CEDA ANNUAL ECONOMIC AND POLITICAL OVERVIEW
FRIDAY, 22 FEBRUARY 2019
I acknowledge the traditional owners of the land on which we meet, the Gadigal people of the Eora nation, and acknowledge elders past, present and emerging.
We thank them for the stewardship of our land over 40,000 years.
Well thanks for inviting me to be here today.
It’s great to be speaking to another CEDA audience, and as part of CEDA’s 38th Annual Economic and Political Overview (EPO).
I’ve spoken at CEDA many times, over the years, in several different capacities, covering a wide range of important issues. I’ve generally tried to avoid too much partisanship in these speeches.
But given we gather with a Federal election campaign inevitable over the coming three months, I don’t think there is any point in avoiding some plain speaking.
The Australian people do face a clear choice when it comes to economic management in May.
Labor has been outlining very comprehensive and detailed plans.
We are seeking a mandate to do ambitious things.
To give Australia a proper energy and climate change policy, to provide a framework for vital investment in energy generation.
To invest in a massive upgrade in skills formation and human capital, from universal access to pre-school for three and four year olds, to better and fairer schools funding, to a massive investment in TAFE and a reversal of cuts to universities.
To improve the revenue base of the budget, close down and reform unsustainable, unaffordable and unfair tax loopholes, paying for these important investments and also providing for bigger budget surpluses as a buffer for unstable and uncertain times.
To generate investment through tax relief on the condition of investment: the Australian Investment Guarantee, an upfront 20% tax depreciation for all medium and large investments in Australia.
A step change in our economic engagement with the Indo-Pacific region, a massive focus on business and language literacy and policies to diversify and massively deepen our level of engagement with countries across the region.
These are just some of the important elements in our policy agenda to ensure our 27 years of uninterrupted economic growth are continued and fairly shared.
Our opponents have a different approach.
The “small target” strategy is usually a tactic of the Opposition of the day.
Don’t say very much and hope the voters don’t notice your lack of a policy agenda. Unusually, it’s the Government that has decided to roll into a small policy ball and instead rely on the politics of fear and division.
They’ve spent five years for example arguing about whether climate change is actually real, and now go to the election with no energy policy other than a Venezuelan style socialist “big stick” intervention power that will chill investment and see electricity prices increase.
The other major party avoids making the necessary difficult decisions on the budget, instead assuming that global conditions will remain benign and that Australia’s terms of trade remain around 40% above pre-mining boom levels.
Today, I will talk about the economic agenda of a Shorten Labor Government.
But to get a sense of our approach, it is just as useful for me talk about what we see as the manifest failure of economic policy under the Abbott-Turnbull-Morrison Government.
Our economic policy is informed in no small part by the failings of economic policy over the last six years.
The Government talks a big talk on economic management, but their achievements do not match the rhetoric.
The dysfunction which results from having had three prime ministers and three treasurers over the period in which Bill Shorten and I have been the Leader-Shadow Treasurer combination has had a real economic cost.
The fact is: the economy is not growing as strongly as it should and too many Australians are falling behind in their standard of living.
Whether in job creation, wages growth or productivity growth, this Government has been falling short.
Let’s turn to jobs first.
The government likes to boast about its job creation record.
However, in fact, there are now fewer people employed full time now as a percentage of the labour force than there were in 2013. [68.6% now versus 69.7% in September 2013].
As a result, Australia has experienced record under-employment. 1.1 million people are underemployed in Australia today. Add this to the unemployed, there are 1.8 million people, nearly 2 million people who want a job or want more work in Australia.
Second, the part of the story the Coalition really doesn’t talk about is where the jobs are actually coming from.
The party of private enterprise would have people believe that we’ve seen rapid jobs growth in the private sector because of their superior economic competence.
But actually, a disproportionate component of job creations have been in public or publicly funded industries.
Since 2013, almost half of all the jobs created [45%] have been in public funded and supported employment industries like health, education and public administration, much higher than the government share of GDP.
Over 570,000 jobs were linked to these publicly supported areas of the economy.
And in no small part, the jobs growth and projected jobs growth is due to an important Labor initiative: the National Disability Insurance Scheme.
Some estimate the Federal and State Government NDIS roll out is expected to add around 163,000 full‑time jobs when it is fully operational, which is more than the general structural rise in health employment based on a rising and ageing population.
And finally, when assessing any government’s record, we need to look at how we’ve done compared with international counterparts.
While we were doing better than most other advanced economies during and in the aftermath of the GFC, we’ve now got an unemployment rate inferior to comparable nations like the UK, US and New Zealand.
So under the Liberal party, we’ve gone from world beaters to world laggards.
It’s with this backdrop the government announced it will generate another 1.25 million jobs over the next five years.
This is inconsistent with the Governments own budget figures, as the Treasury confirmed at Senate Estimates as recently two days ago.
But it is also a jobs aspiration without much ambition.
The 1.25 million employment growth would be consistent with annual jobs growth of around 1.9%. The historical annual trend growth is, exactly, 1.9%.
Far from being ambitious, it’s actually just keeping in line with historic trends.
