Address to the International Investor Dialogue

August 21, 2018


Can I start by acknowledging that we’re meeting today on the lands of the Ngunnawal and Ngambri peoples and pay my respects to their elders, traditions and customs.
Can I also thank Andrew Meagher, the Director of the International CEO Forum, for the invitation to speak to you today. It’s great to be here with CEOs from such a wide range of international corporations all in the one room – a rare opportunity. 
Let me state the obvious and point out it’s been a really crazy day here today and we haven’t seen the end of it.  The hardest gig I’ve had today is to explain to some schools visiting from my electorate that they almost had a new Prime Minister.
So I’m relieved, actually, that we get to talk about policy and the economy here this afternoon rather than polls and personalities.
I want to talk about the approach Chris Bowen and I are taking to the Budget and also make a bit of a case for a broader economic strategy.
This year marks ten years since the GFC.  Anyone who has been through the rollercoaster ride of those last ten years of the global economy, during and then after the Crisis, has been conditioned to understand that challenges are never far away.
And that’s what makes the last few months remarkable – that we’ve had all kinds of geopolitical risk in Europe, on the Korean peninsula, and in the South and East China seas – all kinds of threats raised by the big beasts of the global economy and yet growth has chugged along in ways we had become unfamiliar with.
As the RBA said in its Statement of Monetary Policy earlier this month: “Global economic growth has been solid and the outlook remains positive.”
That’s helping our economy and our Budget, and that’s welcome.
We have positive headline GDP growth of 3.1 per cent, including one per cent growth in the March quarter alone; unemployment is down, as it is across the major advanced economies; and we saw $40 billion in additional taxes and charges in the last Budget.
But our economy is growing despite the current policy settings, not because of them.
And behind and beyond the headline figures there are some very concerning numbers which go to the heart of how ordinary people are actually faring in the economy.
Consider that:

  • The household debt to income ratio is the highest it’s ever been, and is one of the highest among OECD nations, ahead of Canada, New Zealand and the UK, and almost double that of the US;
  • The household savings ratio is at its lowest level in more than a decade;
  • Household consumption grew just 0.2 per cent last quarter, which is well below average; and
  • The household debt-to-GDP ratio is more than 100 per cent, prompting the IMF to warn that “higher growth in household debt is associated with a greater possibility of banking crises”.

All of these things are a function of the low wages growth, declining living standards, and underemployment we have seen in our economy for some time.
The headline figures should be acknowledged and welcomed, but these underlying numbers matter to us too.
We can’t ignore the current conditions for ordinary working people.
And nor should we fail to prepare for the next downturn, whenever it is.
It was no mistake that we fared remarkably well during the GFC compared to the other advanced economies, and we don’t want ignorance or complacency to catch us unawares next time.
The IMF warned last month that because there are “downside risks mounting, many countries need to rebuild fiscal buffers to create policy space for the next downturn”.
That is particularly relevant to our own country, where:

  • Net debt has doubled since September 2013;
  • Gross debt has crashed through half-a-trillion dollars for the first time in the nation’s history and is projected to remain above that threshold over the next decade; and
  • Both kinds of debt have been growing faster under this Government than under the former Labor Government, which had that GFC to contend with.

Dealing with this is a key mission of the next Labor Government.
It’s why we’ve committed to taking a stronger set of books than the Government to the next election.
At the centre of our strategy is a focus on getting bang for our buck. In other words, making public investments where they can do the most good.
That’s why we want to target our income tax cuts to those who need them most and are more likely to spend in the economy and boost demand.
It’s why we want to target corporate tax relief to small and medium enterprises, and to encourage businesses to invest onshore through mechanisms like our Australian Investment Guarantee.
It’s why we’ve focused on investing in human capital and our future work force, by properly funding our schools and TAFES and universities and our health and other services.
That “bang for buck” mentality forms the basis for a range of other policies too, including our FutureAsia agenda; co-investment in clean and affordable energy and advanced manufacturing; and ensuring we have a quality NBN and public infrastructure.
And we can do all of this things while at the same time paying down debt and repairing the Budget because of the structural improvements we’ve made to the tax system by closing down unfair and unsustainable loopholes.
On the other hand, our Parliamentary opponents have just one policy, for now at least – their company tax cuts.
I’m told the fate of the tax cuts will be known from around 6pm tonight.
I don’t speak fluent Senate, but I think if they fail there it will be a lesson in not putting all your eggs in one policy basket.
While our economic approach is multi-faceted and carefully targeted, the Government has relied on a one-point plan that looks unlikely to even make it to the end of the week.
It now risks being left without an economic plan altogether.
It’s not recognised frequently enough that a big reason we’ve opposed the tax cuts is fiscal.
Given the underlying risks already identified and the state of the Budget, we can’t afford an untargeted corporate tax cut.
The justification has been hollow at best.  It relies on a combination of Treasury modelling which says the benefits will be negligible and felt down the track, and on a misunderstanding of the American experience under President Trump.
Some of you here have US headquarters and you’d have seen the data that points out the huge boosts in investment and wages that were promised simply haven’t eventuated:

  • Investment has practically flatlined – there’s been a modest increase this year, but as a percentage of economic output, investment is below the levels it was in 2006 before the GFC;
  • Growth in productivity went up just 0.4 per cent in the first quarter; and
  • Real wages are actually down – a far cry from the $3000 to $7000 extra income a year Trump’s top economic adviser promised families.

On the fiscal side, the Tax Policy Center at the Urban Institute and Brookings Institution, estimates the tax cuts will see US unified deficits, including interest payments, raised by US$1.9 trillion, while the debt-to-GDP ratio would rise 6.2 percentage points by 2028 relative to a pre-package baseline.
The Center says the package will “reduce federal revenues by significant amounts, even after allowing for the impact on economic growth” and it will “raise federal debt and impose burdens on future generations”.
According to the New York Times, the biggest impact so far of the tax cuts has been a surge in stock buybacks – an estimated record $1 trillion worth this year. Apple alone has totalled nearly $45 billion in buybacks in the first six months of this year.
We would photocopy the Trump tax cuts at our fiscal and economic peril.
I know many if not most of you would prefer to pay less tax; that’s understandable.
I also know from many senior business people that their companies don’t decide where to invest based solely on the headline tax rate.
You care about the quality and skills of our work force, which is where our investments in human capital and schools come in. You care about quality public infrastructure.
You care about political stability, and anyone who’s read a newspaper this week knows the risks there when politics trumps good fiscal, economic and especially energy policy.
Bill Shorten, Chris Bowen and our economic team are determined to put the policy work in and to win the next election based on the strength of our ideas not just the chaos of our opponents.
I hope I’ve given you a sense of that today, and I look forward to answering your questions.