6 March 2015
Speech - #2015005, 2015

Address to the AICD Leaders’ Edge Lunch, Brisbane

Check against delivery

Thank you so much John. It feels – it's actually quite confronting having a biographer [inaudible] part of your history. But I must say, given all those years ago, and it must be close on 30 years ago when we were sitting at that table, and here you are introducing me, it's a great privilege for me to have had such a close friend, and someone who I admire so much introduce me. Thank you so much John.

And to my good friend Teresa Gambaro, who is here, who is indefatigable in her advocacy for small business, but also for excellent values. And I want to heap all the praise I can on her for what she's done here in Queensland as a Member of two different electorates.

You know, I want to talk about the future. I want to talk about our future today. I was down the road with Luke Howarth, the Member for Petrie. We visited a childcare centre. I'm looking at these really cute little two, and three, and four-year-olds running around the childcare centre. And I was mindful that there has been some criticism from some quarters, from people saying, well, how can you look 40 years ahead? I look to those children and they're going to be younger than me in 40 years’ time. I ask myself what sort of world am I going to pass on to them?

And that's exactly what we are trying to do, to have a discussion, a conversation with the nation, about what we are going to do for the future because, as John said, we stand on the shoulders of our parents and our grandparents, and our quality of life today is far better than what they may have had. So, the question is, what sort of world are we going to leave our children, our grandchildren, the generations that follow? And so we begin the discussion [inaudible].

I am going to walk around a bit. The Intergenerational Report is basically a compact between the generations - it's a [inaudible] term, between children, grandchildren, parents; between all of us. It's about the sort of Australia we want to leave behind. The question is, how are we changing? And it starts with three Ps: population, participation, and productivity.

The first thing: population. Life expectancy in Australia is increasing significantly and one of the great stories is in 1965 we see it starts to flat-line, where we weren't actually continuing that great run. And then government policy helped to change that by introducing seatbelts and random breath testing.  Medical research changed, particularly in relation to heart disease, and then we started to climb again.

So, the good news is, for a child born in 40 years' time, they've got a better than even chance of living to a 100. And yes, John's absolutely right, a few years ago- a few months ago - it feels like a few years – a few months ago, I talked about Australians, or somewhere in the world the child that lived to 150, and it's probable that a child has been born somewhere in the world that will live to 150. And when it was criticised by the usual critics, the irony was TIME magazine came out with a front cover that said, ‘Could this child live to 142?’ which was their February edition.

The age pension – and the story of this is, when the age pension was introduced in the early 1900s life expectancy was 58. So it applied to people at 65. So, you were lucky if you got there, right? And in 2014-15, you can see the gap. Life expectancy now for a male is around 80, for a female about 84 and its still 65. So, Labor actually introduced the beginning of that little hill, taking it up to 67, when you're 22 years of age – in 2022, sorry. And then we continue the trajectory and said look, you'll qualify for the age pension at 70, when [inaudible].

Here's the number of people turning 100. So in 1971, there were about 100 people in Australia turning 100. In 40 years' time, it will be about 40,000. As Teresa knows, when you're a Member of Parliament, you get these letters from people saying, ‘can we acknowledge grandma, she's turning 100’. When I was first elected in 1996, I used to go around and deliver flowers. Now I just send them a letter because they're [inaudible] in a few years, I’ll just send them an email actually.

This is quite a telling story – this one. There will be fewer people aged 15-64 relative to each person aged over 65. So the traditional retirement age being 65 – in 1970, there were seven and a half people equivalent for someone aged over 65. In 40 years' time, it will be less than three. Today, it's 4.5. So, that means there are fewer people of traditional working age to people over the age of 65. So, what you've got to do is start thinking about how you're going to spend the retirement age and also how do we get the people who are working to be even more productive?

They say, ‘well, let's go to immigration. Let's try and increase the amount of migrants coming into the country’. After World War Two, you can see there was a surge, the first big mountain there, that was a big surge, and then it came off again between 1973 and 2006. But then we started to run out of workers during the mining boom and up it went again. What we've forecast is 215,000 on average over the next 40 years. Now, that's very movable. This year is around 215,000. The forward estimates we looked at over the next four years around 250, but it does move.

