What business leaders expect from the post-budget economy
Friday, May 18, 2012/
Seven key business leader have taken the time to reflect on the implications of the federal budget on the year ahead. These leaders represent companies with a combined turnover of $2 billion. They are part of a global program, the FG100 Initiative, attempting to shape the future of the global economy, national markets, business and industries through the collective input of leaders from business, government and intergovernmental organisations. FG100 held an inaugural meeting in Australia in April.
Andrew Banks, Managing Director, Talent2 International (ASX: TWO)
The two main issues behind the recent fall in the competitiveness of our economy stems more visibility by the rising dollar caused by commodity export prices and a high relative exchange rate. But the underlying and more “chronic” issue is clearly labour costs and the choice of jobs we choose to create in the Australian economy.
The first issue is harder to manage for it is affected by many moving parts and much of it is external and beyond Australia’s control. So complaining about the “Dutch disease” (Holland suffered a similar fate when its gas boom in past years caused its currency to appreciate) doesn’t get you anywhere. The Central Bank can lower interest rates as it has recently done and this could help, but in the end, the currency will find its own level relative based on trading patterns and longer-term fiscal management.
Where both government and private sectors can affect competitiveness lies around the structural change that is taking place based on the fact that the Australian workforce is well educated and skilled but expensive compared to many trading partners.
Thus two things have to happen concurrently:
Government policy and tax incentives needs to be steered towards encouraging the industries, business models and jobs that Australia can afford and deliver on, playing to its strengths like time zone, infrastructure, natural resources (not just minerals and energy but cheap land and agricultural resources). Australia can’t compete making cheap plastic buckets or sports shoes, but it can make world-class medical devices and grow beef more efficiently than most countries.
Secondly all the old-fashioned “socialist ideals” around protecting the workforce need to be revisited by State and Federal Governments with the unions, in the context of a just and fair wage system but not one that rewards low productivity and rorts created by out of date legislation that often incentivises people to be unproductive when they would rather work.
Strip out a lot of this legislative red tape and statutory framework and the underlying productivity of hard working Australians would be released as it is when one sees that 5% of our workforce is overseas at any one time, in big demand by global companies that know what they are capable of when left to their own devices and incentivised.
John Brown, Managing Director, Electrolux Home Products Pty Ltd
Whitegoods sales are heavily dependent on increased homebuilding activity and there is nothing in the budget which would indicate a stimulus in that regard. There could be a temporary stimulus to consumption from the family cash allowances, which might prompt people to buy new appliances in the short-term.
Manufacturers like Electrolux will face increased costs of doing business here as the carbon tax pushes up power and transport prices. The organisation and our retail partners will continue to be at a disadvantage to overseas competitors who aren’t affected by a carbon tax at the manufacturing source or GST at the point of consumption.
Kim Jenkins, Managing Director, Australia and New Zealand, Experian
The keys to competitiveness in Australia, and in any globalised economy, are innovation and openness. As we look forward to the next fiscal year, Australia is reviewing legislation to expand the level of financial information available to credit providers. This reform will enable financial institutions to make more responsible lending decisions based on a more complete view of consumers’ credit history and credit behaviour. Research from the World Bank shows that consistent credit data from a third party can significantly improve the quality of decisions that lenders make and improve overall access to credit for consumers and businesses.
This increase in information sharing – called comprehensive credit reporting – will reduce risk for both lenders and borrowers and bring Australia into line with global practices. In short, this reform will mean better allocation of capital, more responsible lending and reduced risks for consumers and the financial sector – all of which will help make the Australian economy more efficient and more competitive. Additionally, availability and diversity of skills and experience in the workforce is a critical cornerstone of growth, and innovation is required to sustain global competitiveness.
Australia has a relatively small population and is fortunate to have a low unemployment rate. The recent move to abolish the LAFHA (living away from home allowance) for people living and working in Australia on temporary residents’ visas will limit companies’ ability to attract and retain international employees possessing valued skill sets not available, or in short supply, in the Australian workforce. This will not support skill and knowledge transfer and has the potential to materially constrain competitiveness.
Gary Edstein, Senior Vice President, Oceania, DHL Express
I believe that we need to have a more balanced economy where key industries other than mining are growing and contributing to the overall economy. Corrective action needs to happen to improve the current situation but more importantly, to set up a plan for the future.
Mining is booming, however many other industries namely manufacturing, retail, education and tourism are in a crisis. Jobs in these industries are being lost and companies are either offshoring or closing down.
We are now in one of the most prosperous times (due to the mining boom) that Australia will ever experience, and it is vitally important to develop industries for the future that will provide jobs and economic growth into this century.
• Continue to reduce interest rates.
• Bring the Australian dollar down so that exports can be more competitive.
• Negotiate more bilateral Free Trade Agreements with our largest trading partners.
• Improved infrastructure at our sea and airports and roads.
• Open up immigration to highly skilled workers.
Government (both federal and state) and corporate Australia must engage collectively and plan a “vision” for this country that will take us forward over the next 20 to 30 years. We must identify what industries that we can be “great” at and where can we add value, especially where commodities and resources will be limited and in more demand as the global population continues to grow.
• Develop a 20 year “vision and plan” for Australia.
