Speech to 2017 Economic and Social Outlook Conference - Melbourne
I want to acknowledge Director Professor Abigail Payne, who is also the Ronald Henderson Professor from the Melbourne Institute, Paul Kelly who has just introduced me. The partners, including the Productivity Commission and Peter I hear you’ve given a fantastic address earlier today and of course Glyn Davis the Vice-Chancellor of the University of Melbourne.
The topic, New Directions in an Uncertain World, is a very timely one. We are living in a time where the pace and scale of change is utterly unprecedented throughout all of human history.
Last week at the G20, I was proud to represent Australia as the largest economies of the world considered how to navigate the future under these conditions of rapid and indeed, accelerating change.
Economic progress, innovation, technology have advanced humanity and changed our lives for the better. The last two decades in particular have been characterised by disruption and change, much of it driven by the technology of the internet. Without the internet of course, there would be no ‘smart’ in smartphone, no platform for what have now become the world’s big technology companies.
We must not forget how rapid this change has been. The internet itself has really only been commercial, widely used by tens of millions of people for a little over 20 years.
Facebook with 2 billion accounts, started in a dorm room in Harvard in 2004.
Most of these big internet companies, these giants which are dominating the global economic landscape and in so many ways are redefining the way we do business, the way we interact, the way we connect, would if they were humans, still be at school, many of them in fact, at primary school.
This is very, very rapid change.
So it’s understandable that as businesses and citizens grapple with these changes, many Australians are uncertain about the future. They feel the threat of new competition weighing on their prospects for a new and better job, more hours a rise in pay and so forth.
But as an article in Time Magazine about technological unemployment reveals, this is not a new phenomenon. I quote from that august journal:
“The number of jobs lost to more efficient machines is only part of the problem. What worries many job experts more, is that automation may prevent the economy from creating enough new jobs.”
Now the fact that these words were written in 1961 doesn’t make this fear of the future any less real for Australians today. It is a thoroughly natural, human reaction to the consequences of economic change.
Yet in Australia, we have seen the benefits of economic progress.
Over the last 20 years, average living standards have increased by 40 per cent, 3.8 million additional jobs have been created, a 46 per cent increase in employment.
Nearly half of these new jobs were in the high-skilled categories, many of them a product of the internet itself, including new categories of jobs that until recently, did not exist at all.
Now today we all stand to benefit from the convenience of cheaper goods and services that have accompanied the innovation and technological progress of the last 20 years. We can all benefit from increases in the quality of life and greater life expectancy brought about by new pharmaceuticals and medical procedures.
So as we face the future, we have very good reason to be optimistic.
Our economy is growing. We are recovering - and strongly - from the inevitable waning of the mining investment boom. Many distinguished economists predicted a very hard landing, but the resilience of our economy and the flexibility and openness of our markets, have proved them wrong.
Only today we see further growth in employment with now 240,000 additional jobs created over the last year, 175,000 of those full time and the participation rate increased to 65 per cent, the highest since January 2016.
Now of course, sustained economic growth doesn’t just happen. As John Howard said a decade ago: “Today’s prosperity is the product of yesterday’s reform, tomorrow's prosperity can only be delivered by today’s reform.”
So when we consider how we respond to the changing world in which we live, we can’t hide under the doona and hope the big changes of our time will stop or go away.
We have to harness the forces of change, make the best use of emerging technologies and secure the jobs, the opportunities of the future.
Our reforms in education, in energy, in infrastructure are designed to give Australians the tools and the skills to face uncertain times with confidence.
We are also giving Australians the incentives to invest in themselves and their business. Personal and business tax cuts, incentives for innovation investment, a regional jobs package that encourages people to have a go, a sovereign defence industry with all the spillover benefits that will deliver for the whole economy. Trade deals that put Australians right at the heart of the global economy, right at the heart, at the height, at the forefront of the competition.
Now free trade and open markets have played a huge role in our 26 years of uninterrupted economic growth. They’re laying the groundwork for our future prosperity too.
For much of our history, one or two industries have predominated. We rode on the sheep’s back for a century. After Federation, manufacturing surged, peaking in the mid-60s. Service sectors became increasingly important in the latter half of last century. In the last couple of decades, mining has buoyed our economy, helping us weather the worst global financial collapse in 80 years.
