Thank you to the Australian Business Economists for the kind invitation, and to Stephen for the gracious introduction.
It’s an honour to be with you on the traditional lands of the Gadigal people – whose elders, customs and culture I acknowledge at the outset.
This is a very thoughtful and distinguished group with a long, proud history, and so ably led by Besa.
That makes this opportunity a very special and welcome one.
I intend to make the most of it by covering a lot of ground, making 3 announcements, then taking some questions.
Let me first set the scene by going back to the start of our last long expansion.
Australia was a primary beneficiary of the Great Moderation, a period of relative calm that spanned the 3 decades between the end of the Cold War and the start of the GFC.
But the Great Fragmentation that followed was brought about by 3 big economic shocks in 15 years.
A financial crisis, which became a demand shock; a pandemic, which became a supply shock; then an inflation spike which followed, prolonged by conflict in Ukraine and the Middle East.
This inflation prompted the biggest synchronised tightening of global monetary policy in history.
Higher prices, higher interest rates and slowing growth around the world put people under extreme and sustained pressure.
The political consequences have been obvious, the social alienation profound, but my focus today is on the economics.
Churn and change have become a new normal in the past 15 years.
Our Intergenerational Report identified 5 major shifts in our economies and societies:
From globalisation to fragmentation; information technology to artificial intelligence; hydrocarbons to renewables; younger to older; and the rapid growth in services.
This provides the context for almost everything we grapple with.
Amidst this dislocation, disruption and transformation, our economic strategy is built on relief, repair and reform.
Providing cost‑of‑living relief in a meaningful but responsible way; repairing the Budget; and reforming our economy.
This is how we’re striking an effective balance between nearer term pressures and longer term opportunities.
Our most pressing and primary goal has been to fight inflation without ignoring risks to growth, and while maintaining our labour market gains.
We’d rather a soft landing than to clean up after a hard one.
Any objective observer would acknowledge we’ve made substantial progress in just one term.
Inflation has more than halved, real wages are growing again in today’s data, and the gender pay gap has narrowed.
Our economy has continued to grow while most of the OECD has had one or more negative quarters.
A million jobs have been created, unemployment is still in the low 4s, we’ve had faster jobs growth than any major advanced economy, and participation is at record highs.
Every taxpayer got a tax cut when we cut 2 rates and lifted 2 thresholds.
And we’ve delivered budget surpluses for the first time in almost 2 decades.
Let me embroider 2 areas where we’ve made most progress.
The first is inflation.
You know inflation fell to 2.8 per cent in the September quarter, its lowest rate in almost 4 years, and back in the Reserve Bank’s target band for the first time since 2021.
You may not be aware that the 5 percentage point drop since the peak in 2022 represents the sharpest moderation in inflation in a parliamentary term since inflation targeting began.
The design of our cost‑of‑living relief is part of but not all of this story.
Headline inflation fell by one percentage point in the September quarter and our policies were responsible for about half of that.
And trimmed mean inflation also fell considerably – to almost half its peak, and its lowest rate in almost 3 years.
That means headline, underlying, monthly, and non‑tradable inflation all came off very substantially.
Last week the RBA also lowered their forecasts for CPI and the trimmed mean right across the period they publish.
The RBA now expects headline to be back in the middle of the band halfway through next year, and underlying inflation to be lower than headline by year’s end, when the rebates come off.
Services inflation is still sticky but remember it’s already lower here than in the US and UK.
And if we measured core inflation by excluding volatile items the way they do, ours would be lower than theirs too.
A number of countries with lower headline inflation than us and who are easing monetary policy still have higher interest rates, higher unemployment, or both.
Our inflation peaked lower and later than most comparable countries but the shape of inflation hasn’t been that different.
Fiscal policy is playing a helpful role too.
Government spending is still not the main driver of prices, but our surpluses are helping in the fight against inflation – 2 points Governor Bullock has repeatedly made.
Those surpluses are not just the first in nearly 2 decades, they’re the biggest nominal back‑to‑back surpluses on record and the biggest fiscal turnaround we’ve ever seen.
The $172 billion improvement in just 2 years is a record for a parliamentary term, turning 2 huge deficits into 2 substantial surpluses and making future deficits smaller.
Don’t let anyone convince you this has been accidental or incidental.
It wouldn’t have happened had we not banked 82 per cent, or $285 billion, of revenue upgrades; restrained real spending growth to 1.4 per cent, which is less than half its 30‑year average; or found $80 billion in savings.
