Opinion article

Melinda Cilento: we need to be ambitious about Australia's future

CEDA Chief Executive, Melinda Cilento, writes that renewing economic growth after the COVID-19 crisis will require ambitious and creative policymaking.

In contemplating a growth agenda to support economic activity and job creation, we must resist simply reaching into our existing tool kit of solutions. There is still much to learn about this novel coronavirus but Australians are beginning to gain confidence in our response to the virus itself. So public conversation is quickly and rightly swinging to economic recovery.

Perhaps not surprisingly many calling for reform have reverted to the policy ‘solutions’ that were well ventilated prior to the crisis: reduced company tax rates, reduced regulatory burden, workplace relations reform.
All of these issues must remain up for debate. The key objective sitting behind them, namely creating an environment that is highly conducive to business investment and innovation, is more important than ever as we seek to rebuild our economic strength and resilience. 

However, we must take into account that the landscape in which Australian businesses are making their investment decisions has changed dramatically. In the words of the IMF, the economic crisis unfolding around the world is of an order not seen since the Great Depression. 

To what extent will reducing the company tax rate from 30 to 25 per cent be enough to reignite business investment and jobs growth in this environment and in a world with closed Australian borders? It seems likely that the pursuit of new and innovative opportunities will be a stronger driver of investment decision making, and such opportunities are more likely to be enabled by a broader and more ambitious agenda.

Previous research undertaken by CEDA identified key features of our past success, factors that shaped and defined Australia’s enviable run of sustained economic growth. These included the important role of strong population growth driven by high levels of skilled immigration, global engagement, our robust institutions and a strong social compact. 

The first two of this power four are now severely challenged by the COVID-19 crisis.

Population growth underpinned by migration has been an important contributor to economic growth and, by enabling access to skills, has supported business investment and growth. But migration has come to a grinding halt and the unintended social consequences of a hard border slammed shut may take generations to leave the psyche of those recently put on the other side of our formerly open door.

The benefits of globalisation more broadly are also being called into question. Particularly when seen in a new cloud enabled, flexible work environment which can change the onshore productivity equation.

Our reliance on China as a major trade and investment partner for example, is being seen differently when framed by this crisis.

We should be strategic in evaluating what the impact of this reliance has been, how the landscape of international trade and capital flows will change in the months and years ahead, and what that means for Australia. But we must also be clear-eyed about the decades long benefits that have been derived as a result of our relationship with China and what realistic alternatives we have. Pragmatically, if China is first out of this crisis, can and should we turn our backs on the opportunities this presents for Australian business?

That aside, the benefits we derived from population growth and global engagements will not rebound quickly and we must take this opportunity to be aspirational and more creative about our future and our potential. In the last month, responses to COVID-19 have seen changes that had previously proven cumbersome to action or struggled with support, to be rolled out at lightening pace. We have seen this particularly through embracing digital technologies, an obvious example being telehealth.

Equally, we have seen businesses pivot literally overnight in response to lost and new opportunities. Agile businesses have repurposed production lines. White collar workforces have settled in their dining rooms. We need reform that reinforces and enables this agility and dynamism.

On the table should be broad based tax reform; workplace relations reform that enables collaboration and innovation in the workplace; fast tracking of data reforms; embedding digital delivery of human services to improve outcomes and efficacy; a reconsideration of Australia’s skill needs and how best to meet them; and a reflection on our social compact and safety net in light of the no doubt lasting impact that this crisis will have on the most vulnerable in our community through unemployment and the exacerbation of existing disadvantage and emerging intergenerational inequity. 

This next generation of reform will need to be different with policy frameworks that allow policy to adjust and adapt to capitalise on emerging technologies and ways of working. They cannot be pursued in isolation of changes in other areas. Like software applications, they need to work together and be updated and refreshed as circumstances change. 

Similarly, we cannot afford to have business in one silo and government in another. Or for that matter sectoral silos seeking their own rents.

Now is also not the time to forget the lessons we have learned from past reforms, such as with manufacturing. We absolutely should be carefully reviewing strategic supply chains and the benefits of diversification.  But again, we need to be candid about the costs as well as the benefits of building domestic supply capacity, particularly when the productivity of our manufacturing sector overall does not compare favourably with that able to be achieved in many other countries.

On a positive note our strong institutions and social compact have continued to serve us well through this crisis.  Our state and federal governments have worked well together as exemplified by the establishment and functioning of the National Cabinet. The response of governments, led by the Federal Government, has been to strengthen social safety nets and reinforce our social compact at this time of need.  The critical question is what shape each of these takes as we move to a new normal.

An important test will be how our federal and state governments continue to work together as the most extreme challenges of the crisis dissipate, because they will need to maintain the collaboration seen in recent weeks if we are to deliver the direction and scale of reform needed.

True reform always involves difficult decisions and trade-offs. The silver lining is crisis and upheaval provide the impetus and opportunity for the magnitude of reform that can reset the foundations to build a stronger future, but only if we resist resorting to yesterday’s solutions.

In case you are interested...
In 2017, then Federal Treasurer the Hon. Scott Morrison released the Productivity Commission's Shifting the Dial report on the CEDA stage. In looking ahead to recovery, the Prime Minister has referred to this report in igniting growth. You can watch the release here.

About the authors

Melinda Cilento

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Melinda Cilento is Chief Executive of CEDA, a company director, economist and experienced senior executive. She is a non-executive director of Australian Unity and Co-Chair of Reconciliation Australia. Melinda is also a member of the Parliamentary Budget Office panel of expert advisors.

Melinda was previously a Non-Executive Director with Woodside Petroleum, Commissioner with the Productivity Commission and Deputy CEO and Chief Economist with the Business Council of Australia. Melinda has also previously held senior roles with the Federal Department of Treasury, Invesco and the International Monetary Fund.