Today, our economy is more diverse than it has ever been. Driven by our access to the big Asian markets, which our recent trade deals have deepened, our growth comes from exporting not only commodities but services, agricultural products, high quality food and wine to meet the evolving tastes of the rising Asian middle class.
If any proof was needed that free trade and open markets are the keys to prosperity, Australia provides a perfect case in point.
As I said at the G20 in Hangzhou last year and in Hamburg this year, we must never forget that protectionism is not a ladder to get you out of the low growth trap; it is a shovel to dig it much deeper.
The more opportunities we can create for our businesses to succeed and reach new customers on the world stage, the more opportunities for other businesses to come and invest and partner with us and then stronger we will be.
Now in Hamburg last week, I secured strong commitments from G20 leaders on three trade potential future trade agreements.
President Widodo as you would’ve seen on the social media we did together, committed to concluding an Australia-Indonesia trade deal by the end of this year. That’s great leadership on his part, sending a great message to the Indonesia system that he expects it to be concluded by the end of the year.
Now the leaders of the European Union also committed to securing an agreement with us, a Free Trade Agreement, between Australia and the EU, before Britain leaves the EU in 2019. And we are confident that we will, when Britain is free to do so make a post-Brexit free trade agreement with the United Kingdom.
So there is a lot of momentum and we’re taking our place on the global stage as both an exemplar and an advocate of free trade.
Now trade is already helping us plot a course in these uncharted waters, but the key to resilience in uncertain times is diversity.
Agriculture and mining will always be important contributors to our economy. But we will never again be able to just ride the sheep’s back or the bulldozer for that matter, for prosperity. We can’t put all of our economic eggs in the trade basket, or in one particular industry basket. Diversity, resilience is the key, optionality is the key, making volatility your friend has to be the objective.
You can’t hide under the doona and pretend it’s not happening. You can’t deny the change is happening.
You’ve go to say: “How do we put ourselves, our nation, in the resilient posture to be able to take advantage of these opportunities?”
Now in order to offer workers hope for the future in well-paid jobs, we have to allow new industries to freely develop. So then consider what our future workforce needs to look like and reskill the current workforce accordingly. Our $220 million regional jobs and investment package is dedicated to supporting those new industries, their growth and development, so that they can offer the diversity that will build resilience into the economy.
Carbon Revolution in Geelong is a great example of a new industry that’s breathing life into a community that had suffered big job losses. Much of the workforce comes from the Ford and Alcoa plants and they are making the lightest carbon fibre wheel rims in the world. You may have seen in the election I was able to lift one up with one hand, I felt like I was some sort of super powered figure for a moment, but in fact it’s a tribute to the brilliant technology of those Australians that have come out of the car industry for the most part. There they are, producing the best, lightest wheel rims in the world. Carbon technology is a vitally important frontier and nowhere is it being better developed and advanced than in Australia.
Australians can do anything, we have the skills, we’ve got to have the courage and the optimism to do it. We are providing the support with our Innovation and Science Agenda to encourage this stronger investment in venture capital and start-ups. I’m sure there is a few people from the start-up and technology sector here and they would confirm I’m sure, that we’re seeing record investments into the technology field, into the start up area. I was with one of the directors of the Australian Stock Exchange just a couple of days ago, talking about the extraordinary growth in the tech sector on the ASX. I remember when we listed Ozemail, 21 years ago now on the Nasdaq in 96, the reason we did was you simply could not have raised money for a technology company of any consequence on the Australian Stock Exchange, in those days.
Now all of that has changed.
Part of that is because of the leadership my Government is providing. Not simply providing the policy and the incentives and the tax breaks and the investments and also proudly advocating the innovation agenda and talking up the ability of Australians to do anything.
Optimism, confidence, taking advantage of volatility, not being frightened by it, is critically important.
Now we’ve already cut taxes for more than three million businesses that employ more than half of Australia’s workforce and we will go back to the Senate to seek support for the rest of our tax plan.
