Jennifer Westacott: Priorities for Prosperity
28 January 2017
This essay, published in The Weekend Australian on 28 January 2017, is the first in a series exploring the challenges for Australian prosperity.
Australians who travel to New Zealand, as I did over Christmas, are often taken aback at just how much our smaller neighbour has transformed itself in recent years.
The country’s burgeoning prosperity struck me only minutes after I landed, when a decision to exchange some Australian banknotes left me with far fewer New Zealand dollars than I’d collected on previous trips. Later, as I chatted with more locals about their lives, there was an unmistakable sense of optimism and confidence about the country’s trajectory and its place in the world.
How is it that, while Australia’s recent parliaments have achieved only piecemeal economic reform, the people of New Zealand have managed to transform their economy, boost opportunity for their citizens, bring their budget under control, overhaul their tax regimen and remodel their welfare system to improve outcomes for their citizens?
As we consider the meaning of Australia Day this week, we should be asking ourselves: are we prospering as a society? What do we even mean by prosperity?
I would argue there are two key measures of prosperity — the economic indicators and the public’s sense of wellbeing.
The hard economic indicators are a mixed bag. Australians should be proud of our 25 years of sustained economic growth and the fact that average real incomes have doubled over 40 years. However, we cannot ignore the bad omens of investment falling at rates not seen since the 1990s recession, nor the ongoing impact of slow wages growth.
The public’s sense of wellbeing can be much tougher to gauge, although it is in some ways more meaningful than cold statistics. We must ask: Do people feel good about living and working in Australia? Do we have a healthy, cohesive society? Do people feel like they’re getting ahead?
If people are not satisfied, do they feel empowered to turn their lives around? Is there a fair reward for working harder, acquiring new skills or investing in business? Can young people expect to find meaningful, well-paid work here and not feel pressured to go overseas?
We must continually strive towards a socially just and cohesive society with better jobs, higher wages and a strong social safety net. This is the fundamental goal of good government and business leaders share this motivation.
Unfortunately many Australians feel as though they have lost control of their lives. Battered by the forces of rapid technological, economic and social change, they feel uncertain about their ability to make the most of whatever the future holds in store.
In this environment, it’s not hard to see why our political leaders are increasingly under pressure to take the low road of protectionism. When compared with the world beyond Australia’s borders, it can seem familiar and comfortable.
Alas, it’s also a dead end.
Ultimately, the benefits are illusory and the risks are borne by those who are most vulnerable.
Australia is too small an economy to turn inward and close its eyes to the world. To cease encouraging trade would impact on the wellbeing of all Australians with very low growth, lower real wages and fewer opportunities for vulnerable Australians to build a better life for themselves and their families.
History tells us that societies that turn inward are destined to decline, while successful societies have trade and openness as their lifeblood.
University of Oxford historian Peter Frankopan, in his superb book The Silk Roads, argues it is no coincidence that the world’s most advanced cultures, cities and peoples have always developed along trade routes.
Trading societies are constantly learning and borrowing from other cultures, stimulating new advances in the sciences, philosophy, language and religion.
Regions that fail to prosper can suffer very serious consequences. Failed economies lead to failed states, and failed states lead to conflict, with ordinary people suffering the most.
The trade routes of our time are profoundly different, but the benefits are the same. Rather than mountain paths for camel-drawn caravans, they are the global supply chains in which Australian businesses — big and small — can find new customers and source productivity-boosting products from almost anywhere in the world, growing their companies and expanding the tax base that underpins the social safety net.
We must be honest with people that the trade path will have its challenges. Some industries will shrink and others will disappear. But this is necessary for others to expand and prosper.
This is the only way to provide the sustained economic growth that funds real increases in wages and living standards. The alternative — an inward-looking, moribund, low-growth economy — would be disastrous not only for businesspeople and their employees but our entire culture and society as a whole. Prosperity enables artists, performers and sports clubs to thrive, it allows citizens to travel and learn abroad.
What are our priorities for prosperity? In a world where investors have the choice of doing business anywhere in the world, it is crucial that Australia consider pulling every possible lever to boost our competitiveness in the contest to attract investment. This demands having not only a dynamic and talented government, but an innovative and ambitious business sector and a labour force that is skilled and flexible.
So what do we have to do?
Australia’s mass education system is one of our most important pieces of social infrastructure. It should be available to Australians throughout their lives, but it must also be effective and sustainable.
Despite pouring more funding into schools, student outcomes aren’t improving. Our governments must stop having spats over funding and move their focus from class sizes to ensuring top-quality teachers. And our tertiary education system needs reform to prepare workers for the future, who can then continue to dip in and out of tertiary education as industries rise, fall and adapt.
Federal, state, territory and local governments must bring their budgets under control so that governments can reinvest in our society and act as an insurer of last resort against unforeseen economic shocks and natural disasters.
This is not a call for mindless cost-cutting or higher taxes, but a careful redesign of government programs to get the most value out of every dollar, especially in areas such as health, where it’s been estimated that up to 10 per cent of resources are wasted on unnecessary, incorrect or poor quality care.
We must also unshackle businesses, small and large, from needless overregulation.
Every government comes to power promising less regulation, and then proceeds to add to it whenever they need an easy political fix to win the 24-hour news cycle.
