Thank you, Patricia, for those kind introductory words.
Some of you may not know that, before Patricia served in the NSW Legislative Council, Patricia was a student and teacher of history.
Patricia’s maiden speech to the NSW Parliament, made pointed references to the lessons of the past, but importantly focussed on a vision for the future.
As a historian, you quoted Menzies in your maiden speech, saying “in a vision of the future I see the individual, and his encouragement and recognition, as the prime motive force for the building of a better world".
Today, I want to share with you the Abbott Government’s vision for the future of the Australian economy.
And I am privileged to do so here with representatives from the New South Wales Business Chamber.
The Chamber has been a passionate advocate for business, both in Sydney and across all of regional New South Wales.
With around 17,000 members across the state working together to deliver positive change, the work you are doing here is truly commendable.
In fact, my family have always been members of the local Chambers of Commerce.
I grew up in a small business family and I learnt much from my parents. I learnt the value of hard work and integrity. I also learnt that as things got harder, you have to work harder, and smarter, to get ahead.
Small business is the engine room of growth and jobs in the Australian economy, and the statistics prove it.
Today, there are around two million actively trading small businesses in Australia. Last year alone we had the largest number of start-up businesses in Australian history.
Small businesses represent more than 97 per cent of all of Australian businesses and employ two out of five individuals in the workforce.
But more importantly, small businesses are a significant source of new ideas and innovation, and are often best able to adapt and change to new challenges.
So to remain ahead of the game in a rapidly changing world, the most innovative business venture needs to plan ahead.
Indeed many lessons from small business apply to Government.
It is vital that we plan ahead.
We must be at our best as a community, and as a nation, to take on new and emerging challenges in a rapidly evolving world.
How Australia is changing
Today I want to talk to you about how Australia is preparing for the future.
We know our generation faces a world of constant and almost immediate change.
A world where we have seen remarkable advances in technology we wouldn’t have dreamt of just a decade ago.
As a child, I grew up with revolutionary technology like a colour television and a Polaroid instant camera. My children are growing up with mobile phones, apps and an unhealthy addiction to Nintendo Wii.
Technology is advancing faster than ever before and the benefits are outstanding. It’s improving health and preventing disease. It’s allowing you to shop whenever you please. It connects you to your families and friends across the world immediately.
Technology in the world of commerce is removing national borders and changing the face of government, taxation and regulation. It’s a world that is daunting, but not one I fear.
It’s one I respect because it presents amazing opportunities for all Australians to engage in the future without any disadvantage.
But, of course, we need to be well prepared for this future.
We need a plan.
I would like to spend some time with you now to outline the road ahead, as well as the plan this Government has for Australia.
Australia is a mature and sophisticated participant in the global economy.
We are experiencing a quarter of a century of uninterrupted economic growth. Close to a record for a developed economy.
So if our good run continues, as I expect it will, within two years we will have had the longest continuing period of economic growth of any modern, developed nation in the world.
As a result, Australians are consistently acknowledged as having some of the highest living standards in the world.
Australians are living longer and doing so in better health.
This is exactly where we should be.
We are a nation where our citizens, after many productive years, can enjoy the comfort of retirement and still lead an active lifestyle. This is the hallmark of success for a country and the envy of many others.
The challenge going forward, however, is to maintain, and even raise, this standard of living over the next few decades.
To understand the longer-term picture, we need to better understand the impact of change and the obvious emerging demographic trends that affect our future.
To better inform all of us about our future, the Government will be launching the 2015 Intergenerational Report in the coming weeks.
The Intergenerational Report, which is released every five years, is the most comprehensive examination of how demography and current policy will impact on the Australian economy and government finances over the next 40 years.
It is the critical document for economists, academics, business and the community to draw upon and understand the major forces facing Australia over the longer term.
Preparing this report is a substantial and ambitious task, but one that a responsible government undertakes.
A responsible government that cares not only for the generation of today but also cares for those of the future.
The Intergenerational Report is a compact between the generations.
In many ways this is not your usual Intergenerational Report. It is a very genuine attempt by the Treasury, in an unprecedented way, to launch a conversation about Australia’s future.
It will be a genuine community conversation about actions that not only protect our current way of life, but protect it for the next generation, and the next, and the next.
Drivers of growth in Australia
To safeguard our way of life, we must maintain our incomes and keep people in jobs. In short, we need to keep the economy growing.
The key drivers of long-term growth are widely recognised as higher productivity and greater workforce participation.
So what do I mean by productivity and participation?
Productivity is about how efficiently Australians are working.
For example, today we are producing twice the amount of goods and services per hour of work that we were producing in the 1970s.