The big change is the composition; used to be a lot of family reunion in the migrant intake. That's now a much smaller part of the total migration intake. There's a lot of students –  overseas students, temporary visa holders, 457 visa holders and a lot of the migrants coming in are of working age and have big contributions to make. So, our population growth over the next 40 years is basically going to be about the same as the last 40 years, yet we're going to go to a population of around 40 million by the middle of the century.

The second key part of it is participation –  workforce participation. Participation rates will decline because our population is aging. So that means fewer people going into work. And if you've got fewer people in work, you've got fewer people paying the bills. So, that is quite dramatic, but it's also something that afflicts most developed nations in the world. None more than Japan, which has a population going from about 130 million to 80 million over 50 years, because of the declining birth rate. They've got massive structural challenges. But because the birth rates aren't up, because you've got aging populations, most countries – developed countries are facing this sort of challenge.

This is the number of people aged 65 and over going to work. And as you can see, in 2003, when we got unemployment down to four per cent, there was a call to arms for older Australians to either stay in work or come back to work. Thank God we did, because we saw that mountain start to decline. And then, with the Global Financial Crisis, people's superannuation came down, so older Australians stayed in work. So, that is going to continue.

Now, it's interesting, isn't it? Some businesses are changing, some are not. So, one in four workers at Bunnings is aged over 50. When I went to Bunnings the other day, I met a few of them in front of the camera as I made the mistake of going up to this 83-year-old who works in Bunnings and I said, ‘how long have you been working?’ He said, ‘I've been working around hardware for 60 years’. I said, ‘alright’. I said, ‘how many days a week do you work?’ He said, five. An 83-year-old, working five days a week. I felt like a real dill, I must say – or he made me feel like a dill for even asking because of course he'd be working five days a week. Well, there are many people who are that age who want to keep working and we've got to encourage that and change attitudes and let them go.

So, how do we lift participation? Well, it's a really important point. As you can see, the green is Australia, the red is Canada, the blue is New Zealand. On male levels, you can see New Zealand's actually ahead of us, quite a way. Why? Because they haven't got compulsory superannuation. So, if you don't work, you don't have any income, which would traditionally be the case in Australia. We're roughly the same as Canada. The big one is female participation. As you can see, Australia is well behind Canada and well behind New Zealand.

If we increased our female workforce participation to the same level as Canada, we would increase our economy in size, our GDP in size by between $25 billion and $40 billion in one year. A massive increase to the size of the Australian economy in one year. Queensland has the highest female participation level in Australia. Queensland's at around 60, which is extraordinary. I mean, it's something we've got to dig down to because we haven't actually got a comprehensive analysis of why that is the case.

The third area is productivity. What is productivity? Productivity is how much you produce per hour of work. That's labour productivity; how much you produce per hour of work. We are today producing in one hour twice what we produced in 1970. In our Intergenerational Report, we've assumed 1.5 per cent, which was a 30 year average. That means every year you improve in productivity by that amount. Productivity improvements – how we produce more in one hour, is actually the biggest driver of GDP per person, which is our income. It's the biggest driver of our income growth. It's the biggest driver of our prosperity.

Now, we have to earn that. We can't just populate. We can't just increase participation. We actually have to earn our future. We've got to earn it by being better at what we do every hour, and that's a partnership between the community and government. We've got to give you the tools and we've got to give you the legislative framework that ultimately comes down to how you can improve your productivity at work. Even with that, our growth is a little bit slower than what it's been over the last 40 years. I'm not too concerned about it being a little bit lower at the moment, because there are so many different variables. But, we've got to work harder.

Okay, so how are we going to do that? Investment in new capital and infrastructure – absolutely essential. Put aside politics, the new Queensland Government has to build the infrastructure that was promised by the previous Government. It has to happen. Queensland needs new infrastructure; Australia needs new infrastructure. We've got to do it. At the last Budget, I announced the equivalent of eight new Snowy Mountain schemes to be built over the next decade in Australia. In politics, everyone says what we need is a new Snowy Mountain scheme. I committed to infrastructure funding that is the equivalent of eight new Snowy Mountain schemes in one decade. Projects all over the country are starting to happen. Crucial, crucial, that there be a positive outcome in the New South Wales election because Mike Baird has committed to a massive increase in infrastructure on the back of asset sales. But every state in Australia has a duty to do something in that regard.

