06/03/2013
| Government policies that foster strong economic growth are a priority for the Coalition if elected in September, Federal Opposition Leader, Tony Abbott, told the audience at CEDA's launch of its 2013 Economic and Political Overview publication in Sydney.
"If we do have strong economic growth, profits are up, income is up, employment is up and government revenue is up," he said. "In fact, with strong economic growth the government can simultaneously increase spending, cut taxes and boost the surplus and if you say that's a magic pudding, it is actually what happened for the last five or six years of the Howard Government. "Without strong economic growth there is never enough to go around and it's almost impossible to give more to one without giving less to another. This is why economic growth is so important. |
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"I know if you look at the raw headline numbers for economic growth, the last few years don't look too bad. Despite the global financial crisis there was only one quarter of actual negative growth.
"But if you look behind the numbers the situation is not nearly so good. GDP growth per head of population since 2007 has been only one third of the GDP growth per head in the Howard era.
"Over the last five years multifactor productivity in this country has actually declined."
Mr Abbott said business confidence was a significant issue at present.
"People don't feel rich, that's why they are saving so much themselves," he said.
"The great thing about a (economic) growth strategy is that it's also a confidence strategy because that is what is the missing ingredient in so much of business decision-making right now."
Mr Abbott said a Coalition Government would get taxes and government spending down.
"Some of the ways we'll do it will be controversial. For instance we've announced that the so-called school kids' bonus will go because this is a cash splash with borrowed money," he said.
"We will trim back the Commonwealth public sector.
"If we don't go ahead with the National Broadband Network in its current form, that's about $50 billion less that the Commonwealth will need to borrow."
He also said a Coalition election pledge would be to create a one-stop shop for environmental approvals to reduce red tape costs for business by at least $1 billion a year.
Politics
The Australian Financial Review, National Affairs Columnist, Jennifer Hewett said policy details were likely to be light in the lead-up to the election.
"I don't think you'll be getting too much detail beyond what I like to call gesture politics right through until September 14," she said.
"I am afraid the business wish list is going to remain just that.
"Much of this year will be about minimising political risk…and keeping the base vote steady.
"Business remains I think deeply sceptical about the economic team of Abbott and (Joe) Hockey as treasurer and I don't think those doubts will be assuaged before the election.
"(Malcolm) Turnbull won't be leader or treasurer but he will be a vital team member for the image of the Coalition."
She said it was a mistake that Tony Abbott had pledged not to make any changes to his frontbench if elected but expected what we might see will be changes to the frontbench 18 months after the election.
With regard to Labor she said: "At the moment NSW is disastrous for Labor helped of course by the Eddie Obeid circus, as is Tasmania and Victoria is wavering.
"Labor is hoping to maintain its seats in Queensland and hasn't ruled out hope of winning some back courtesy of Campbell Newman and is relevantly confident in South Australia, WA is a dead loss."
She said the future - in particular education - would be key platforms for Labor in the lead-up to the election.
"It is very important for Labor to appeal to the future and there is nothing more important to parents than the idea of investing in education, Gonski provides convenient shorthand for that," she said.
However, she said the difficulty for Labour would be that real reform in the education system is very hard with the state governments having primary control, leaving the Feds with only a "carrot and stick" approach to try to create change.
Ms Hewitt said the risk for Abbott was that he would continue to talk about returning to the "golden era of the Howard Government, but he has to also talk about, in a confident way, how that is going to happen".
"I suspect Abbott will make a lot better prime minister than many of his detractors think, (but) whether that will be good enough is still an open question," she said.
China
Providing an outlook for China, University of Sydney, Centre for International Studies, Michael Hintze Fellow for Energy Security, Adjunct Associate Professor Dr John Lee touched on key issues in the year ahead for China including economic growth, distribution of wealth and cyber espionage.
"Economic growth has been the priority for the Chinese Government but there may be a move away from this notion with the next generation of leaders," he said.
"The next generation of leaders cannot simply just pour more national wealth into building things that don't make economic sense, the question is what does this mean for Australia?"
He said we won't see any sudden decreases in fixed investment because they need to preserve jobs and asset values of existing assets.
"But we won't see the huge growth in commodity prices that we've seen in the last decade such as with iron ore," he said.
He said stability would continue to be an issue for those doing business with China.
"Within one generation China has gone from being the most equal country in all of Asia in terms of distribution of income to being the least equal," he said.
"China is a very impressive country for what it has achieved but it is also a very fragile country."
Dr Lee said cyber espionage - Chinese entities stealing data from private firms from around the world - may be an issue we hear more about this year, and suggested that the US is prepared to have a diplomatic fight with Beijing over the issue.
Tourism
Tourism Australia chairman, Geoff Dixon provided the lunch keynote address discussing the growing Asian middle class and its impact on the visitor economy in Australia.
"The (tourism) industry is a very significant economic generator for Australia - a fact that does not always get the recognition it deserves in the media or in political circles," he said.
"Tourism is also Australia's largest services export in what will become a services led economy.
"Along with education, tourism is our front door in developing vital relationships - particularly with our near neighbours in the increasingly prosperous Asian region."
He said there was no doubt there is a changing face to tourism in Australia.
