‘Setting the Foundations for tomorrow’s prosperity’
Menzies Research Centre Thought Leader Series Event with the Hon Angus Taylor MP
Credit Suisse, Sydney 18 May 2017
Transcript of Address by the Hon Angus Taylor MP
Four years into my parliamentary career, many people still ask me what has surprised me most about getting into politics after two decades in the business world?
I think many expect me to say that “it is all hopeless, nothing gets done and that politicians have the moral compass of an amoeba”.
I don’t think any of these things are true.
I have been pleasantly surprised by how much you can get done if you stay focused and maintain your resolve.I have been struck by what you can achieve if you don’t feel the need to take credit for it.
Much of what is most achievable never goes up in lights.
But most striking is what I see happening broadly across Australia.
And I've given this a bit of thought.
I believe we are at risk of losing contact with the foundations of prosperity.
I’m not sure that some of the most basic principles that underpin our extraordinary success as a nation are well understood.
When I talk about property rights, markets, freedom and aspiration as foundations for productivity, prosperity and success – elements of what Niall Fergusson calls the West’s killer apps – I find that most people take those things for granted.
Instead, we get this endless cry that "my slice of the pie needs to be bigger".
Self interest replaces national interest.
As many past civilisations have found, that’s not a good place to be.
We know that the secret to a prosperous and sustainable market based democracy is a growing pie.
Of course, growth itself is not the issue – what counts is the opportunity and aspiration that growth generates.
The potential for economic and social mobility.
Giving our kids and grandkids more opportunity than we've had. If we lose those things, we lose far more than a sterile growth number.We risk losing the foundations for our market based democracy, built upon a prosperous, mobile middle class.
So given those sobering observations, where do we stand in Australia?
The truth is that whilst there are untold opportunities for a well educated, outward looking, tolerant country like ours, there are some pretty awesome challenges.
Near the top of the list is slowing real wage growth.People feel that they are being squeezed. Higher bills hurt.
Some argue that this is the result of some kind of class struggle where capital is doing over labour. This is an extraordinarily superficial analysis.
For a start, the left love to use the peak of the mining boom for looking at the wealth of the top 1%.
If there has been any concentration of wealth it has been because of red tape restricting the supply of housing near our job centres, driving up the price of houses owned by those already in the market.
But the real culprit behind the real wages story is stalling productivity growth.
As Paul Krugman – not someone inclined to my side of politics - points out:
“Productivity isn’t everything, but in the long run it is almost everything. A country’s ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker”.
Part of the productivity slowdown may be measurement.
The inputs and outputs of an industrial economy are far easier to measure than a service driven economy.
Widgets are easier to measure than entertainment outputs or the quality of health services.
But my very strong sense is that there is much more to the problem than measurement.
In my own electorate I see that the average Australian, battling in the suburbs and regional centres, is feeling the pinch.
And in a country with two and a half decades of continuous growth under its belt, these people - many of whom can’t remember a recession - are asking tough but legitimate questions of governments.
As well as sluggish wage and productivity growth, we are faced with a serious debt problem. And government debt isn’t the worst of it.
Household debt - mostly mortgages - is amongst the highest in the world, and climbing.
At almost 125% of GDP, and the third highest in the world according to the BIS, an increasing proportion of what we earn as wages or profits pays off that debt.
There does come a point where this can’t continue, particularly if we move into a period of rising interest rates or, heaven forbid, rising unemployment.
And then, of course, there is government debt.
While it's a smaller absolute number than household debt, it is still a real concern.
We should never forget that debt - private or public - can only be repaid through future revenues.
For governments, future revenue must come from higher taxes or stronger growth. There is nothing else.
Public debt is more insidious than private debt in one important respect - it can be passed on to the next generation.
I have always been wary of debt.
As my wife constantly reminds me, I am a fiscal conservative in every aspect of my life.
When she wants an extension on the house she claims that my Scottish ancestry has combined with some Jewish ancestry to create an unrivalled skinflint.
