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Thank you Kyl [Murphy, CEDA State Director] for that very kind introduction and Clint [O’Brien, CEDA Associate Director] and the entire team at CEDA for the opportunity to address you today, here on the traditional lands of the Turrbal and Jagera people, whose cultures and elders we respect and acknowledge.
I’m pleased to have been asked to help launch this year’s Economic and Political Overview. Melinda’s [Cilento, CEO CEDA] contribution this morning was a terrific reminder of why this is one of the key events at the start of each year, and much anticipated in political and corporate circles. I especially appreciate the opportunity to join some of our country’s most regarded business leaders and analysts – those joining me up at the lectern and, of course, you in the audience – to take stock of the economy, and the policy contest, and to work out how that informs the political year.
WAGES
If I had to nominate the most important place where the economic, policy and political worlds intersect, I would say wages.
Here I want to single out and thank Michael [Blythe, CBA Chief Economist] for his economic update just now. Later on today will be the first time I’ve joined him on a panel like this, but his Economic Issues notes regularly pop up in my email and I’m a very enthusiastic consumer of his thoughts and perspectives.
One piece of Michael’s work that really resonated with me came two weeks ago with his very considered views on the impact of stagnant wages growth in our economy – repeated in part, I see, in the EPO that CEDA’s launching today.
Michael talks about a “wages recession” representing a significant ongoing economic risk which has already caused some macroeconomic consequences. While aggregate income has grown, flowing into company profits and Government revenue, that same trend hasn’t happened with households.
Wages growth is barely keeping up with inflation. It means households have a greater focus on containment; they’ve deferred spending and are putting more of an emphasis on trying to pay off debt.
Michael’s analysis draws from huge data sets owned by CBA, which allow him to look at compositional shifts in the labour market rather than just measure wage rates. The overall picture is one of increased labour competition, where employers don’t want to hand out pay rises and employees don’t want to ask for them.
This has left people worried about their job security and their finances. CBA surveys show people most fear losing their job, being unable to pay their mortgage or rent and being unable to afford food – some of the very basic requirements to get by.
So what I particularly appreciate in Michael’s work is the reminder that wages, and demand, and disposable income, and living standards are not – or shouldn’t be, anyway – an ideological or exclusive concern of our side of politics. For the reasons he’s outlined, stagnant wages growth should concern us all.
ECONOMY
I think one of the disconnects, and perhaps the most important one, between the reality of our economy and the way it is talked about in politics, is this tension between a global economy which is in arguably the best nick it has been in for 10 years, some reasonable headline indicators here, and the economy that people actually experience in Middle Australia, principally through their incomes.
The Reserve Bank’s Statement on Monetary Policy issued last week emphasises from the very first page the “recent synchronised improvement in global growth”. It notes global economic conditions picked up in 2017 and there’s no sign of that slowing down this year. Advanced economies are growing stronger than expected; unemployment is down; and business sentiment is buoyant.
The volatility in the stock market we’ve seen in recent days is even being attributed to confidence in the economy, with investors expecting higher inflation, and subsequent interest rate rises, in response to the strong conditions.
The buoyancy of the global economy is feeding Australia’s headline economic conditions, including our growth in GDP, which the RBA expects will continue to be a little above three per cent this year and next. Our 2.8 per cent annual growth rate in the last quarter, although slightly below market expectations and hardly spectacular, does bring us close to what would be considered average economic expansion.
But international comparisons show other countries are capitalising on improving global conditions better than we are. According to the latest OECD data, Australia ranks 20th in terms of GDP growth among member states, behind the likes of Mexico, Estonia, Finland and Latvia.
As a comparison, understand that in the two years to 2010, during the peak of the Global Financial Crisis, we were ranked fourth-highest in the OECD with GDP growth of 4.6 per cent over that period. At the same time, the economies of similar countries like the US, UK, Japan and Germany were contracting.
So we are used to performing better than this in relative terms. We’re underperforming in the best global conditions in a decade, when it wasn’t long ago we were over-performing in a very difficult global context.
At the same time, some of the underlying data gives us cause for concern, particularly how it reflects the economic reality for large swathes of the community.