Workforce participation is about how many Australians are actively engaged in work.
In the past, continual improvements in productivity and increases in participation have been the key sources of our growing prosperity.
Unfortunately, the long term outlook for Australia, if we do not adjust our policy settings, is for lower economic growth.
Why? Because our population and our economy are changing.
The Intergenerational Report will show that there will be fewer people of traditional working age as a proportion of the population in the years to come.
Over the next decade alone, the working population is expected to increase by 12 per cent, while the population over 65 is expected to increase by 36 per cent. That is, people aged over 65 will grow three times faster than the working-age population.
In other words, the number of people in the ‘traditional’ workforce supporting those who have left the workforce will nearly halve over the next 40 years. And I say ‘traditional’ because our workforce is changing, and I’ll come back to this.
Chart 1: There will be fewer people of traditional working age relative to each person aged over 65
So what does this mean for government? Or, more accurately, what does this mean for all of us?
Simply put, as the population ages and more people leave the workforce, tax revenues will struggle to fund the same level of government services our standard of living demands.
The first challenge, therefore, is to encourage greater workforce participation.
In recent years, we have seen a rising trend in the labour force participation rates of older Australians. This is not unexpected, as Australians live and can productively work for longer – and it is welcomed.
Chart 2. Participation rate of people 65+ changing from 1975, to 12.9% now, projected to reach 17.3% in 2054-55
Let me give you an example of this. Tomorrow, I will be visiting Bunnings in Chatswood. Bunnings is a company that has a quarter of its work force over the age of 50.
Now I am not the greatest handyman, and I have often found myself trying to work the right tool or the right nail for the job. So I happily accept the reassuring voice that can only come from 40 years of experience.
Through their flexible work arrangements, such employers recognise and benefit from the experience of older Australians. They successfully tap into this wealth of resources.
The Government is doing its part by providing incentives to businesses willing to employ older Australians. Our Restart programme, for instance, provides generous incentives of $10,000 that are paid to employers who employ and retain workers over 50 years of age.
It is something I would encourage all of you in this room to examine more closely. But let me be clear, the participation challenge isn’t just about older Australians. Encouraging the participation of younger Australians, particularly women, is also important.
In 1975, only 46 per cent of women of working age had a job, and today, it is 65 per cent.
This highlights the great strides that have been made in female workforce participation over the past four decades in Australia.
But more must be done.
If Australia could lift its female participation rate to that of say Canada, the Grattan Institute estimates we could see a $25 billion increase in our GDP. This is a challenge the Abbott Government highlighted on the international stage at the G20 last year and is prioritising today with our policies.
We are also currently working on a families’ package, which will include landmark reform of childcare.
The Government’s policies will be informed by the expert advice of the Productivity Commission, with its soon to be released report into childcare. We are focussing on improving flexibility and access to childcare, providing women the greater ability to return to work.
Such policies are not about mandating participation in the workforce. They are about providing choice and opportunities for people to participate in the workforce, raise their standard of living, and contribute to a growing economy.
Another key pillar of growth is productivity.
Productivity is about working more efficiently, including the greater use of technology, capital and labour. This means that more goods and services are produced.
As I said, compared with the 1970s, Australians today produce twice as many goods and services for every hour they work.
Chart 3. Index of real GDP per hour worked by Australians
So it’s not about working longer hours, it’s about getting more out of each hour.
The major drivers of the productivity gains are often what you expect.
To start, the workforce is more educated.
In 1970, one third of boys were doing their HSC equivalent. Today that stands at almost three quarters.
For girls it is even more amazing. In 1970, only one quarter of them were in year 12, where today it’s over 80 per cent.
Tertiary qualification rates have also risen significantly over the past decade.
These achievements are hard-earned, and we need to ensure they are maintained.
As I said in my opening comments, information technology is vitally important for improving productivity.
As an example, think about the financial services industry.
Forty years ago you would see people wait in long lines during their lunch breaks to do their weekly banking. This progressed to the proliferation of ATMs, online banking, BPAY, payWave and more. This has provided us with massive productivity improvements.
The examples around technology go on and on, and will greatly benefit future generations.
A fundamental driver of productivity in history has been opening up markets to competition. Competition drives businesses to be more efficient and innovative.
That said, small businesses face different challenges from larger businesses and a lower tax rate will help small business get started, grow and compete.
That is why this year we will deliver a package for small business, including a tax cut for small business companies of at least 1.5 per cent.
This is in addition to the reform of taxation arrangements of Employee Share Schemes to provide generous incentives for new start-ups, and the repeal of more and more red tape.
