Thanks, Mark, for that introduction and thanks to Citi for the opportunity to address this forum once again, in Sydney, on Gadigal country.
As usual the room’s packed with business leaders from Australia and abroad, so forgive me for not acknowledging everyone individually.
But let me make 2 exceptions:
For Heather Ridout, Australia’s Consul‑General in New York, who plays a pivotal role here.
And for Shemara Wikramanayake, who is leaving Macquarie next month after 4 decades.
Please join me in acknowledging their contributions.
And while I’m at it a very big thanks to my parliamentary colleagues Daniel Mulino, Andrew Charlton and Matt Thistlethwaite who are joining us too.
This is the third time I’ve addressed the A50, but I’m especially pleased to be here this year for Citi’s Centenary Week.
It doesn’t seem that long ago I was speaking at your 100th Anniversary event at the Opera House.
But that was the end of January, and by the end of February the Iran War had begun.
As Governor Bullock said, it came along ‘and blew everything out of the water.’
Rarely has the global economy’s fragility been exposed so starkly.
The biggest energy shock on record is forcing governments and markets to continually reassess and reprice.
In this sea of uncertainty and risk, Australia is an island of opportunity and stability.
We’ve talked about this at the A50 before.
You wouldn’t be here with your $27 trillion of capital if you disagreed.
Whether you’re based here or overseas, entering the market or expanding your presence –
Australia’s strengths and stability are clear and they are compelling.
It’s a point I’ve heard repeatedly over the last 3 weeks across 3 global financial capitals.
In Tokyo I met with investors controlling over $4 trillion in assets.
Last week I was in Bangkok for the IMF/World Bank and G20 Finance Ministers meetings.
And earlier this week I was in Hong Kong for the APEC Finance Ministers’ meeting.
There I met with China’s Finance Minister and some of Asia’s largest businesses and investors.
Over 4 days in 3 countries I met more than 40 CEOs and business leaders.
The major focus was on oil prices and energy security, bond yields and borrowing costs, and capital flows.
I heard the same message over and over:
In a world of ratcheting risk, Australia is more and more reliable.
Macro stocktake
This is not to say we are immune from turbulence in the world or that we don’t have our own fair share of challenges.
Productivity has been far too weak for far too long.
Higher inflation is putting people under pressure, tighter monetary policy is weighing on domestic activity, and we can see that in the softening of the labour market.
We’re not immune from the consequences of 2 wars, both impacting almost every economy in one way or another, posing risks to global growth, pushing up global inflation, and pushing up borrowing costs.
I know bond yields and borrowing costs are a major focus for all of us right now.
Just before 5am each day one of my team messages me the key numbers from overnight markets. It’s the first thing I read.
Many of you would have a similar habit.
In the early days of the government the first thing I looked for was the east coast spot price for gas.
At other times it’s been the iron ore price.
Then I got used to looking for the gold price as a sign of how worried the world was.
Then of course oil prices, and I still go there first.
But like a lot of you I also look for the 10‑year bond yields in the US and here.
Yields give us a very handy sense of what’s happening in the world because when risk rises, investors demand a bigger premium.
That’s not new.
What is new is the combination of factors now biting hard, and biting simultaneously.
First, higher global inflation driven by higher oil prices.
Second, rising interest rate expectations around the world.
Third, much more debt held by the largest economies.
Fourth, intense competition for capital driven by the AI boom.
And fifth, the accelerating pace of generational change.
Together, these factors are weighing on budgets and testing the nerve of markets.
UK 10‑year yields reached their highest in almost 2 decades this month.
This pushed Britain’s monthly interest bill to £8.8 billion, roughly Australia’s interest repayments for 8 months.
American 10‑year yields are even higher, reaching a 24‑year high.
This contributes to an extra $140 billion in interest this year.
Australia is better placed than our peers, but we’re not immune.
Our 10‑year yields just reached a 15‑year high, meaning that as the debt we inherited matures, the medium‑term fiscal impact will be over $30 billion.
This is much lower than others but still significant.
Oil has been above $100 a barrel most of the last 6 weeks, $110 this week, and futures aren’t expecting a return to pre‑conflict prices until 2030.
LNG prices have more than tripled this year.
We see the consequences everywhere.
US annual headline inflation jumped 0.3 percentage points last week, above expectations.
Germany and the UK jumped 0.4, France 0.8 and Italy 0.9 percentage points.
On Wednesday we’ll get new CPI data for Australia as well.
Markets aren’t expecting very big jumps like in those countries I’ve just mentioned but they’re not expecting inflation to go down yet either.
The IMF World Economic Outlook reports global inflation tracking up this year.
That means markets now expect multiple interest rate rises in every major advanced economy over the next 12 months.
This is being compounded and options are being constrained by higher global debt.
Gross debt across advanced economies is roughly 110 per cent of GDP.
