Speech at the Australian Financial Review Business Summit International Convention Centre, Sydney

Speech
07 Mar 2018
Sydney, NSW
Prime Minister
Economy, Jobs, Growth, Trade,
Economy and Finance

It’s great to be here and having arrived at the Convention Centre by water, I can say Barangaroo is looking fantastic, that project is going very well, it’s good to see it close up.

Now, we live in times of change, of unprecedented change both in the scale and pace of it.

That change has of course improved our lives immeasurably, in every respect. Think of all the technological advances, whether it’s in the field of telecommunications, or in medicine, or in science.

The one thing we cannot do however, is turn back that pace of change.

This is the tenor of the times in which we live.

So the challenge for all of us as leaders is to embrace those times and ensure we make ourselves as resilient, as agile and as capable of making the times our friend. You make volatility your friend not your foe, because you’re not going to be able to change the nature of the rapid pace and the enormous scale of change all around us.

That is what our Government is doing. That is what the Coalition Government is doing right now; we’re helping Australians seize the opportunities that come with change, while of course protecting against the risks that it brings.

Now my commitment has always been to provide strong and effective economic leadership. A strong economy is the foundation of our prosperity and our security. It gives every Australian the opportunity to succeed and realise their dreams, to get a job, to get a better job, to start and grow a business.

Creating more jobs is at the heart of all of our policies.

Our Enterprise Tax Plan, building an advanced local defence industry with the high tech jobs that support it, export opportunities through our big free trade deals, the TPP as I’ll come to in a moment, is being signed this week, tomorrow in fact. Our record infrastructure investment, there’s so many programs to get people into work, the PaTH program for example that I know many of you are familiar with, tackling youth unemployment. These policies are working.

We are giving businesses the confidence they need to invest, grow and hire. We’re starting to see stronger confidence from consumers as well.

Last calendar year, 403,100 jobs were created. 2017 is the strongest year on record for job creation. 75 per cent of those jobs were full time, 80 per cent of those were in the private sector.

Jobs growth has easily outstripped population growth.

Female participation is at near record highs.

60 per cent of new jobs last year went to women and the gap between the male and female workforce participation is 10.4 per cent, an all-time low.

The gender pay gap – still too high - has narrowed however, further over the last twelve months to 15.3 per cent. An important point in the week of International Women’s Day.

But there is more work to do.

The challenge is to build on this, to implement the reforms that will enable us to take advantage of the disruption and change in our region.

Now, we recently broke the world record for the longest run of economic growth, 26 years. That’s despite two of the largest shocks in generations, the mining boom - a huge surge in commodity prices that went up and then obviously came down - and of course the Global Financial Crisis itself. Now this wasn’t good luck; it was the social and economic dividend from the reforms of years past, all championed by the Australian Financial Review, in potent editorial after editorial, Michael, well done.

[Laughter]

Yes, maybe not enough of the Labor Party and the Crossbench read it. Maybe that’s the antidote we need.

But we encountered tremendous headwinds — gale force conditions, you might say — but instead of sinking, or being dashed against the rocks, the economy adjusted course. Unburdened by poorly designed regulation, our economy was agile enough to adapt to the conditions and steer a safe course through them.

Our exchange rate is flexible. Overall price growth has been subdued, interest rates have remained relatively low and because of its flexibility, the economy has not responded to recent challenges by shedding hundreds of thousands of jobs. 

Despite improving economic conditions however, we have had modest average real wages growth. I’m sure Philip Lowe has just spoken about that. But when faced with a choice of modest wages growth or longer queues, long queues at Centrelink, only a blinkered ideologue – or the most craven populist – would choose policies that result in higher unemployment.

They are exactly the policies that are being advocated by Mr Shorten and the Labor Party.

Any attempt to regulate our way out of modest wages growth, will put a handbrake on job creation.

The laws of supply and demand have not been suspended. The only lasting answer to slow wages growth is stronger economic growth, creating more investment and more demand for labour leading to higher productivity and higher wages.

And we’re doing this, by creating stronger business conditions which lead to more investment, higher productivity and more competition for the nearly 90 per cent of workers who are employed in the private sector.

Now, a key part of this is ensuring that business has the confidence to invest.

Confidence requires certainty; the certainty that politicians will not withdraw their support for a project, or revoke an environmental license, on a political whim.

Now regrettably, comments from our opponents in the Labor Party and Mr Shorten in particular over the past few days, represent a genuine sovereign risk that would ultimately cost jobs and investment.

So there is no substitute for strong economic growth to create new opportunities.

Now how we manage the economy in the times of unprecedented change of which I’ve spoken, is absolutely critical.

The decisions we make today lay the foundations for Australia in decades to come. So it’s vital that we continue economic reform, not in spite of the challenging times we face, but because of them.

Our Government’s reforms across education and energy, tax and trade, give Australians the best chance of success when they compete.

We want our students to graduate with the right skills for the 21st Century - strong literacy and numeracy, critical and creative thinking and a deep understanding of technology.

A strong level of funding for schools is vital. As you know, for our part we have committed to record levels of funding, but even more important, is making sure that money delivers better outcomes for our students. We want to raise standards and we want to make sure our education system is set up so every child can meet them. So that’s why, as part of our reforms to school funding we commissioned the Review to Achieve Educational Excellence in Australian Schools led by David Gonski, to determine the most effective teaching and learning strategies to improve school results. The report I’m please to say, is on track to be completed by the end of the month. We’ll continue to work with the states and territories to deliver evidence-based approaches to improve outcomes in schools.

