europe and North America as it does today but over the next few decades it will also become more of a true economic community. This is the economic community of which we are already becoming a part - by choice, and by necessity.

If I can just digress for a minute to underscore this point about our region.

As many of you know, this time last week I was chairing the APEC Finance Ministers' Structural Reform meeting in Melbourne. This was a fascinating forum. Finance Ministers and their representatives from across the vast APEC region. Together, they represented some 2.7 billion people.

When the Hawke Government established APEC in 1989, even the wildest optimists couldn't have imagined the literally hundreds of millions of people who would be lifted out of poverty by the economic growth that has flowed from trade and structural reforms since.

I was struck by that success, but I was struck by something else too: how many of the economies in the region looked quite consciously to the Australian structural reform experience in their own efforts to enhance trade and competition and to harness the power of markets to drive growth in the years ahead.

It made me at once proud of our reform record of the 1980s and early 1990s, as well as optimistic for the future of our region and our world to see economies so committed to growth-enhancing reforms.

Ours will be an economic community that can rival Europe and North America in education and skills, in industry productivity, in depth of market, in the deployment of capital, in technological command, and in innovation. It will be, within a few years, the biggest middle class market on the planet. For our children and our children's children it will be an entirely new world. The opportunities are obvious - but the challenges are also immense. The challenge to remain globally competitive. To carve out our place in a world which will change so rapidly over coming generations.

My time around that table with my APEC colleagues really underscored for me the importance of the Government's reform agenda to modernise our economy. To build a dynamic, seamless, more competitive national economy. To build the modern tax system we need for the 21st century.

And to build a low-carbon economy, to give our children a head start on the jobs of the future.

These are big challenges.

The good news is that this Government is prepared to face up to them. The not so good news is that it is going to take some time to repair the neglect of the last decade. And we are starting from further behind than we would have liked. Over the past decade, we have fallen back in the global competitiveness stakes.

Seamless, Competitive National Economy

So let me turn now to what we plan to do. I want to concentrate on what I see as the Government's three big reforms this term: COAG, the Carbon Pollution Reduction Scheme, and tax. Each of them has a contribution to make in our efforts to lift productivity and claw our way up the ladder of international competitiveness.

For a start, we need to harness our federation, to make our economy stronger, more integrated and more productive. So many of the challenges facing the economy can be addressed through more effective Commonwealth-State working arrangements. Here we are already making some good progress. We are reforming the way Commonwealth funding is provided to the States.

The old system of tied grants that plagued our federal system for decades will be replaced by a modern framework, including incentive payments that provide the States with the flexibility they need to deliver reform, while increasing their public accountability. It is an approach governed by market principles, with a clear line of accountability and responsibility.

This big agenda is made worthwhile by the gains we can make from a more modern federation, and a seamless, more competitive national economy.

A Competitive Tax System for the Future

If we are to remain competitive in the 21st century, we also need to modernise the framework of incentives to work, to compete, and to succeed.

Last week I launched the Treasury discussion paper on the architecture of the tax system - I urge you to have a read. We're examining interactions between the tax system and welfare, tax and savings, and any unnecessary impediments to work and enterprise and good business decisions, which the tax system may impose. Long-term modernisation of the tax system is a key part of our efforts to underwrite Australia's global competitiveness and to lift productivity.

One of the observations in the Treasury discussion paper is that while our tax burden compares favourably against our OECD peers, it is significantly higher than our immediate neighbours - an issue that the Review will enable us to explore.

For my part, I have identified three main priorities for the Review:

  • Making our tax system more internationally competitive;
  • Rewarding hard work by untangling the disincentives which result from the complex interactions between the income tax and welfare systems; and
  • Harmonising and simplifying a system which has become too complex.


You can see from these priorities how central competitiveness is to our tax reform objectives - and I want to hear your ideas in the coming months.

Climate Change Opportunities

Climate change is another area where we are engaging businesses and the broader community. I am convinced that while climate change is a big challenge for us, it is also a massive opportunity. The process of transforming to a low-carbon economy will see new opportunities, new technologies and new markets.

And I do really believe that Australian businesses have the skill and ingenuity to be world leaders on climate change.

The Carbon Pollution Reduction Scheme will provide the right incentives to help drive investment in low-carbon technologies. It is the best way to reduce emissions, while continuing to build long-term economic prosperity. It is an opportunity for us to lead the way in certain technologies, to lead the way in the adaptation of our industries to a low carbon future, to position ourselves as a global industrial leader in a low carbon economy. It offers us in other words, the chance to become an accomplished and established player in a new game, and get a head start on other economies.


The reforms I have talked about today will not be easy. But our Government is determined not to shirk the big reforms just because they are difficult. To borrow a great phrase of John F. Kennedy's: reformist work in government is worthwhile not because it is easy, but because it is hard.

When governments in this country have introduced the most important reforms - the ones that have made the greatest difference - they have never been easy.

There have been critics - just as we face critics today. But we won't be deterred, because we see so much real value in the long, hard slog of stable, enduring reforms:

  • Reforms that pass the test of time;
  • Reforms that modernise the economy; and
  • Reforms that make us more competitive in the global community.


And I look forward to talking with you more about our agenda for the future - not just tonight, but in the coming months and years.