Last week I met leaders at the G20 from right across the political spectrum. On some issues they had less in common but on one thing they shared – you’ll be interested to know - was a plan to reduce company tax rates. From the United States President Donald Trump, who wants to bring down company tax to 15 per cent, to France’s President Macron, who plans to cut his company tax rates to 25 per cent. Of course in the UK, where since the Conservatives were elected in 2010, the corporate tax rate’s been cut from 28 per cent to 19 per cent and will go to 17 per cent by 2020.
In the competition for jobs and investment, we cannot expect to be successful if our company tax rate remains at 30 per cent.
Now this used to be a point of political consensus. Everyone knows that the more you tax investment, the less investment you get. But now this basic economic premise is a point of contention.
The Labor Party, the Opposition believes that the Government is presumptively entitled to every dollar of a business’ profit. They do. They say that a cut is a “handout”. So what that means is, that they believe that every dollar a business makes in profit, belongs to the government and anything that is left after tax - graciously by the government - after tax, is a handout.
Now that is absurd.
That is denying enterprise, it is discouraging investment, it’s discouraging employment.
Now we believe that profits, as we all know, are the result of taking on challenges, taking risks and succeeding in a competitive market. We want to encourage more of this, not less. So the big difference when you compare the economic agenda of my Government and our opponents is that you can see that every measure we have is focused on encouraging investment and employment.
No doubt many of you will have recommendations as to how we can improve those measures, perhaps do more of some, less of others. But that's the focus of them.
But the question you have to ask is what is the Labor Party's, what are our opponent's policies that would support investment and employment?
There is literally none. It is all about higher taxes and higher debt.
We need to ensure that in this increasingly competitive world, we are able to stay at the front of the game. We have to stay at the front of the pack, not fall off the back. That's what would happen if we
went down the road the Labor Party is proposing, of higher taxes on business, less incentive both to invest and to employ.
Now, let me turn now to education. Equipping our children with the skills they need in the 21st Century is a critical part of our ability to face the future with confidence.
In the last sittings of Parliament, we secured the biggest reform to school education in our nation's history. For the first time, all students, no matter their postcode or background, will benefit from record levels of needs-based funding that is fair, transparent and nationally consistent. Needs-based funding has been talked about and indeed promised for years. No-one really argues with it as a matter of principle. But our predecessors in government absolutely failed to deliver it. Instead what we got from Labor, as you know, was 27 special deals that were not only inconsistent and unfair - that resulted in a school with the same needs in one part of the country getting dramatically different federal funding than one in another, there was no consistency at all - but not only did they have that failing, that flaw if you like, but they were also unaffordable. So what we've been able to do is not simply secure needs-based funding at record levels that is affordable, but we are now moving onto the key question, which is outcomes. How do we ensure that every single dollar of extra funding, is used to lift grades and improve results? How can we ensure that our children have the skills for the dozen or more jobs that they are likely to have across their working lives?
Great teachers in well-resourced schools is of course the place to start, but further work is needed. That's why I've asked David Gonski and a panel of experts to investigate how that extra funding can best be spent to improve results. That is the Gonski 2.0 agenda. This is designed to turn around our declining educational performance relative to other countries and prepare our students for a lifetime of opportunity, a time when, as I said, they will need to take advantage of the opportunities that arise in a rapidly changing world. For the many jobs they are likely to have in that time. For the many opportunities that will arise.
Now, turning to infrastructure. Good infrastructure brings communities together, makes our regions and cities more liveable. It links businesses large and small with markets, widens the range of jobs and opportunities, makes housing more available and affordable. It’s absolutely central. Now, we've increased the infrastructure investment to over $75 billion to get vital projects under way across the country. They include the largest freight rail infrastructure project in Australia's history, the Melbourne-to-Brisbane inland rail and the construction of the Western Sydney Airport.
We are also building Snowy Hydro 2.0 which is a critical part of our plan to ensure secure and affordable energy. This will be the largest pumped hydro project in the Southern Hemisphere, a vital piece of infrastructure to make renewables reliable.