This of course reflects the pattern under this government. Full of headlines, but empty on substance.
Living standards/wages growth critique
One of the consequences of the governments underwhelming record on job creation is record low wages growth.
The Prime Minister and his current Treasurer tell the Australian people ad nauseum how well their so called economic plan is working.
But the fact is, it is NOT working for those millions Australians for whom wages growth has fallen below cost of living increases.
The Prime Minister – then Treasurer – has declared victory 18 months ago saying that "there are reasons to now be hopeful that we are near end of this adjustment process and consumers will start to see their real wages growing in line with productivity again".
The fact is, this has not happened. The Liberals constant predictions that wages growth is about to take off have been found wanting.
They have had to downgrade their wages growth forecasts in every one of their budgets and they will have to again in April.
This anaemic wages growth is feeding in to stagnant living standards. Increasing living standards is, after all the holy grail objective of good economic policy. But this government has been failing in this key objective.
Recent data released by the ANU shows that for households, living standards (that is, household income less household costs) declined by 2.9% over the last three years.
This is the largest fall in living standards for more than 30 years.
Of course we’ve known this for some time given people aren’t seeing much of an increase in their pay packets, at the same time the cost of things like electricity, private health insurance and child care keep rising.
Real wages as measured by the real value of compensation of employees per hour increased by touch above 1% over the last 5 years.
Compare this to the 9% increase using the same measure which occurred between 2008 and 2013.
This means that the real value of compensation accruing to Australian workers increased seven times faster under Labor than under the current government.
Some might point to stagnant wages growth being an international phenomenon. Yet recent wage growth in Australia has been worse than the average experienced in other OECD economies.
In fact, when it comes to wages growth, between 2013 and 2017 Australia ranked 27th out of 35 countries, and wage growth has been less than half that of the OECD average.
This follows a period where prior to 2013, under the Labor Government, where wages were growing faster than the OECD average.
So over the tenure of this government we’ve gone from doing better than most to doing worse than most.
It’s in this context the government forged ahead and cut wages of the people who work on the weekends.
Their only idea, their one big idea when it comes to wages, is to say, 'If you work on a Sunday, you deserve less. If you work on a Sunday, you shouldn't be paid as much as you were.
Which leads me into my next observation.
Productivity stalling and reform lacking
Phillip Lowe said last year that “The best outcome is one in which a pick-up in wages growth is accompanied by stronger growth in labour productivity. That's because, ultimately, the basis for sustained growth in real wages is that we become more productive as a nation”.
Of course, I agree.
But in addition, there has in recent years been a disconnect between how productive Australian workers have been versus what they have received in compensation.
We need to lift productivity and we need to ensure those gains in productivity are shared with the employees who help generate them.
The problem is there has been no discernible increase in labour productivity as measured by GDP per hour worked over the past two years. No increase.
In fact, 7 of the last 9 quarters of labour productivity have been negative.
This is disappointing but not really surprising.
Productivity growth comes about at the enterprise level and with national reform.
At the national level, government led reform has been non-existent for six years.
The Liberal Government junked the “Australia in the Asian Century White Paper” initiated by the Gillard Government.
But even reform efforts instigated by the current government have stalled in a disappointing morass of abortive reform.
The Government instigated a tax white paper which was junked in between the draft consultation stage and release.
There was a proposed Federation white paper which never saw the light of day.
There was a good Productivity Commission report “Shifting the Dial” delivered in October 2017, it lies unloved and, apparently, unlamented.
Australia can’t afford another three years of policy drift.
We’ve taken the approach of seeking a mandate to do big, bold things.
We go to the election with the most comprehensive policy agenda of any opposition in generations.
We do so, because for reform to be successful, a government must have the moral authority of a mandate, of having been brave enough to share your thoughts with the Australian people before asking them to cast judgement on them.
I’ll talk about some of our reform agenda, now. Our agenda to remedy the shortcomings in economic management I argue the country has suffered over the last six years.
Far from shirking the economic task of raising productivity, a Shorten Labor Government will embrace it, from improving the quality of our human and physical capital, encouraging technological innovation, making our cities work better and engaging with the world.
Our conservative opponents often see productivity as about cutting: cutting protections for workers and cutting the social safety net. Cutting penalty rates is a case in point.
At the heart of Labor’s productivity plan is investing in people.
Today I want to touch briefly on three areas that will help underpin some of our plans to support economic growth and to get wages going again in a Shorten led Labor Government.
Supporting investment in new intangibles – so called knowledge based assets – through our Australian Investment Guarantee, lifting enterprising skills through our record investments in early childhood education and lifting Asian literacy through our FutureAsia policy.
Labor – elements of our plan to lift productivity and wages
First, to our Australian investment Guarantee.
A future Labor Government will have bigger and better tax cuts for low and middle income earners – tax cuts that will give a shot in the arm to consumption, but a lesser known aspect of our policy offering is we also have a better tax offering for Australian businesses wanting to invest.
Under Labor companies small, medium and large making new investments will be able to immediately deduct 20% of their new investments, with the balance depreciated in line with normal depreciation schedules from the first year.