Innovation and technology. A huge part of the total equation. When Peter Costello delivered the first Intergenerational Report in 2002, Mark Zuckerberg hadn't even thought of the concept of Facebook. Apps only came around six years ago. I'll give you two little stories about technology changes – and I'm not saying I'm endorsing this technology or anything like that, but it really does start to make you think. So, you go back to your offices, open up YouTube and just have a look at what's happening with driverless cars. And why do I say that? Because virtually everyone has a car. And driverless cars are going into mass production, probably by the end of this decade. In fact, the head of Ford said the other day they're going to start mass production in 2017. How does a driverless car change the way we live? Well, my parents are in their mid to late 80s. The biggest deal in their day is hopping in the car, going to the doctor, or going to the shops.

This is going to completely transform aged care in one form or another. As a starting point, it basically brings public transport to your door. It's going to change the way we start to think about how we build shopping malls, how we build doctors' surgeries, how we interact with communities. It's going to completely transform transport for the disabled. It's going have quite a profound effect on taxi industries, hire car industries. It's going to have an impact on public transport itself, it really is.

Current estimates are – credible or not – that by 2040, 75 per cent of the world's motor vehicles will have a driverless capacity. If you think it's remote, how many of you have a late-model Holden? [Inaudible] you press a button, and it parks itself. I haven't been using it but I like to boast about it though. This is the sort of thing – the second one, get away for the weekend, and one of my neighbours [inaudible] ‘What am I going to do with the bloody dog?’ – drives me nuts. And he says there is this app and he shows me the app. I can't remember what it's called and you press the app and up comes all the neighbourhood homes where they're prepared to mind the dog for a week. I thought, this is a damn good idea. And a lot of the people - you can identify, and they're retirees or people living by themselves that are prepared to mind your dog for a weekend, you pay them 50 bucks, 10 bucks, 20 bucks a day. How good is that? For those people who are in some cases really lonely, who would love to mind the family pet and get to know the neighbours and meet some dogs on the way.

So, the world's being dis-intermediated and technology is smashing all of the traditional things in our lives. Things that are licensed are being challenged by technology. So broadcasting licenses, transport licenses, gaming licenses; you can do it over the net. Things are being challenged and the regulated environment we live in is being turned, in one sense, on its head. Governments try and stop this but it's very very hard, and maybe we shouldn't, maybe we should facilitate it. That's where you get entrepreneurship and competition.

Small business is going to be the engine-room of job creation and you've seen it. Alibaba, didn't exist a few years ago. Now, it's listed at more than $200 billion on NASDAQ and its job is to facilitate the growth of small and medium enterprises in China. But how many businesses now occupy the top 100 spaces for companies in the world that didn't exist five years ago, ten years ago, 20, 30 years ago? These are small businesses that become larger - every large business in the world started as a small business. What's going to help to drive that? Skills and education. The fact is that if people are going to live longer, there's going to be many parts along their life that they're going to go and reskill. They're going to go and re-educate. The idea that a builder that has worked hard – really hard, physically hard, or a bricklayer or an electrician and gets to 55 and their body can't cope with the physical environment anymore, and they just go on the disability support pension – 55, then when they turn 65 go on an age pension. We've got to change that. We must change it. We need to change that. So, we've got to look at new career paths. I mean, my brothers run small family businesses – my father wasa real estate agent. What they've done is they've got property managers that were former builders. They're fantastic. They walk into a property and know immediately what the problems are and how much should be charged by a supplier or sparky or whatever for the job. So, they love employing former builders or former electricians, and that's the career path. That's what Bunnings have done, right? But every business has the capacity to do that. You've just got to broaden your thinking.

So, what does this mean? Well, Government has a role to play. We've got to work out how we can help to pay for the services that we need. This is what we inherited for the Budget. The deficit would have reached $533 billion in today's dollars. That's assuming we have 40 years of continuous economic growth; no recession for 40 years. Australia, thank god, has had no recession now for 24 years – the longest period of no recession in modern times has been the Netherlands and that lasted 26 and a half years to 2008, based on North Sea oil production. So, we're forecasting on the basis that we have 64 years of continuous economic growth – rather heroic. Rather heroic.

