06/03/2013
Economic Overview
Australia has spent at least decade wasting the opportunity to put in place policies that enable the economic restructuring for Australia, Australian National University, Crawford School of Public Policy, CAMA, Vice-Chancellor Chair in Public Policy, Professor Warwick McKibbin told a CEDA audience at the Victorian EPO.
"We had the same problems (as the US) with competitiveness with industries that should have been in decline," he said.
"(But) we had governments which were not willing or interested in dealing with this because they had this massive revenue inflow coming largely from China, and from our export boom."
Professor McKibbin said global fiscal and monetary policies must adjust and warned that global bond markets could easily crash.
Professor McKibbin also said that further interest rate reductions cannot deal with a structural problem in the Australian economy.
"We can't really do anything about the exchange rate - what we can do something about is our competitiveness on the input cost side," he said.
"We need to deal with the problems we have in labour market costs, energy costs and regulatory costs which have been moving in the wrong direction for a decade."
Professor McKibbin suggested that while Australia remains attractive for investment, we should issue 50 year bonds to attract as much capital as possible and use that capital to rebuild Australian infrastructure stocks.
ANZ, Chief Economist, Warren Hogan said Australia needs to look to non-mining business investment as a source of growth and to generate jobs.
As the mining investment boom winds up over the next year or so, Australia needs to find other sources of growth, he said.
"We need growth or unemployment will go up, and the answer is not the consumer.
"People will lose jobs in mining over the course of the next 12 months and we need to reemploy them back into metropolitan centres.
"We need to look to residential construction over the next two to three years to drive economic growth.
"That sector is ripe for improvement…we haven't built enough houses, there is the prospect of demand to be filled.
"There are challenges there, not least of all government red tape, but that's where we have to get our growth from."
Australian Workforce and Productivity Agency (AWPA), Chair, Philip Bullock said that by 2025 Australia's employment will grow from our 11 and a half million to somewhere between 12.5 and over 15 million by 2025.
"We will create between 5.6 and 6.4 million job openings in Australia. This includes growth in employment, together with job replacements from people leaving the workforce," he said.
In regard to skills demand, Mr Bullock said that it is actually industry who is demanding higher skills, and today 60 per cent of people in the Australian workforce have some form of post-secondary school education.
"This will rise from 60 to 65-75 per cent by 2025," he said.
"This is not something that somebody else is doing; this is driven because industry wants that type of skill level."
Workforces will have to be more adaptive, and how we train workers and how we bring them from universities and TAFE colleges into the workforce is going to be more and more important, he said.
"Workforce development really is a joint (investment) between individuals spending their own money, organisations spending money, and governments enabling infrastructure and also spending money," he said.
"The changes that will occur are only there because industry wants them - industry drives it, governments enable.
"To meet the skills need…on average we would need to increase the amount of investment in the tertiary sector by three per cent."
Sky News, Political Editor, David Speers said it's unlikely we'll see Kevin Rudd return as leader of the Labor Party.
Of course he wants the job, but the assumption that he'll do whatever it takes to get that job is wrong, Mr Speers said.
"He would only take it if it can be made clear to him that he can win it," he said.
"He would need, to even consider coming back to the job…a big majority of the party to acknowledge that they were wrong and to come to him and make a public apology of sorts."
He would also want the key number crunchers to show him that he can win the election, he said.
"I don't think he wants to take the job if he's only going to lose, perhaps a little better than Julia Gillard would," he said.
"So if they don't change, clearly the big challenge for Julia Gillard and the Government in the coming months is the budget. This has become the biggest flash point for the Government this year."
On the Opposition, Mr Speers said there is some validity to the criticism that not enough scrutiny or attention is being put on Tony Abbott who is, at the moment, on track to become the next prime minister.
"He is getting away with a lot while the focus remains intensely on Labor's internal problems," he said.
"We know what he wants to get rid of but doing each of these things not as easy as it sounds."
Mr Speers said to is unlikely that Tony Abbott will get rid of the Carbon Tax in the first few months because legislatively, getting it through two houses of parliament would be tricky, he said.
Australian Financial Review, Melbourne Bureau Chief, Mathew Dunckley gave an overview of the state of play with Victorian politics.
The general consensus, he said, was that the Victorian Premier Ted Ballieu has a communication issue, highlighting Jeff Kennett and Michael Kroger's recent criticisms of the Victorian Government.
"We had a very interesting spectacle with Jeff Kennett coming out and having a real crack at his one-time protégé," he said.
Jeff Kennett's comments that the problem in the Victorian Government goes to the top explicitly criticised Ted's ability as a salesman, he said.
"Michael Kroger went on radio the next day on the ABC and also criticised the Government's (in)ability to communicate its message."
"Ted has a real problem in the polling and that is why people like Kennett and Kroger are out there saying publicly that they have real concerns."
Macquarie Capital (Australia), Head of Macquarie Capital, Australia and New Zealand, Robin Bishop said globally we have seen a significant move in risk appetite as investor willingness has increased.
In the US, housing prices are improving, they have a relatively low currency, cheap gas and the economy continues to grow albeit from a low position.
Mr Bishop said Australia is relatively weaker than the US in the outlook mainly because the housing market is relatively soft.
"There have been small signs of improvement but the credit growth remains very low," he said.
"The benefit of lower interest rates doesn't seem to have really strengthened the economy significantly, household confidence remains relatively soft.
"The question on everybody's mind is: What's going to drive growth in Australia with the mining sector investment softening?
"The consumer seems fairly cautious and the non-mining sector is focused more on reducing costs and reducing leverage than investing heavily in capital expenditure."
Rio Tinto, Head of Economics and Markets, Vivek Tulpule spoke of the significant forces likely to affect mining and the Australian economy as the world continues to adjust to the post-GFC environment.
The west is all about austerity and deleveraging and in China it's all about how to remove the huge amount of stimulus they've put in place, he said.
Mr Tulpule said we can "expect the Chinese economy to become less investment intensive and more consumption intensive, more focused on the delivery of public goods and better social services more generally.
"But that adjustment period is going to take a long time and will be the source of enormous volatility."
In Australia, the mining industry has seen a boom like never before which has seen prices increase and costs escalate as a result, he said.
Countries like Australia need to focus on productivity, take undue risks out of the economy and increase their ability to cope with change, he said.
RMIT University, Vice-Chancellor and President, Professor Margaret Gardner said it appears we are spending too much time focusing on secondary and primary education at the expense of really understanding where our future lies with tertiary education.
As Australia's largest services export industry, Professor Gardner said the success of Australia's tertiary education sector should be cultivated and expanded.
"Twenty-one per cent of our onshore students in Australia are international students…the US is six per cent," she said.
Australia also has large offshore campuses, so development for the sector isn't just inside Australia, she said.
In fact, the future of the industry lies "outside our backyard" where there are huge opportunities, she said.
"Demand for tertiary education is one of the great future demand areas for our region," she said.
"If you have a sector that is already the most successful in the world, then the next question you ask is how do we make it more successful?
"That is the policy question that needs to be debated - not just onshore but offshore.
"To be a significant force we will have to confront the big strategic challenges in front of us."