The current government doesn’t support that.
Importantly, our AIG not only applies to traditionally important tangible assets like machinery and equipment, but also to increasingly important depreciating intangible assets for both upgrades and new purchases.
This means investments in patents, intellectual property and upgrading computer software will be supported.
This is of growing importance in the economy.
The Grattan Institute has pointed out investment in intellectual property products rose from about 7 per cent of measured private non-mining business investment to 21 per cent between 1990 and 2016.
Supporting intangibles is increasingly important because of the rise of the digital economy and e-commerce which are less capital intensive and more human capital intensive.
And this is something we should all care about because Australia is currently lagging its OECD peers in digital innovation.
As Alpha Beta has pointed out “The productivity gain from technology in our economy has been below that of our peers, and we have not managed to build our own digital industries at the same scale”
If Australia can catch up to its peers, it could unlock $315 billion in economic value over the next decade.
When it comes to encouraging firms to invest in new tangible and intangible assets and shift out to the technology frontier, we have the better plan.
This is a very important part of our economic agenda.
As the Governor of the Reserve bank observes regularly “our national comparative advantage will increasingly be built on the quality of our ideas and our human capital” and “investment in human capital can both lift the rate of technical progress and accelerate its diffusion”.
With a rapidly changing jobs market, skills that allow young people to be “enterprising” so they can navigate complex careers across a range of industries and professions are becoming increasingly important.
Problem solving, financial literacy, digital literacy, teamwork, and communication are different from technical skills which are specific to a particular task, role or industry and are in growing demand.
I could talk about our better plan and funding for public schools, TAFE and universities. But today I want to focus on just one very important element, early childhood education.
As it stands, nearly one in four children [22%] start should without the foundational skills to be successful learners.
These kids are twice as likely to not meet NAPLAN standards in classes, 3, 5 and 7.
But it’s not just in traditional areas of pre-numeracy or pre-literacy. Just as important are the social and emotional skills that children can develop with qualified early educators.
Studies have pointed out that the years before kids start school is “the period when children learn to communicate, get along with others and control and adapt their behaviour, emotions and thinking”.
This is exactly why Labor will roll out a new National Pre-school and Kindy program that will guarantee funding for pre-school programs for four year olds.
But we’ll go further. In what Bill Shorten has correctly characterised as one of the biggest changes to Australia’s education system in a generation, Labor will expand the National Pre-school program to all three year olds.
This means that under a Shorten led Labor Government by 2021, every Australian, no matter what their background, will be able to access two years of world class early learning.
Meanwhile, our opponents have yet to fund any early childhood programs beyond this year.
Our plan is the right plan for the nation, bringing us into line with other leading educating nations.
Finally, an area that will receive much more attention under a future Shorten led Labor government is Asia relevant capabilities.
Growing Australia’s Asia relevant capabilities starts not at university, but ideally, much earlier in life.
Our performance in recent times has been lamentable.
There is no bright spot: whether it be Japanese or Hindi, Indonesian or Cantonese and Mandarin, we are doing really, really poorly.
Indicative of the perilous situation is that more students studied Bahasa Indonesia in school in 1972 that do so today, despite of course the school population being so much bigger.
This is not some idealistic aspiration.
If we don’t turn things around, it will have adverse implications for our economy and for businesses wanting to expand in our region.
ANZ’s most recent Asia survey made it clear that for businesses potentially looking to enter Asian markets, “the biggest barriers indicated are lack of knowledge and limited language capabilities for developing business relationships”
It’s why we’ve announced we will a comprehensive set of initiatives to reverse this trend, under our FutureAsia framework, such as:
- Putting in place a nationwide Asia Capable Schools program that will help drive a sustained whole of school change assisting and supporting 5000 principals and schools leaders better understand the economic forces occurring in our region and what kind of a workforce future businesses need;
- Establishing an Advisory Council on Asia Capabilities that will be headed up by experts from academia, the education sector, business, and not-for-profits to drive research and generate new ideas to boost teaching and learning about Asia across all levels of Australia’s education system;
- Offering up to 100 scholarships a year for native language speakers in Australia and for top-performers in priority Asian languages in year 12 to study teaching qualifications; and
- Investing an extra $8 million in community language schools so more Australian children get the chance to learn other languages.
This will require a sustained effort, which is why if I become Treasurer, have committed to updating parliament on our progress in this area annually.
So as we head towards an election, they’ll be a battle about who’s got the best economic plan to take Australia forward.
The Government has had six years to lay out a plan for Australia’s economic future.
Six years to take on the big challenges confronting the nation, whether it is producing a coherent climate change and energy policy, getting productivity and wages going again, or making the big calls on the budget.
And they’ve been found wanting.
Even its own performance on jobs – the case often put forward for re-election – has been not much more than average and more reflective of a government freeriding on a healthier global economy than any active policy reform.
The choice for the Australian people is between a united party that’s been bold on policy, taken risks and has made some big calls.
And another that has been mired in disunity, too often focused on itself rather than the big issues.
It will be up to the Australian people to decide.
We look forward to the contest.