Speech - Making The Most Of Our Opportunities




"Making The Most Of Our Opportunities"




Thanks very much to both Tony and Jennifer for having me here today. It's a great opportunity to continue the dialogue we've been having about the structural forces which are shaping our economy and our country.

I've talked with you a lot about the massive transformation we are witnessing in the global economy, at the dawn of the Asian Century. The dimensions of the global forces which are carving a new world economic order are simply staggering. I know Tony also spoke about the magnitude of these shifts last week.

The scale of this global economic paradigm-shift also reflects the scale of the opportunities flowing to Australia. Three simple stats illustrate these opportunities:

  • In the 1950s, only 15 per cent of global GDP was within 10,000 km of Australia.
  • Today, that share has more than doubled to around one third.
  • By 2050, it could surge to almost two-thirds of total global GDP.

Sitting on the edge of Asia amid a structural step-change in the region's demography, economic maturity and affluence offers much for Australians and our own standard of living. But we must make this the Australian Century in Asia, rather than being content to be a passenger in the Asian Century. This means we have to keep getting our policy settings right to ensure we reap all of the benefits available to us in the decades to come.

I want to talk a bit later about three areas of public policy in particular which are centrally relevant to our economic story. I'll talk about the compelling case for returning to surplus, about our productivity achievements and challenges, and about the role of tax reform in the context of our patchwork economy. But first I just want to spend a bit of time talking about the nature of that debate itself, because I think in many ways that's just as important.

Now, I think it's fair to say that some of my remarks on this subject in recent weeks and months have attracted a bit of attention. But all I am saying is that we do need a very thoughtful and considered debate in this country about the forces shaping our future, and how we can best bend these dynamics to our greatest advantage.

Tony, I share your view that Australia's best days are still in front of it - that so many great opportunities lie ahead of us in the Asian Century. I share your vision of a high wage, high productivity economy. But I think where we differ is how this great country got to where it is today - the path we took to becoming one of the economic success stories of the developed world.

Of course, the patchwork pressures in our economy are creating significant challenges for some sectors in particular. But our economic fundamentals are truly the envy of the world. Our economy is over 7 per cent larger than it was before the global financial crisis, while many other countries have yet to make it back to the starting line, and some are now in reverse.

We've got sound public finances with very low debt, growth returning towards trend, low unemployment and contained inflation. We've got a record pipeline of business investment, with a staggering $455 billion in resources alone. And we've got a $1.3 trillion national superannuation savings pool which was critical in recapitalising Corporate Australia during the crisis.

But how did we get here? We obviously took the right decisions to avoid recession during the most profound shock to the global economy in three-quarters of a century. But it's the decades before this that Tony spoke about - in the 80s and 90s - when we built so much of the foundation for our economic success.

I'm not much younger than you are Tony, and going back a few decades further as you did in your remarks, I remember the 50s and 60s like you with pleasure. I think we all look back fondly on times past, with a sometimes longing glance in the rear-view mirror. But I think from time to time we also tend to remember all the good things without necessarily recalling the challenges we faced and the struggles we endured.

Of course the proud memories are many and great. We had as you say the 1956 Olympics. We had the Snowy Mountains Scheme. But it's also worth recalling that in those days we also still had the White Australia Policy. We still had high tariffs. We still had a fixed exchange rate. We still had judicial determination of wages, with appalling strike levels we thought normal at the time but which in retrospect are astonishing. Days lost in industrial disputes in 1971 were more than ten times the equivalent number last year - and the workforce is now twice as big as it was back then.

I mention these things because I think we should all remind ourselves that the 1950s and 60s were pleasant in some ways, but we still had much work to do to make the most of our opportunities. We had a quarter of a century of high inflation and high unemployment before we reformed the place in the 80s and early 90s and began the two-decade long period of uninterrupted prosperity we're still enjoying.

Tony spoke about the big, tough reforms in the 80s and 90s that helped set Australia up for this sustained run of continuous economic growth. Floating the dollar and compulsory superannuation among them. I'd add a few more to that list - bringing down the tariff wall, national competition policy, ending centralised wage fixing, the introduction of enterprise bargaining, and the deregulation of the banking sector. These were great economic reforms of great Labor governments. Reforms that were hard fought by the likes of Bob Hawke - and by my predecessor Paul Keating, as Tony recently observed.

Of course, very few people today would admit to being on the wrong side of those debates all those years ago. But the fact is that these transformational reforms certainly didn't have the overwhelming support of the whole business community. In fact, some of them were trenchantly opposed. We heard then - just as we hear now - the same dire predictions of business closures, cost increases and job losses that would result. Well, of course, history now tells a different story.

The fact is that long-term economic reforms are always controversial and they are always hard fought. And in the spirit of those great reforms past, the Gillard Government has been getting on with calibrating our settings for the Asian Century. I'll talk a bit later about some of the massive reforms we've already got underway and some of the substantial investments we've put in place. But the Government, just like the business community, does want a sensible discussion to build consensus around a balanced approach to the big issues confronting us as a nation.

As Treasurer, I've always tried to listen to all sectors of the economy and find a balanced way forward in the national interest. We want to work collaboratively with the business community to get our settings right to maximise the opportunities that will flow to us.

The Tax Forum late last year, the PM's Manufacturing Taskforce this week and the COAG Business Advisory meeting yesterday are all good examples of progress we can make working together.

In the same way that we're working together to get our policy settings right to deal with the pressures from our patchwork economy, we also have to work together to make the most of our strong economic fundamentals. And I think we all have a responsibility to talk the place up a bit, for the sake of all the businesses represented here in this room, and all the Australians those businesses employ.