This compares with only around 40 per cent banked by our predecessors, who had average real spending growth of 4.1 per cent and found no savings in their final budget.
Our restraint means $150 billion less debt and $80 billion less in interest repayments over the next decade.
It also means interest costs are forecast to grow at an average of 9.9 per cent over the medium term, not the 14.4 per cent when we first came to government.
This will make a meaningful structural difference, as will our reforms to put aged care and NDIS spending on a more sustainable path.
They’ll see aged care spending grow at 5.2 per cent.
Over the next decade, not 5.7 per cent, and the NDIS at around 8 per cent instead of 19 per cent.
So that our budget repair is structural, not just cyclical.
It’s on structural issues in the economy I want to spend the balance of my remarks.
I’ve covered relief and repair, but I want to focus on reform.
There is no more important structural problem in our economy than productivity.
No higher priority for reform.
No more important ingredient in the higher living standards we all seek.
But we need to recognise our productivity challenges have been longstanding and will take time to turn around.
Our productivity problem didn’t show up 2 years ago, it showed up 2 decades ago.
And not just in Australia but in almost every comparable country.
The Productivity Commission’s 5‑yearly review of our productivity performance was clear.
Growth in the last full decade was the slowest in 60 years.
In the 10 years to 2020 productivity growth averaged just 1.1 per cent a year – worse than the decade before and barely half the rate achieved during the 1990s.
In 2022, Treasury also downgraded its long‑run annual productivity growth assumption from 1.5 per cent to 1.2 per cent.
New Treasury analysis attributes about half this downgrade to the changing mix of industries in our economy.
This is partly linked to more people working in services industries where productivity typically grows more slowly, as Australians earn more and live longer, healthier lives.
This is a common pressure felt globally.
But even in relative terms – Australia fell 10 places in OECD productivity rankings in the 5 decades to 2020.
Productivity growth ground to a halt before the pandemic hit – slowing for 7 consecutive years, the most persistent deceleration since records began.
On paper, productivity grew rapidly in the early phase of the pandemic, but this wasn’t due to any productivity‑enhancing reform.
Health restrictions forced many workers out of customer‑facing services industries, where productivity tends to be lower.
This meant GDP per hour worked increased 1.9 per cent in 2020–21, and 1.5 per cent in 2021–22.
But it came at the cost of elevated unemployment.
It meant less prosperity and opportunity, not more.
And once lockdowns were unwound, productivity quickly slipped back.
It fell by 2.5 per cent in the June quarter of 2022 – the fastest quarterly decline since 1979.
The COVID productivity bubble was burst.
This cyclical volatility also works in the other direction.
Labour productivity was flat in 2023–24 because it partly reflects the enormous gains we’ve made and preserved in the jobs market.
More than a million new jobs, low unemployment and record high participation means more people who have historically struggled to get work, are working.
In fact, the proportion of working‑age people with a job in Australia is 2 percentage points higher now than it was before the pandemic – at a record high 64.4 per cent.
In contrast, in the United States, this ratio is a full percentage point lower than its pre‑pandemic level.
If Australia had a similar ratio, there would be about 950,000 fewer people in jobs.
Weaker investment also played a role in our dismal decade for productivity, which I’ll come back to later.
For now, it’s sufficient to remember weak investment pushes down the capital to labour ratio, a key determinant of productivity growth.
In 2022–23, the growth in capital could not keep pace with the increase in hours worked, which led to a 5.3 per cent decline in the capital‑labour ratio – the largest on record.
As investment continues to pick‑up and more than a million Australians in new jobs build their skills, we expect it will make a greater contribution to productivity growth over the medium to longer term.
We can be confident about this but not complacent.
That’s why our reform agenda is laying the foundations for higher productivity growth into the future.
Here our focus is the 3 components of economic efficiency.
To build greater technical efficiency so people are equipped to be as productive as they can be at work.
To lift allocative efficiency, so that talent and capital flows to where it is most productive.
And to drive dynamic efficiency over time, accelerating the diffusion of new innovations and investing in our future strengths.
In other words, we’re not seeking productivity growth at the cost of higher unemployment or by insisting Australians work longer for less.
We’re applying new thinking to the challenge, broadening our ambitions beyond the tired slogans of scorched earth industrial relations.
We’re building the next generation of productivity growth on 5 pillars, each of them now reflected in the Statement of Expectations I agreed with Productivity Commission Chair Danielle Wood.