It was around 100 per cent before COVID, and around 70 per cent before the GFC.
Countries spend more to respond to each new global shock.
Pushing global debt higher and making us all more susceptible to the next one.
Before COVID, just 3 G20 economies were carrying gross debt above 100 per cent of GDP.
Today it’s 6, and likely 8 by 2030.
In other words, within 10 years the number of G20 nations with gross debt above 100 per cent of GDP is expected to almost triple.
We won’t be one of them, our debt is a sliver of that.
As this is all happening, massive investments in the AI boom are ramping up competition for capital.
CAPEX by the 5 largest hyperscalers in 2023 was $230 billion.
It’s now forecast to quadruple, to over $1.1 trillion.
To finance this, corporate bond issuances by hyperscalers have exploded.
Annual issuance averaged around US$40 billion 5 years ago, but is now projected to average around US$400 billion in the next few years.
This boom offers a lot of opportunities, but it’s one more factor putting pressure on global markets.
It’s also a sign of the bigger broader trends we are seeing in our economy and society –
As the pace of change accelerates across technology and energy, industry, demography, and geopolitics.
Our strengths
So we have a lot coming at us from around the world but we have a lot going for us as well.
Our challenges are considerable, but our advantages are remarkable.
Our economy is growing faster than almost every G7 economy, and the IMF expects this to continue for at least 5 more years.
That growth is overwhelmingly driven by private sector activity, as it should be.
Private demand has picked up while public demand has eased.
In fact private‑demand growth tripled last financial year compared to the year before, while public‑demand growth halved.
In annual terms, private demand is contributing 4 times as much to growth compared to public demand.
Our debt is lower than every G7 country and will peak lower too.
So even with higher bond yields, our interest repayments will be a fraction of what we’ll see elsewhere.
We remain one of only 9 countries rated AAA by all 3 major rating agencies, all reaffirmed since the Budget.
We have the lowest average unemployment rate of any government in 50 years.
And while the domestic inflation challenge is being made worse by the war –
Both Treasury and the RBA expect inflation back in the band over the next 12 months.
Treasury is in the process of revising all the numbers for the mid‑year update.
Higher interest rates and higher inflation are likely to mean softer growth and slightly higher unemployment.
While there are a lot of data updates and potential surprises remaining between now and the end of the year, I can also share that if MYEFO were released today, we’d be printing a very substantial upgrade for business investment.
Business investment this year could more than double compared to the Budget forecast in May, up from 2.5 per cent to over 5 per cent.
Last year’s outlook was also revised up from 4 per cent to 7.4 per cent.
That’s an extra $11.7 billion last year alone.
These big improvements mean even if 27–28 was slightly revised down, cumulative business investment across all 3 years would be much higher than previously thought.
On these figures, that would mean more than $50 billion in additional business investment.
The stronger investment outlook in part reflects our other advantages.
We have abundant renewable energy resources and high demand for cheaper, cleaner energy –
With renewables growing from around a third of the grid 3 years ago to almost half today.
We have deep deposits of the raw materials future industries will rely on –
With the world’s second‑largest reserves of lithium, the fourth‑largest of manganese and the third‑largest of rare earths needed in AI and clean energy.
We are a digital hub in the Indo‑Pacific with the land, energy, skills and capital to make the most of the AI investment boom.
As one of the world’s top 10 markets for data centre capacity, we have over $150 billion of AI infrastructure scheduled for the next 5 years – around 5 per cent of current GDP.
And as a stable middle power with strong institutions, we are cutting tariffs while other countries are jacking them up.
We are setting Australia apart as a more trusted partner and more reliable exporter, situated in the fastest growing region of the world.
These strengths are magnified by our deep capital pools –
Including the fourth‑largest pool of private retirement savings in the world, valued around $4.8 trillion, and set to be the world’s second‑largest by the 2030s.
Together, these strengths in technology and energy, demography and industry, stability and security, position Australia to be a reliable partner in a world of risk.
Our growth agenda
Our growth agenda is all about making the most of these opportunities.
It recognises private capital’s role as the primary driver of prosperity in the economy –
Laying down the basic foundations to enable and empower investors and businesses to succeed.
It has a number of important elements.
We’re building stronger ties with our partners –
Making it easier to invest and do business –
Removing distortions in the tax system –
And positioning Australia to capture more value in the AI supply chain.
In a world of uncertainty, strong partnerships are a source of stability.
That’s why I have spent these last 3 weeks agreeing a new Memorandum of Cooperation with Japan, announcing a new agreement for Export Finance Australia and the Japan Bank of International Cooperation, and advocating a new Strategic Financing Partnership with our most trusted partners.
We’re making the most of those partnerships by encouraging more investment from abroad and making it easier to do business here.
By streamlining and strengthening our foreign investment framework to make low‑risk investment more straightforward and high‑risk proposals better scrutinised.