• Identify those industries where Australia can excel at and be “great”.
• Use the Future Fund to develop infrastructure and new industries.
• Develop a joint country R&D plan with Australian universities, higher education and corporate Australia.
Richard Huxley, Regional General Manager for Asia Pacific, RS Components
Despite the negative sentiment from some regarding the waning competitiveness of Australia’s two-speed economy, it’s clear that the country is taking a step in the right direction with a budget surplus amid a tough federal budget with deep spending cuts. Much like commentary from the International Monetary Fund, we believe that the rebuilding of fiscal buffers would place Australia in a much better position to buffer against economic shocks. In addition, we believe that the resources sector and heavy investments in the mining industry will continue to create jobs as well as drive growth in Australia, with concerns about wages and inflation being an area that can be addressed with the right mix of policies.
Our extensive experience and success over the last 20 years as a high service electronics and maintenance distributor in the Australian market is proof that technology continues to be a game-changer for Australia. Many businesses in the country today continue to be early adopters of technology, and the drive towards higher-value innovation and education will be key to improving the future competitiveness of Australia’s economy across the manufacturing, electronics and resource sectors.
As the global manufacturing landscape has undergone major changes in the last few years, we are seeing a paradigm shift in Australia towards higher value-added design and engineering, which has presented a host of new challenges to the market, including stronger competition, with the race for fastest time-to-market becoming critical for success. In order to stay competitive, businesses need to think about designing high-quality innovations and taking these products to market faster. This in turn would inject the positive spirit of competition in the country and hopefully help drive demand for higher quality exports from the country.
We further believe that the second part to sustaining a competitive Australian economy is education. While competing to succeed in business and raising overall performance is a positive notion, it cannot be sustainable without education for future generations. In order to ensure continuity and innovation across growing sectors in the country, industry stakeholders need to continue support of efforts to create a future workforce that is ready to take the Australian economy forward. At RS Components, we are supporting this with initiatives like DesignSpark, a free online platform for students and design engineers to reap the benefits of empowering themselves with more knowledge, new ideas and industry developments, all while preparing for the next step of advancement that could further contribute to the future competitiveness of the Australian economy.
John Banks, Board Member, Committee for Sydney
The economics of the budget come at a time when interest rates and inflation are falling, and most non-resource sectors of the economy are weak. The Government remains committed to announcing a surplus for next year, made in much stronger economic circumstances.
Within this slowing economy, a recession is a very real risk – especially if Chinese growth really slows, commodity prices continue to weaken and Europe and America continue on a flat path. It should also be recognised that the Government has extracted some $40+ billion from our economy, by way of expenditure cuts and increases in taxes and charges, to announce a surplus for next year.
We are already experiencing flat employment and recruitment activity; organisations are watching budgets carefully and reducing taxes from corporates, making it more difficult to raise additional taxes to bolster the federal deficits.
The challenges are particularly being experienced in the non-resource based cities of Australia, Sydney being amongst them.
There are few policies in place to bring our two- or even three-speed economy up to a single fast speed.
The combination of the factors above, plus the introduction of the carbon tax, creates a challenging environment despite the national indices appearing quite benign.
What business truly requires is a strong and decisive government. Most of Australia’s present and future growth is dependent upon the resources boom, while cities/regions outside of this industry are generally stagnating. There is a need for strong direction from the Federal Government to adequately invest into the long-term future of Australia and the cities.
The Committee for Sydney feels that our capital cities are facing a critical shortfall in receiving adequate funds for infrastructure to promote long-term economic returns. Our biggest worry is that while the Federal Government is rhetorically very positive about cities, in reality, it has very little resources left to sustain their future growth.
Lionel Lee, Chairman, Platinum Circle
For the Australian business community, scrapping the much-anticipated business tax cuts comes as a setback for many corporations and as a missed opportunity for business competitiveness and investor confidence. We can see some steps made by this budget to strengthen Australia’s fiscal foundations through an attempt to return to surplus. However, the measures lack a clear roadmap that will build business confidence and create much-needed jobs across sectors.
It would be interesting to see how Julia Gillard’s “New Australian Economy” will shape up with this budget and amidst the inter-related bundle of domestic economic and social concerns. Can the budget help weather some of the challenges Australia face as an economy in face of the increasing pressure to remain competitive in an emerging global economy led by Asia, Latin America and Africa?
While a return to surplus may be welcomed, the test will be to come up with a coherent medium-term strategy that delivers sources of future growth, economic value and job creation, and this remains a challenge.
International voices and insights on the future of the Australian economy and industry are now needed more than ever before. As we review the implementation of the Future Global 100 Initiative into Australia on a long-term basis, we will gather our leaders in other markets who are trading with or looking to invest in Australia to engage with leaders from Australian corporations, government organisations and foreign corporations who have a significant influence on the future of the Australian economy. This will help us to engage the real challenges and opportunities the New Australian Economy will present year-on-year.
The Platinum Circle is a global business group of corporations with annual revenues exceeding USD100 million, governments and inter-governmental organisations. The FG100 Initiative is a global program by Platinum Circle that, through the collective input of Platinum Circle members, helps shape the global economy, national markets, business and industries.