The first is creating a more dynamic, competitive and resilient economy.
Already here we are abolishing almost 500 nuisance tariffs; introducing comprehensive competition reforms including the biggest overhaul to merger settings in 50 years and improving competition in the supermarket sector; and better designing and informing our capital markets.
We’re strengthening and streamlining approvals processes and aligning investment with national priorities through the Investor Roundtables.
It’s part of a broader effort to modernise and diversify our industrial base, through the National Reconstruction Fund, a renewed focus on partnerships in our ASEAN region, and investments in innovation.
The second is building a skilled and adaptable workforce through university reforms, fee‑free TAFE, record investment in skills, reforms to income tax and student loan repayments that support participation, and changes to the migration system.
We’re using the new Australian Centre for Evaluation to make sure investments like these are as impactful as possible, saving tax dollars and delivering better outcomes for businesses and workers.
The third is harnessing data and the digital economy by expanding the NBN into regional areas, unlocking access to advanced satellites and national data assets, investing in technologies of the future like quantum computing, and expanding the Digital ID.
We’re delivering better training for tech jobs, including through digital apprenticeships, TAFE centres of excellence and programs to improve diversity in STEM.
And we’re investing strategically in Australia’s 7 critical technology fields, including through the National Robotics Strategy.
The fourth is investing in the net zero transformation, unlocking $67 billion in private investment through the Capacity Investment Scheme, improving household and business energy efficiency, and introducing a new vehicle efficiency standard.
We’ve legislated Climate Risk Disclosure reforms, have delivered $7 billion in green bonds and are delivering on our sustainable finance roadmap to provide more certainty to investors.
And we’re realising net zero industrial opportunities through our $22.7 billion Future Made in Australia agenda.
And fifth, as our population ages and the care economy expands, delivering quality care more efficiently by reforming the NDIS to ensure its sustainability, providing more Australians with aged care services at home, building a world‑class health technology assessment framework, and making it easier for Australians to see a doctor.
This is already a really substantial productivity agenda.
It’s an agenda that crosses almost every portfolio – not just the responsibilities of the outstanding core economic team of Katy Gallagher, Stephen Jones and Andrew Leigh.
But as Tony Blair would say, lots done, lots to do – and lots to lose if we don’t do more.
That’s why I wanted to announce and outline for you today the next steps of our productivity agenda.
We are revitalising and incentivising National Competition Policy with every state and territory, to make our economy more dynamic and resilient.
We will formally task the PC with dedicated inquiries on each of the 5 pillars, to inform and shape how we continue building on the substantial progress we’ve made.
And we now have more detail and direction for the single front door we are creating to get more private capital flowing more efficiently.
Let me touch briefly on each, starting with competition policy.
More competition means a more productive and more dynamic economy, with better jobs, more choices and growth, and fairer prices.
That’s why we’ve been revitalising National Competition Policy with states and territories since last December.
In March this year, on behalf of the Council on Federal Financial Relations, I asked the Productivity Commission to model the potential impacts of a revitalised NCP.
Its final report landed this month and the benefits on offer are substantial, if not staggering.
The PC found a revitalised NCP could boost GDP by up to $45 billion a year and reduce prices by 1.45 percentage points.
That GDP boost represents about $5,000 per household, per year.
But it reflects tough reforms and takes commitment from the Commonwealth, states and territories.
On 29 November I will meet with my counterparts to kick off this work.
While not every option modelled by the PC will become policy, we want to make meaningful progress where we can.
I expect we’ll start by fast‑tracking the adoption of trusted international product safety standards and developing a general right to repair – both Commonwealth‑led reforms.
Both involve small implementation costs but provide significant benefits: in the order of $5 billion over the next 10 years for product safety; and over $400 million per annum for right to repair.
There’s also work for the states and territories to lead.
A revitalised NCP will incentivise states by creating the architecture to share benefits of state reform that grow the national economy.
Today I can announce we are making up to $900 million available to states and territories through a new National Productivity Fund, to boost competition and productivity across the economy.
This will incentivise states to achieve productivity gains through pro‑competitive policies, choosing from a menu of options.
Areas of focus could include streamlining commercial planning and zoning, and removing barriers to the uptake of modern construction methods.
It’s all about rewarding states with more revenue, where they deliver meaningful and measurable economic reforms.
I’m grateful to the Productivity Commission for helping us shape up this opportunity.
We’re putting the PC at the centre of our broader productivity agenda.