Anyway, that's what we inherited in the Budget. A Budget that never got to surplus. We never reached a point where we lived within our means. Currently, the Government's borrowing $100 million a day just to pay the bills. This is what we have achieved so far: we've reduced it by $267 billion in today's dollars – that's the first Budget. Some people say it was a failure; I'm proud of the fact that we're halfway there in one Budget. If everything went through the Senate, we'd actually start living within our means, but the Labor Party, the Greens, and Clive Palmer don't want to support us. Growth in payments was massive. I mean, this is how much we spend and every year we would be spending the equivalent of around $1.7 trillion, which is the entire Australian economy every year. That'd just be Government spending on health, education, welfare.

That dotted line you can see – that's the highest ever level of money we've received in taxes and revenue. 26.2 per cent – that was under Paul Keating in 1986. So, we're lower than that now. So, as you can see, we never actually fill the gap. So, what we have to do is not increase taxes, because already, we have reached the highest-ever level of tax in Australian history. We've got to reduce spending. In the last Budget, that's how much we reduced it by – now $1.4 trillion in today's dollars. If the Budget passed again, we’d start living within our means.

Okay, as you know, what matters is how you pay a debt. Everyone says how does this compare? Well, you can see a table. This is the current levels of debt – net debt in the world. Greece – well, she's up there. Right at the top. But ignore Greece because Greece is defaulting on their debt, right? And then Japan next. Thing about Japan is people haven't been too worried about Japan because Japan funds itself. It's got a massive pool of domestic savings. As they call them, Japanese mums, Japanese housewives, have a huge pool of savings. This year for the first time, Japan's Government is going to be borrowing more money than all the savings in Japan. This is why Abe is working overtime trying to repair and restructure his economy. We ranked – if we were now in 2055, we'd rank the equivalent of number three. That shows you the growth in spending. As a result of what we did in the last Budget, we came halfway down. That second red line, currently legislated, that puts us between Spain and Germany. Germany is a manufacturing powerhouse. Spain? Not so much. As you can see down the bottom is where we're at, at the moment –2014-15. That's where we are at the moment. What does this tell you? Tells you that if we don't do more, we're going to end up halfway up the hill. So, we have to act.

Net debt was going to the equivalent $5.6 trillion in today's dollars as a result of what we did in the last Budget. We've come a fair way but we're still way up. If everything had been implemented, we actually would have gone back to the position we were in in 2007; 2007, we had no net debt. Currently, assuming our last Budget had been implemented in full – all the unpopular measures – we would pay it – we'd get back to our 2007 position in 2031. That assumes uninterrupted growth.

So, how do we pay for our future? We need a grey army –absolutely crucial. And it's about choice. We need people to choose to work. This is really important. We're not going to force people to go to war. We haven't got conscription but by god we need older Australians to have the opportunity to go to war – work! Second thing! That's a really bad slip!

Female workforce participation. How do we increase that? Again, flexible childcare, flexible workplaces. We've got to change our attitudes. And then we go to the productivity [inaudible] investment in new capital infrastructure, innovation, entrepreneurship, and obviously education.

So, what's a Government got to do? We can't be in a position where a Government of any kind is fighting change. We've got to embrace change. We've got to embrace change. Consumers are sovereign, and whether it be in competition policy or in tax policy or anything else, consumers are sovereign. That means we've got to take a whole new approach to Government regulation and legislation. That means we've got to facilitate change rather than trying to control change. And importantly we've got to live within our means. And if we don't get to the point of living within our means then we're inflicting the burden of debt and inflicting the burden of higher taxes on the next generation of Australians; we’ll will also be paying the price as well, in the next few years.

So, this is the beginning of a major national conversation about how we can harness all of our resources to give us the very best future. that's exciting. I think you've got to go to your workplaces; you've got to discuss it with family and friends. What can we do to embrace technology, to embrace the future? And how can we shape it? As that conversation unfolds, the Government will be working with the community to help to deliver a better Australia. Thank you very much.