Much of that stems from the “wages recession” Michael wrote about; that sense that the link between work and reward has been severed or at least frayed.
A sense underpinned by the fact that over the past year, company profits have grown 20 per cent but wages just two per cent. The latest National Accounts show that in just the last two years, the wages share of income has fallen 1.5 percentage points, while the profits share has grown 2.3 percentage points over the same period. We want strong profits and we want sustainable wages growth too.
On top of that, more precarious and insecure work, and very high underemployment which has almost 1.1 million Australians not getting enough hours at work, is making life harder for many people on modest incomes.
The effects of all of this are obvious.
Household consumption grew just 0.1 per cent in the September quarter – the worst quarterly reading since the Global Financial Crisis. The RBA points specifically to the decline in the growth of discretionary spending, on things such as eating out and recreation, as an indication of increased pressure on household finances.
On top of that, the household debt to income ratio is the highest it’s ever been, and the household savings ratio is around the worst it’s been for about a decade. All of this tells us that people don’t have money to spend in the shops or save for bigger purchases, and are bogged down by debt; all of which has repercussions for businesses and the wider economy.
That’s how I see the economic context.
Let me come at the policy contest in what might seem an unorthodox way in today’s highly charged and contested economic debate – by starting with three things Labor and the Coalition agree on:
- We both want economic growth;
- We both want fiscal repair;
- And we both want to see our businesses succeed and prosper and employ more people.
The differences aren’t necessarily in the what, but the how and why.
That’s where we part company.
GROWTH
Take growth, for example. On our side of politics, we believe the right kind of economic growth starts from the bottom up, not top down.
If we want to build productivity, particularly in workplaces increasingly dominated by machines, then we need to build a society that is dynamic, creative and able to adapt. We do that by investing in human capital; by investing in people, in their education, their skills and their training.
We need more demand in the economy; from people having more disposable income. That’s why we’re concerned about, and focused on, boosting living standards and disposable income especially in middle Australia.
And we need more certainty in energy policy. When I talk to businesses, the cost of electricity is the issue they bring up most often. The policy paralysis in recent years that’s pushed up power prices has had ramifications for businesses, households and, in turn, growth.
BUDGET
Now let’s turn to fiscal repair.
Our approach to balancing the Budget supports our economic objectives in the people-facing part of the economy; an approach that isn’t just consistent with fixing the bottom line, but central to our overarching belief that Budget repair has to be fair.
Our approach seeks value for taxpayers’ money, but also restores the Budget in a way that doesn’t ask the most vulnerable Australians to carry the heaviest burden.
And with the deficit for this year eight times higher than predicted in 2014, gross debt having recently crashed through half-a-trillion dollars for the first time in the nation’s history, and net debt hitting new highs over the next three years, it’s fiscal responsibility that underpins our opposition to $65 billion in big business tax cuts at a time we can least afford it.
I accept that there might be many people in this room who support the company tax cuts, and I don’t begrudge those in the corporate world who have been championing them. But these aren’t ideal circumstances; the Budget’s a mess.
Our tough fiscal constraints mean we have to choose to fund the things we value the most. And we think that we get far more bang for our buck investing in schools, apprentices, universities and public infrastructure. For example, RBA figures show a $10 billion increase in public investment would boost GDP by up to $13 billion.
Perhaps the best illustration of how our fiscal policy differs from those on the other side of politics is that we don’t believe reforms that are Budget-positive must always be unfair – in fact, quite the opposite.
We’ve pitched up a range of responsible savings that significantly improve the Budget over the medium-term, including changes to the taxation of trusts; reforms to negative gearing and capital gains; changes to superannuation concessions; crackdowns on multinational tax avoidance; and plenty of other measures, including a cap on deductions for managing tax affairs.
That’s why a number of commentators have recognised we’ve put more effort into Budget repair than any Opposition in decades.
BUSINESS
We have different approaches to growth and Budget repair, and also to the best way to support business.