Just as our education reforms will make our students more competitive, our energy reforms make business more competitive.

Our predecessors failed to address the challenge of integrating energy and climate policy. That has contributed to distortions in energy markets that have driven up costs and undermined the competitiveness of our big energy users. Although energy prices still remain too high, our interventions are returning order to energy markets which are essential to bringing prices down over time, as Josh Frydenberg observes in a good op-ed piece in the paper today.

Now the Australian Energy Markets Commission forecasts electricity prices will fall 12.4 per cent over the coming two years. Wholesale gas prices, which were heading past $16 a gigajoule, are in single figures now. They should be trading at or around the LNG netback price and they will. But it was a complete failure of the market and the pipeline of reforms of course, are going to bring greater competition. A significant part of this turnaround is the certainty delivered by the National Energy Guarantee, which uses the existing dynamics of competitive markets, its contracts and trading, to deliver reliability and meet our climate commitments.

The alternative would be to impose constraints or taxes that undermine energy markets.

Snowy 2.0 is going to reduce volatility in electricity markets, providing the necessary storage and backup to address the challenges posed by intermittent generation. As you know, one of the big features of the electricity business, is that the cost of generation from wind and solar is getting less every year. The cost of generation is going down, however the sun doesn’t shine all the time, the wind doesn’t blow all the time and that’s not going to change. So the big challenge is storage and storage at scale.

Now, our decision to acquire the states’ shares in the company, announced last week, is not only a big win for infrastructure investment in NSW and Victoria – well over $6 billion – but it gives the Snowy Hydro board and management the added confidence that comes from 100 per cent Commonwealth ownership to deliver this vitally important project.

Turning to company tax, we are committed to further tax reform.

We want all Australian businesses to be able take advantage of our globalised and increasingly digitised economy. There is a great buzz in the US economy right now and growing confidence in the wake of recent tax reforms, which of course included reducing the US company tax rate to 21 per cent.

To be competitive in the global race for capital, we must bring down our own tax rates.  

I gather that Philip Lowe made this point earlier, that whatever you may think in a theoretical world of what company tax should be, we are in a competitive environment. We have to have a competitive tax rate and this has been – at least until relatively recently - absolutely a bipartisan acknowledgement.

I said the laws of supply and demand have not been suspended and they never will be. But the laws of economic commonsense have been suspended among our political opponents, which is why we keep on seeing them saying absolutely different things from one day to the next, whether it’s to meet the demands of one audience or another, or to meet populist political concerns at the time.

So, we need to bring down our tax rates on business, because when you increase the return on investment, you get more investment, you get more employment, you get more jobs, you get better-paid jobs and you get greater productivity.

When I was discussing tax with Treasury Secretary Steven Mnuchin in Washington recently, he reminded me that when you’re taxing corporations, you’re taxing workers. He estimates that 70 per cent of the benefits of those company tax cuts are passed on to workers.

Since the US tax cuts, around four million workers have reportedly received an income boost. Secretary Mnuchin believes the reform package will add 0.9 percent to GDP. That’s an enormous fillip and the benefits are already starting to flow to workers in more jobs and better-paid jobs.

It sent a signal; a call to arms for investors and a warning to competitors.

This year, lower tax rates will kick in for Australian businesses with a turnover of up to $50 million. At the moment, as you know, the progressive reduction of company tax is applying to companies with a turnover of up to $25 million. Now, $50 million is not a giant company or a giant multinational. The overwhelming majority of those businesses for whom we have delivered these tax cuts are Australian-owned family businesses.

But here’s the thing; they employ more than half of the private sector workforce.

They’re not corporate giants, I don’t know how many companies with $50 million turnover or less are represented here today, but half of Australia’s workforce work for them. That’s where you’re seeing this strong growth in jobs at the moment. We’re backing businesses; with lower tax rates, they’re in a better position to compete, invest and of course take the opportunities for people to trade with us. 

Tomorrow is going to be a very historic day in the cause of trade liberalisation, when the TPP-11 is signed in Chile.

Now, the United States is not a signatory, but by keeping the TPP alive, at a time when many wrote it off, Prime Minister of Japan Shinzo Abe and I ensured the door remained open for the US and indeed other countries to join in the future. I was discussing this with PM Abe only yesterday.

You recall how he came down to Sydney not long after the change of administration in the US. We had our discussions about the TPP and we decided then that we were going to keep the momentum going. It’s a great credit to him and his leadership and all the other countries in the TPP-11, that we’ve been able to do so.

Our future lies in open markets and in a rules-based trading system that allows countries to compete on a level playing field.

We know that when Australia competes on its merits, we win.

Openness and flexibility are the keys to prosperity. Australia and the other nations that are signing the TPP-11 will continue to defend open markets and free trade.

History teaches us that there are no winners in a trade war. A trade war is a race to the bottom that makes us all poorer, leaves our citizens with less choice and fewer opportunities.

With our flexible and open economy and strong domestic institutions, we have weathered many economic storms.

That’s why we must maintain a clear-eyed focus on delivering reforms that strengthen our economy for the long-term and ensure that we, our children and our grandchildren, can realise our dreams, their dreams, their opportunities. Our prosperity and security depend on free trade and open markets. That’s why Australia is such a strong voice for trade at home and around the world.

Thank you very much.