Now, investment dollars are obviously the key part. You can't build any of this without money. But we need to take a smarter approach to planning, funding and building infrastructure. So reform is the only way to deliver the infrastructure that best serves our modern economy and makes the case and delivers an outcome where the Commonwealth is no longer just a passive ATM. So we need to have a say in where and how Commonwealth taxpayers' funds are invested and get the maximum benefits from every taxpayer dollar we invest. So you've seen our City Deals agenda where we will partner with state government and local government and other stakeholders - large stakeholders in particular, such as universities - where we will be working together as partners, not just as a doler-out of grants, to co-invest wherever possible, ensuring that we have an economic interest that enables to make the Commonwealth dollar go further and to greater effect.
Let me now turn to energy briefly. Critically, our continued economic progress depends on access to affordable and reliable energy. We must achieve this while reducing our greenhouse gas emissions in accordance with our international commitments. Now, families and businesses need to know that they can get the power they need at an affordable price and reliably, whether it's from the grid, the microgrid in their own area, or their own solar panels on their own roof. We have a record amount of that in Australia.
Commercial facilities need a system that encourages competition through greater flexibility and the diversity of power sources, including cogeneration and distributed networks. Large industrial users approaching 50% of demand, need reliable baseload power so they can sustain operations and have the confidence and certainty to invest. So, our energy policies must therefore ensure affordability and reliability for all consumers. As you've heard me say many times before, we can only achieve this through a mix of technologies.
We've been prepared to take strong steps, decisive steps in this direction. I've talked about Snowy Hydro and would be happy to do so further if you're interested, but that is a massive project.
That will store 350,000 megawatt hours of electricity. You've heard about the battery in South Australia and batteries have a very important role to play, I don't diminish it all. But that battery will store 120 megawatt hours, so you can see the difference that you're talking about. Scale is going to be absolutely critical in the modern energy economy.
We are forcing energy companies to change their behaviour. As you know, we are now going to impose restrictions on the export of gas from the east coast market. We do so with great reluctance, but the reality is that previous governments allow large export market facilities to be developed without paying any regard to the consequences for domestic supply. An extraordinary negligence, complacency, that saw that happen. We cannot be in a position where Australia, about to become the largest exporter of LNG in the world, literally has a shortage of gas in it’s domestic market on the east coast.
We've taken steps to ensure that the network companies can no longer use the courts to overturn regulators decisions on what they can charge for on poles and wires. We're taking steps to ensure that pipeline operators develop modern secondary markets to increase supply and lower prices of course we're ensuring the ACCC is going to give greater transparency or full transparency to the pricing behaviour of electricity retailers.
We are taking every step we can to ensure that energy in Australia is affordable and reliable. There has been a huge amount, a huge amount of mistakes made in the past. Many of them have been the result of politics. Many of them, like the decision about gas exports I think, have been the result of negligence or an absence of mind. But step by step we are fixing these issues. Our approach is guided by engineering and economics, not ideology and politics, with an unrelenting focus on the needs of consumers and a system that will deliver affordable and reliable energy.
Now, the pace and scale of the change that is transforming the world, does create uncertainty as we know. It also improves our lives.
Managing uncertainty is, and always has been part of life. Households and businesses grapple with it daily. When you buy a new home, invest in new equipment, enter a new market. I don't view uncertainty with the same pessimism that some others do, but the topic of this conference reminds us that economic disruption and change requires a response. Doing things as they've always been done, is not the answer.
As I've said earlier in this week in the context of our changes to our security apparatus, ‘set and forget’ is never an option. My approach in every single area of policy is to every day seek to optimise and improve what we do.
Don't wait for failure or a crisis. Make sure that you are constantly improving what you're doing. That way you stay ahead of the challenges, you stay ahead of the threats and you ensure that we are best poised to achieve our goals and realise our opportunities.
So at the heart of our efforts is the principle, deep in our DNA, that the Government's role is to enable Australians to do their best, to realise their dreams, broaden their horizons as they see fit, not as our opponents and the Labor Party would have it, as government decrees.
There is the fundamental difference. We are committed to freedom.
We respect individuals as individuals. Their freedom to determine their own lives and everything we do is designed to enable them to do that and do that more successfully. We do not believe that government knows best.
So I believe that in a world of change, unprecedented in its pace and scale, because of our commitment to freedom, because of our determination to be innovative, to be optimistic, to be confident because of that Australian spirit, no nation is better able to meet the challenges and seize the opportunities of our age, than our own Australia.
Thank you very much.