We must also be realistic about the challenges we face and the tough decisions we must make. Of course, one glance at the newspaper headlines on any day of the week will tell you that's clearly not an easy thing to do. Take for example the debate we're having about the surplus, where naturally there are a range of views.

Bringing the budget back to surplus has been made substantially harder by $140 billion in revenue write-downs over the five years to 2012-13. But I recently outlined the compelling policy reasons for our fiscal strategy, and I think it's worth just revisiting the central themes.

Delivering a budget surplus in 2012-13 is the responsible thing to do in an economy which is moving towards trend growth. Returning to surplus ensures the Government is not adding to price pressures in an economy experiencing a once-in-a-lifetime investment boom.

As I've said before, you can't be Keynesians on the way down and not on the way up. Balancing the budget gives monetary policy the maximum possible flexibility to respond to economic developments.

A surplus is also Australia's best defence in a global economy that is changing dramatically, underscoring confidence with a clear message to global markets that we are committed to responsible fiscal policy. This last point has been made very emphatically in recent days by global ratings agencies, who describe the Government's budget strength as a key support for our AAA-rating.

I'd now like to turn to the productivity debate we've been having. Because I think this is another area where some of the facts have been overlooked or distorted. I simply make the point that, while we clearly need to have a healthy debate about how we reverse the decade-long decline in productivity growth, we should also keep our performance in perspective.

We are one of the top dozen countries in the world in terms of labour productivity levels - a position we have held for the last decade or so. It's part of the reason why we can be the 13th biggest economy in the world, with only the 51st largest population.

It's also normal for productivity to be a little lower when we've got a huge pipeline of investment ramping up. This investment will ultimately lead to greater production and exports - that's when we'll start to see the productivity benefits come through.

But, of course, productivity growth isn't good enough, and isn't what it could be. We must not settle for these low levels of productivity growth when productivity is the key to our success in the Asian Century.

We've seen a structural decline in productivity growth over the past decade and this takes time to reverse - you can't just click your fingers and do it overnight. It requires Government action across a range of policy areas, but it also requires continued innovation at the enterpris level. It must be a joint effort. You don't hand out in a cardboard box with a bow tie.

We all recognise that productivity growth is central for competitiveness and higher living standards over the long-run. That's why at the core of our agenda is a broad-based plan to boost the productive capacity of our economy. It's worth just reflecting on some of the huge investments we've made.

We're investing $60 billion over four years in education, including funding nearly half a million university places in 2011.

A $3 billion package in last year's budget to build Australia's future workforce through measures to boost skills and participation.

A package that delivers an additional 130,000 training places, and which places industry at the heart of the training effort.

Boosting the number skilled migration places by over 16,000 in 2011-12 to help get the skills we need in the regions we need them most.

A comprehensive package of infrastructure reforms to promote a bigger national pipeline and mobilise up to $25 billion of private investment.

The structural separation of Telstra - the holy grail of microeconomic reform in the telecommunications sector, and building the NBN.

And just yesterday, it was great to have Tony join the PM, Minister Wong and ACCI to work through the COAG Business Advisory Forum. This is all just part of our broad productivity agenda which spans tax reform, skills, infrastructure, education, innovation and technology. I'd also like to just spend a few moments talking about the first of these - tax reform - in the context of the patchwork pressures in our economy.

As you all know only too well, the sustained strength in the dollar has made a very tough set of global conditions even tougher for some of our key export-driven sectors like manufacturing, tourism and retail.

I noted a couple of weeks ago that while the exchange rate only averaged around 78c to the USD over the five years to 2008-09, it has been between about 95 and 110 cents since late 2010. This is the most observable element of the structural transition shaping our economy against a backdrop of a rising Asia with a seemingly insatiable appetite for our minerals.

As I travel around the country, I hear first-hand about the profound challenge a higher dollar poses for many export-reliant business models. It simply makes them less competitive in their own global markets. This was one of the strong themes to emerge from the Tax Forum last October - the need for tax reform to help provide relief for many struggling businesses. For this reason, I announced the Business Tax Working Group, to look independently at how our tax system can help struggling businesses. I'd like to take this opportunity to thank Jennifer for her contribution.

The Group's initial focus has been the tax treatment of business losses, and ways to fund any changes from within the business tax system. Today I've released the Working Group's final report. A key finding of the report is that improving the treatment of tax losses is a worthy reform.

Such a reform would help struggling businesses to rise to the challenges and opportunities of a patchwork economy.

Of course, I know that there are different views around the room on the relative importance of various tax reform measures. Some will take the view that we should prioritise a further reduction in the company tax rate - beyond a cut to 29 per cent. I welcome a healthy debate on all of this.

But my own view is that it's hard to overstate the importance of tax relief for struggling businesses, given many of them find it hard to make the adjustments necessary to succeed, or in some cases even to survive.

In the longer term, the Group will focus on other tax reform options, and I look forward to continuing this discussion as we go forward. But I'd also encourage you to support the Government's existing push to cut the company tax rate with some of the revenue from the MRRT.

Because today we have the incredible situation of the party of Menzies opposing a cut to company taxes and instead proposing to actually increase the company tax rate for large businesses. Businesses including the likes of struggling manufacturers and retailers. So it is very important that the voice of business right around the country speak up about whether they want a higher or lower company tax rate.

For our part, the Prime Minister and I, and all of our economic colleagues, will continue to engage with business on the issues which matter for our future economy.

It's an agenda which the Government and the business community must continue to work on together. Just as we worked together during the global financial crisis to keep the economy out of recession and keep the doors of business open. In doing so, we will work to find the responsible, middle ground and take a balanced path in the national interest.

So thanks for having me here today, and I look forward to some discussion of all these things, and more, in the Q&A.