We will continue to make it easier for small businesses to get on with running their business, and the Prime Minister and our Government will have more to say about this in the lead up to Budget.
We are also giving Australian business the opportunity to shine on the world stage.
Opening access to new markets and removing trade barriers will give tremendous new opportunities for Australian industries to develop new export markets.
Open and free trade allows companies to tap into the global demand for our goods and services.
Yes, global demand has been weak in recent years. Yes, we are seeing weaker commodity prices.
But regardless, we need to ensure that Australia is well placed to capture that demand when it picks up.
We need to ensure that we have a productive and capable workforce to take advantage of this demand when it comes.
And the greater demand will come.
With over 1.5 billion people moving into the middle class in the Asia Pacific region over the next 15 years, those opportunities lie on our doorstep.
This Government’s Free Trade Agreements with China, Japan and Korea will facilitate these opportunities for growth. But it won’t stop there. We are working towards securing a new agreement with India, which, in the not so distant future, will have a population greater than China.
Finally, we are delivering vital economic infrastructure to lift productivity and create jobs today.
We must build the infrastructure that makes Australia a more productive and efficient country today, and prepare for the needs of our population tomorrow.
Infrastructure, such as transport networks, energy and communications, all deliver substantial benefits to the economy by lifting productivity.
Imagine if a new freeway could cut an hour off your commute to and from work every day. I’m sure many Victorians do.
That is why this Government is rolling out a historic $50 billion infrastructure growth package around the country. Coupled with investment by the states and the private sector, we will see $125 billion in new, productive infrastructure built in the next decade – the equivalent of eight new Snowy Hydro Schemes.
An integral part of this is the Asset Recycling Initiative. This Initiative will see the Commonwealth provide incentive payments on a first come first served basis to states and territories that build new productive infrastructure from the proceeds of asset sales.
Indeed, I will be announcing the first agreement under the Initiative later today – ironically, with a Labor government. You cannot have a lazy balance sheet as a government. Asset recycling is critical for ensuring scarce government capital is used to get on with preparing us for tomorrow.
Building a stronger Australia
To protect our living standards, we must also deliver policies that build jobs, growth and opportunity.
This Government’s policy agenda will do that. We will foster opportunities and promote growth.
Our strategy will continue to focus on families, small business, jobs and infrastructure. Building on the foundations we have laid since coming to Government.
This is our economic message.
Importantly, we must deliver this while living within our means.
Getting the Budget back on track to a sustainable surplus is critical. Last year’s Budget, if fully implemented, puts us on that path.
If the savings from outstanding measures are not implemented, or alternative savings are not found, we risk the Budget not returning to surplus and we will have to keep borrowing money to pay for our day to day bills.
Currently our outlays exceed our revenue by over $100 million each day.
So we are borrowing $100 million every day just to pay our daily bills as a government.
The more we borrow on the nation’s credit card, and the more debt we have, the more interest we pay.
Right now, we are paying $40 million a day in interest on our debt. If debt is left unchecked we will rapidly find ourselves in a situation where we are spending more and more of our income just on these interest payments.
From there it is a downward spiral.
There is no money left for a rainy day, when the next global economic shock inevitably occurs.
Taxes are spent on interest payments, rather than a range of services that our community expects.
We need to take action now, before the rot sets in.
Spiralling debt is not a legacy we can leave for the next generation.
This is not the compact between generations we want.
Australia’s continuing prosperity depends on the success of the reforms we are pursuing now to support productivity growth and participation, boost job creation and expand the opportunities for Australian businesses and workers to thrive.
That is why this Government is committed to taking steps to lift growth and ensure that as a nation we live within our means.
In the weeks ahead, we will continue to consult on ways to make the Budget sustainable to make sure we can continue to support the community.
As part of developing our families’ package, we will also consult on how to ensure family payments and other key benefits are provided to those most in need.
Let me conclude by saying that the fundamentals of the Australian economy are strong, but it would be irresponsible for Australia to assume strong economic performance will last forever.
The Intergenerational Report will clearly demonstrate the challenges Australia faces to grow as fast as it has in the past.
There are challenges around the drivers of growth and repairing the Budget.
Yes growth is important. But those that tell you that our Budget position will simply fix itself through growth are wrong. They have been wrong in the past, and they will be wrong in the future.
This is irresponsible and economically unjustifiable.
We know the challenges we face, and the time to respond is now. If we don’t respond now, the future costs will be enormous.
We are a Government that will consult and listen, and we won’t shy away from the difficult decisions.
We will act in the best of interest of all Australians, both for today and tomorrow.
That is what the compact between generations is all about.