It means faster assessments, more certainty and more capital flowing into our markets.
Today, I can share further evidence that it’s working.
Last quarter, we approved $87 billion in additional foreign investment – bringing total approved investment for the year up to $278 billion.
That’s a 60 per cent increase from our first year in office.
The value of investment approved through FIRB is growing on average 17 per cent each year.
Half of all approved applications are processed in 30 days or less.
This is more than double the 22 per cent we saw in the previous government’s last year in office.
At the same time, we’re making it easier to invest and do business at home through the biggest productivity package in a generation.
That package is expected to boost GDP by up to $13 billion through national competition policy reforms, which provide financial incentives for states to pursue changes in areas like planning and freight transport.
We are accelerating approvals, simplifying building regulations, modernising energy markets and better recognising skills –
All while making it easier to engage with government too.
We are cutting red tape across the financial services industry by $780 million a year as part of our plan to cut $10.2 billion of regulation across the entire economy annually.
This week, we have made important progress on these efforts.
We have begun consulting on higher reporting thresholds for large proprietary companies – the first increase since 2019.
And today, we are releasing draft regulations to increase caps on banks’ covered bond issuance to improve access to cheaper, stable funding sources –
Streamline reporting requirements for smaller banks –
And ensure other obligations are still fit for purpose.
Our sensible proposals will reduce unnecessary costs in the financial sector without compromising on standards.
We are also rolling out $3.8 billion in lower taxes for businesses and start‑ups.
And by better targeting the Research and Development Tax Incentive, we are unlocking an extra $400 million in R&D by young firms every year.
To top it off, we’ve cut almost 1,000 nuisance tariffs to streamline trade and reduce costs for Australians.
This productivity package was a big part of the Budget, but it hasn’t received as much attention as the changes we’re making in the tax system.
One of our big motivations for those tax reforms is addressing the crisis at the intersection of housing and tax –
A broken system that locked too many Australians out of the housing market for too long.
But another important motivation was removing distortions in the tax system that were holding investment back from where it was most productive, funnelling it into unproductive parts of the economy instead.
The RBA previously found that reallocating capital within industries to the most productive firms in the 2000s could have increased GDP by ¾ of a per cent, or about $1,000 per worker, by 2017.
Since the CGT changes were introduced in 1999, the proportion of Australians owning shares has declined by almost 20 per cent.
And since 2019, up to 90 per cent of investor lending for housing went towards existing stock.
When we released the Budget, commentators at Westpac said the old tax system was encouraging leveraged investment in property over investing in the stock market or a business –
And commentators at UBS said our changes would make equities a more competitive investment proposition.
Since then, the number of equity trades on the ASX rose 17 per cent in the 4 months to August, from 56.1 million to 65.7 million.
We’ve also seen investor lending for new builds rise 6.3 per cent in the June quarter and 26.3 per cent through the year –
While the number of dwelling commencements in the June quarter was up 7 per cent and 14.4 per cent through the year as well.
It’s early days and there are lots of factors at play, but these are encouraging signs.
Though the impact of our tax reforms should be judged over the next few years not the last few months.
Next week, we will introduce the next tranche of legislation to implement the tax reform package.
That Bill will include CGT concessions for start‑ups, changes to the Research and Development Tax Incentive and new venture capital incentives.
Of course our reforms are contested, but they’ll see tax concessions targeted at starting a new innovative business or investing in a new build –
Helping Australians to invest their money, grow their wealth, and boost our economy.
As those tax reforms play out over the coming years, so will the rapid advances in AI.
AI will be the biggest economic transformation in our lifetime, impacting productivity, investment and the labour market.
I’ve already touched on how Australia is benefiting from the boom in data centres and AI infrastructure.
But we are not confining ourselves to just one link in the AI supply chain.
We will soon introduce our world‑leading AI standards to the parliament.
These standards will provide policy certainty and give businesses the confidence they need to invest in Australia’s AI future, in ways that work for communities.
The National Reconstruction Fund will also play a big role in helping Australia capture more of the AI value chain –
By building on its work in critical tech to identify and invest in Australia’s competitive advantages in these emerging industries.
Tim Ayres is also working with the CSIRO and others to ensure Australian researchers and innovators have the compute they need to fuel new AI businesses and breakthroughs.
The private sector as the driver of growth
These are the most important elements of our growth strategy.
Forging closer ties with important partners, making it easier to invest and do business, removing tax distortions, and capturing more value in the AI chain.
Recognising and rewarding the primary role of private capital in the economy we are building together.
And making the most of Australia’s major advantages in a world defined by accelerating change and ratcheting risk.
We know that you’ll play the defining role in making the most of these opportunities, not governments, and that the private sector and especially investors like you will do the heavy lifting.
That’s why I’m so grateful to be invited back to share these perspectives and to thank you personally for the opportunities you create in Australia and for Australians around the world.