Very soon I’ll be commissioning 5 separate PC inquiries on each pillar of productivity, to inform the next stages of reform.
I met and discussed this with Danielle Wood last Wednesday.
This work will identify priority policies that will materially boost productivity in a measurable way, especially in areas where we’re seeing big structural change.
It will help us maximise the productivity dividends of the net zero transformation, the care economy and data and digital technology.
And it will help us progress new reforms when it comes to boosting dynamism and competition, and building a skilled and adaptable workforce drawing on deeper pools of human capital.
These 5 inquiries will be more targeted, tangible and timely than the five‑year report.
More targeted by having a focus on meaningful and measurable productivity‑enhancing reforms.
More tangible by ensuring the recommendations are practical in nature, with advice on implementation.
And more timely, by giving government up‑to‑date advice at the start of the next term.
That’s why I’ll be asking the PC to deliver interim reports in the middle of next year, with final advice by the end of the year.
We are also putting in place better institutional arrangements to help maximise the flow of capital in our economy.
As I said earlier, the downturn in Australia’s productivity is linked to a decline in business investment.
We need substantial and sustained investment if we are to make our economy more productive.
As a share of GDP, business investment was near record lows in 2020–21.
This was the result of a long slump, particularly outside of the mining sector.
But recently we’ve seen more encouraging signs.
The latest National Accounts show new business investment rose by more than 7 per cent in 2022–23, and a further 6.6 per cent in 2023–24.
Business investment as a share of GDP reached its highest level in around a decade last financial year and has been strong across all major categories.
This is more than just buildings and machinery.
It also includes physical investments in renewable energy infrastructure and data centres and warehouses, where we have seen strong growth that is expected to continue.
And investment in intangibles – with intellectual property product growth in the double digits for the last 3 years.
We are helping give investors the clarity and certainty they need to unlock growth and productivity in our economy.
Our primary responsibility is to create the conditions for sustained growth.
This starts with strong macroeconomic foundations – which is why we place a premium on responsible economic management.
But government also needs to create an enabling environment for investment – with clear regulations, well‑functioning markets and streamlined approval processes.
There is more work to do but our sustainable finance strategy, climate‑risk disclosures and foreign investment approvals overhaul all help here.
And our Future Made in Australia agenda is about capitalising on the golden opportunity the net zero transformation presents us by attracting more private capital, not replacing it.
That’s why we announced in the Budget we would establish a new single front door, as a central point of contact for investors looking to deliver transformational projects in Australia.
I’m pleased to update you on where the design of the front door is up to.
I can confirm it will sit within the Treasury portfolio, and will have 3 key functions – prioritisation, investment concierge and regulatory facilitation.
It will prioritise proposals that represent transformational opportunities, using transparent and robust criteria.
For selected projects, it will play a central role in coordinating approvals across government.
And where there’s a role for government investment, it will work with existing government investment vehicles and agencies to support and speed up final investment decisions.
The single front door will make it easier and faster for investors to navigate government and regulatory systems.
All projects will have access to clearer and more accessible information, while major or nationally significant projects will get access to bespoke concierge and facilitation.
The status of a project will depend on its alignment with the government’s strategic objectives, including our Future Made in Australia priorities and the focus areas of our co‑investment funds.
It will also depend on a project’s size, viability and maturity, its potential contribution to the national economy, local communities and supply chains.
Consultation on the prioritisation criteria and regulatory facilitation will be a focus of the next Investor Roundtable I host on November 22.
We’ll continue consulting with investors, industry, unions, states, territories and communities ahead of rolling out its initial services from the second half of next year.
Let me finish my remarks by adding another chapter to Paul Keating’s story of Australia as 3 post‑federation economies.
The first was colonial and agricultural. The second, protected and industrial. The third, unshackled, opened up to the world.
The neat pattern in this framework is that our economy evolves every 4 decades or so: the 1900s, 1940s, 1980s.
Now it’s the 2020s which are pivotal.
Together we are building Australia’s fourth economy.
One powered by cleaner and cheaper energy, indispensable to the global net zero transformation, where we teach and train our people to better adopt technology; where capital flows more efficiently and effectively in a more dynamic, competitive and productive economy.
I hope today I’ve given you a sense of where we think the opportunities lie, how we intend to grasp them, and the role you and I can play in turning plans and priorities into productivity.
Not for its own sake but to improve the life choices and chances of our people, in a world of churn and change.
Thanks and I look forward to the discussion.