"In the year 2000, less than 40 per cent of visitors came from our near Asian neighbours. Now it's more than 50 per cent and if you include New Zealand, the Asia Pacific Region accounts for over 60 per cent of all arrivals," he said.
"Three years ago I said ours was an industry in transition - from west to east, from traditional long haul markets to fast growing near neighbour markets and based on all our statistics, that transition is well advanced."
Mr Dixon said Tourism 2020, a growth plan for the industry launched three years ago, was now starting to meet its benchmarks.
"Entering the third year of the plan, the value of tourism to and within Australia is on track to achieve the lower end of the potential - that is an overnight tourism expenditure of $115 billion (up from $69 billion) per annum by 2020," he said.
"This is a very good performance for an industry that was trending towards a value of less than $100 billion."
However, while he said the numbers were good, one of the greatest successes of Tourism 2020 has been its ability to galvanise an often disparate and fragmented industry into speaking with one voice.
"While there is still a lot more work to do, Australian tourism is getting its mojo back, with growth rates getting closer to the halcyon days of the 80s and 90s," he said.
"The rewards for getting this industry right are enormous for our economic wellbeing in general; for enabling us and our near neighbours to better understand and interact with each other; and for the future employment prospects of hundreds of thousands of young Australians."
Economic
Providing the economic outlook, EPO contributing author, ANZ, Chief Economist, Warren Hogan said while recovery in the global economy had been progressing the missing ingredient was confidence.
"What we need to see this year is the step-up in financial risk appetite to be replicated in the boardrooms and business strategy of the corporate sector, both small and large, across the world," he said.
"If the deployment of capital into the real economy to get these economies going doesn't happen the financial markets are likely to come back."
On China he said what we learnt last year is how important China is for the world economy.
"This year the main game for China is not how much growth they can get….their main challenge is to broaden their economic activity, to get small to medium enterprises investing, to get consumers spending," he said.
"Asia will generate about two thirds of the created wealth in the world over the next 10 years and yes we are linked in there in mining and increasingly agriculture but we have got to be linked in there in terms of financial flows, i.e. we've got to get capital from Asia and of course we've got to look at other service industries."
He said the mining boom in Australia would peak in the middle of this year but that would not cause a bust.
However, he said the risk for Australia was if other sectors of the economy could not step up once the peak occurs.
"The key to the economic outlook for Australia is whether we can get the non mining sectors going up," he said.
"An economy such as Australia relies on growth to keep unemployment steady…from the middle of this year mining is not going to provide it…this will have an impact on our economy.
"We need to find new sources of growth in Australia and that means the non mining economy, that means metropolitan centres, that means old style cyclical drivers and that is of course residential and non residential construction, this is where the issue of confidence comes in for Australia.
"Business confidence is soft, there has been a decent bounce post the summer break… (but) we're not going to consumer spend our way into economic growth.
"What we want is the corporate sector to deploy capital and that in Australia is about res and non-res construction - the res sector is the key."
On the high Australian dollar, he said it was high for more reasons than just commodity prices and was likely to remain high.
NAB Chief Economist, Markets, Rob Henderson, also highlighted that non-mining sectors of the economy would need to step up this year, but raised concerns about if that could happen.
"Consumers in Australia are more optimistic. In our own business survey…there has been quite a bounce in business confidence that has continued into our February readings that we're getting at the moment," he said.
However, he said: "The thing that concerns me is that capacity use in our economy based on our latest business survey - with 79 per cent - you have to go back to 2001 to find a lower level of capacity use in our economy," he said.
"So I ask the question will low interest rates in the face of weak demand be enough to cause an investment pick-up outside of the mining sector when they've already got a lot of spare capacity, in fact the most spare capacity they've had since 2001 - I somewhat doubt it," he said
He said the real mining boom was in mining investment and the issue was what would replace that if it goes flat.
"There will be some increase in housing construction in the next year… but I doubt that will be enough to fill up the hole left in the economy by the downturn in mining investment," he said.
Reserve Bank of Australia, Board Member, Dr John Edwards, said a challenge for this year would be the slow-down in China.
However, he said the good news was we were seeing a bit of a recovery in labour productivity.
"It's certainly not clear if it can continue but it is interesting that we are not having it in the normal cyclical response," he said.
For our economy overall, he said the outlook was positive.
"You can't predict, but there is nothing in today's numbers that suggest the upswing we've enjoyed for the last 21 years can't continue for some considerable time," he said.
Providing a NSW perspective, NSW Minister for Finance and Services, the Hon. Greg Pearce, said the O'Farrell Government had launched a number of policies aimed squarely at the state's economy and competitiveness.
Mr Pearce said these included a jobs action plan with payroll tax relief, reforming the planning scheme and working through policy for important but controversial areas such as coal seam gas.
"Unfortunately in present circumstances we are not in the position to cut business taxes. But the Treasurer has been leading the push for GST reform," he said.
He said a number of key projects, including West Connex, the North West Rail Link and the extension of light rail, will unleash a huge amount of economic activity throughout the NSW economy and have economic benefits in themselves for decades after they are completed.
"In less than two years the O'Farrell Government has implemented reforms and built the framework to sustain our economy," he said.
"In the next two years we will build on our reforms as we implement the change agenda and get on with building for the future."