We want businesses to have educated and skilled workers. For instance, we’ve committed to reversing cuts to apprentices, schools, TAFEs and universities; we would establish an independent Australian Skills Authority to advise on skill shortages and prioritise investment in those areas; and we would set up a pre-apprentice program to smooth the transition of 10,000 young jobseekers into work.
We want businesses to operate in a stable environment against a strong economic backdrop, which is why we want to boost demand and people’s spending power.
The recent 2018 Australian Industry Group Business Prospects Report – a survey of 269 Australian CEOs – informs this view. It identified “lack of customer demand” as the biggest threat to growth. The second-most cited reason was skills shortages; more evidence that we need to invest in the productive capacity of our people, reward their effort, and ensure they have the means to spend and invest.
We also want business to have decent, productivity-boosting infrastructure. We’ve committed to billions of dollars in infrastructure investment across the country, which will create jobs and boost economic activity, with direct benefits to flow to local economies and indirect benefits to flow to local businesses.
Our commitments include $400 million towards extending the Western Sydney Airport South West Rail Link; $700 million towards a new rail line in Perth’s north-east; building the Northern Adelaide Irrigation Scheme; and additional funding for Infrastructure Australia.
Here in Queensland, we’ve committed to funding Cross River Rail with the State Government; $200 million for a hydro-electric power station at the Burdekin Dam; $100 million towards Townsville’s water security, likely to include a second Burdekin Dam pipeline; and $25 million to finish the Rockhampton flood levee. And just last week, Bill Shorten was in central Queensland to launch the start of our Plan for Real Jobs in Regional Queensland, which included $100 million for the next stage of the Gladstone Port Access Road and a commitment to build the Rookwood Weir. Plus there’s our $1 billion Northern Australia Tourism Infrastructure Fund.
My point is it’s not anti-business to want more productivity through better skills and infrastructure. And it’s not anti-business to be worried about demand and spending power in our economy. We see all that as central to helping businesses succeed.
POLITICS
I’ve deliberately spent more time on economics and policy than politics because I think these are the main drivers of the political year ahead.
I see that Dr Narelle Miragliotta [senior lecturer in politics, Monash University] included a stark warning for those of us on the Opposition benches in this year’s Economic and Political Overview. She wrote:
“With the prospects of a stronger global economy anticipated by many economists, Labor can ill-afford to become complacent.”
That warning was followed up by this challenge:
“This will be the year that Labor will have to begin to mount the ‘policy’ case to form the next government.”
Dr Miragliotta is right about the global economy, and I hope our approach I’ve just outlined shows that we aren’t being complacent.
And I also hope it assures her, and all of you here, that the process for mounting our policy case is well underway.
On top of our already significant announcements, in the weeks and months ahead we’ll have more to say as well, in areas such as tax reform, improving the public service, building infrastructure and helping to create jobs.
We aren’t waiting for Government to fall into our lap just because voters aren’t happy with those currently in charge, or they’re sick of the circus.
We want to enter office through the front door of well-considered policy, not sneak through the back door of disillusionment with the current chaotic state of affairs.
That’s been the main driving force for Bill Shorten, Chris Bowen, Andrew Leigh and I when it comes to economic policy, and the significant economic and fiscal repair measures we’ve already announced in opposition.
As an alternative Government, we’ve led the policy debate across the board, already having announced significant reforms in areas such as energy, tax, superannuation, financial services, trade, immigration, industrial relations and Indigenous affairs; as well as major commitments in health, industry, infrastructure, education, and veterans’ affairs.
I remember being on track for victory in 2001 and 2004 and I assure you there is not a skerrick of complacency in our show.
The next federal election, whenever it’s called, will largely be fought in the outer suburbs, growth corridors and provincial centres of this country. The economy isn’t just something that’s driven from the boardrooms of Sydney and Melbourne, but in industries and sectors right across the country. And the ideas and efforts that will shape the future direction of our country aren’t exclusively contained inside that Sydney-Canberra-Melbourne triangle either.
I’ll talk more about this next week when I address CEDA’s EPO launch in Townsville.
But, for now, can I thank you for, not just being here today, but for helping to inform our policies and positions. I look forward to taking some of your questions and continuing the discussion with the panel a bit later on.
ENDS