However, the cumulative cost of overregulation is often hidden; higher costs for Australian businesses reduce their ability to compete and discourage new ventures. The effects are ultimately borne by workers through lower paying jobs and consumers through higher prices.
Streamlining Australia’s cumbersome and expensive systems for approving major projects — from railways to university campuses to iron ore mines — would unlock new infrastructure, create jobs and make our communities more livable.
Australia’s rigid workplace relations system should be reformed to encourage flexibility and co-operation between employers and employees. How is it fair that a collective workplace agreement, signed in good faith by an employer and union to benefit the vast majority of average workers, should be struck down by an industrial tribunal because a handful of individual employees are made marginally worse off?
We need a suite of durable climate change policies that are capable of delivering on our emissions reduction targets at the lowest possible cost without jeopardising our competitiveness.
State governments that are serious about encouraging and maintaining manufacturing businesses cannot also promote policies that lift the cost of delivering renewable energy and undermine the reliability of the system.
The question is not whether we integrate renewables into the electricity grid, but how we integrate them while ensuring the energy system is secure and affordable.
Importantly, one of the strongest levers government has to boost our attractiveness to global investment is the company tax rate which, at 30 per cent, is dissuading foreign and domestic investors from supporting ventures that would employ Australians.
Although both sides of politics have promised to cut the rate in recent years, we’ve been caught standing still while the rest of the world eats our lunch. Australia now has the 29th highest company tax rate in the developed world, up from 14th when the rate was last cut in 2001.
The need to cut company tax has become even more urgent in the era of Donald Trump, whose promise to cut America’s federal rate to 15 per cent will further keep new investments from Australia, including projects that would boost regional jobs. Britain is moving to 17 per cent by 2020, and the average company tax rate across Asia is already 22 per cent.
Against this backdrop, it is baffling that some MPs would jeopardise our country’s future by tearing out their hair over a modest plan to cut the rate of company tax progressively to 25 per cent in a decade.
Achieving what I’ve outlined will require defeating one of our greatest enemies — political inertia — and demands strong, purposeful leadership that inspires public confidence.
I strongly believe that this public confidence can only be sustained by leaders telling people the truth about what is achievable and what isn’t, what is knowable and what isn’t, and what the real costs of different policies are likely to be.
It’s not a weakness for a political leader — or any leader for that matter — to tell the truth.
Indeed, it should be considered a strength. For instance, when John F. Kennedy addressed the American people at the height of the Cuban missile crisis on October 22, 1962, the president told them point-blank that millions of people were at imminent risk of nuclear attack and laid out a seven-point plan to stare down the threat. “The path we have chosen for the present is full of hazards, as all paths are, but it is the one most consistent with our character and courage as a nation,” he said. That is leadership.
When there is little continuity of leadership and political firestorms threaten to inflame every issue, our nation’s capacity to grab hold of the big issues is stifled.
When people feel as though nothing ever gets done, it is no wonder that they have lost faith in institutions.
This lack of trust afflicts industry and the union movement, both of which have been damaged by public scandals in recent years. Restoring faith in these institutions — the same institutions that were instrumental in our economic transformation under Bob Hawke, Paul Keating and John Howard — will be a fundamental challenge over the coming years. Our success depends on it.
Leaders on both sides of politics must resist the kneejerk urge to attack a policy proposal merely because it was suggested by one of their perceived enemies or because it’s an easy mark for political point-scoring.
Indulging the extremes — Left and Right — by rejecting new ideas or merely slinging divisive rhetoric doesn’t help anyone; it in fact damages what hope remains of reclaiming the centrist agenda that successfully guided our nation for so many years.
It’s my hope that this year we can reframe our definition of “fairness”. To my mind, the measure of fairness cannot be that no one, at any time, can ever have a reduction in their entitlements and that every policy measure must leave every single person better off.
Setting up our nation for enduring growth and prosperity will inevitably involve adjustments, and the test of a fair policy should be: is it fair overall, and does it ensure that the most vulnerable Australians — those with the fewest choices in life — are shielded?
It isn’t fair to lumber Australians with crippling levels of tax, or to have an unsustainable social safety net that is on track to collapse. It also isn’t fair to have a mass education system that doesn’t deliver, or to leave people feeling that if they work hard they won’t be fairly rewarded.
In the absence of purposeful political leadership, it’s time for business leaders to step forward with the vision and truth-telling necessary to instil confidence and show the way to prosperity.
This should be a natural role for business in any free society. Problems that routinely confound our political leaders — whether it’s energy and climate policy, modernising services or equipping Australians for the jobs of the future — are the same issues that businesspeople live and breathe every working day.
As I’ve pressed the case for economic and political reform over the years, political leaders have often asked me: “Well, that’s all very well, but where’s the burning platform for change?”
Without wanting to sound alarmist, that time is arriving. At the very least, there’s smoke coming in from under the door and we have not a moment to lose.
I say this because I love this country. It is one the great nations of the world and, with purposeful action, it can continue rising in strength and in stature so that people like me — whose lives were turned around by mass public education and the opportunity of meaningful jobs — can see those benefits made available to every Australian today and in the future.
Jennifer Westacott is chief executive of the Business Council of Australia.