But I have seen debt used well when the borrower has great discipline and skill, and historically, many governments have lacked these skills.
More on this in a moment.
These challenges – sluggish productivity, alongside rising household and government debt – might have us reaching for the gin bottle.
The reform debate (or lack of it) in Australia might have us reaching for the second bottle.
The halls of parliament house are filled with conga-lines of vested interests – often with the ear of Labor, greens or crossbench senators - lobbying against productivity enhancing initiatives and savings reforms.
So what’s the way through this?
There is no doubt that we need to build a broad based understanding of the challenges we face, and I commend the work of the MRC on building that understanding. [Ramsay foundation]
Our schools and universities should focus on the basic ingredients of western prosperity, including freedom, discipline and a strong work ethic.
We need to better highlight the difference between fighting for sectional interests and fighting for the national interest.
But I also think we need to better understand what productivity, aspiration and opportunity means in the second decade of the twenty first century.
Economists, commentators and even our more informed citizens still have a model of the world focused on industrial productivity. We often hanker for the reforms of yesteryear.
Remember the wide combs dispute, the battle for the waterfront, tariff reductions and even the Accord.
When I think of these events, I'm struck by a warm feeling of nostalgia, and I know I'm not alone in that. They were the days.
But that was a time when industrial labour productivity gains offered great prosperity for all of us.
It was a time when producing more physical widgets with less labour really mattered.
I don't want to understate the importance of labour relations in manufacturing, mining and agriculture. They still matter.
But these industries are a much smaller part of the economy than they once were.
Services, including public services like education, childcare, aged care, health, disability and welfare have become an increasing proportion of the economy and jobs.
Market services like communications, transportation, entertainment, retail and construction have been growing as a share of the economy for many years.
And in these sectors, productivity has a very different meaning.
It does mean teachers, doctors, retailers and musicians delivering their services with less time and effort.
But it also means better outcomes – faster more responsive transportation, better health, more competitive education outcomes and better access to information, knowledge or entertainment.
If we are to reignite opportunity and aspiration, these modern engines of service level productivity need to be turned up.
Now there is no shortage of entrepreneurs out there trying to do all of this – attempting to disrupt service industries
I see extraordinary examples of this every day, in my Digital Transformation role, in finance, health and many other sectors.But measurable progress is far slower than it could be, and we have to ask ourselves why.
Well, I have been privileged to have a front bench role focused on two areas which I believe to be crucial to turning this situation around, both of which had real focus in the budget papers.
Let me start with cities.
For some conservatives, my focus on cities is seen as a betrayal.
“Surely Angus, you, as a country boy, understand that wealth is created from the bush?”
Of course, I love this romanticism, and I believe that the best days of Australian agriculture are ahead.
I have written and spoken on this extensively, and my family has literally bet the farm on the future of this great Australian industry.
But, it will never be enough to support the aspirations of a growing population of 25 million Australians.
Not everyone likes hearing that – but it is the truth.
Service industry productivity, and all the richness of innovation, collaboration and collisions of ideas necessary to support those improvements, mostly comes from our major centres, particularly our bigger capitals.
The growth of the world’s biggest global cities is unstoppable.
London is groaning under the weight of extreme traffic congestion, housing is unaffordable for all but the wealthiest and people travel mind-numbing distances between home and work.
But it is still one of the fastest growing cities in the world.
It is fuelling more aspiration, opportunity, prosperity and productivity than almost any other city in the world.
We need to facilitate this strong growth across all our cities and regional centres.
This is as much a message for regional cities, as for our capitals.
They too can create this dynamic, so long as they target niche areas where they have advantages – advanced manufacturing in Geelong, education in Wollongong, agricultural technology and services in Armidale.
IT, finance, creative industries and even tourism and education all require one thing above all: a collision of ideas, collaboration and innovation alongside robust rivalry and competition.
This means we need urban centres where people really want to work and live.
Despite rapid gains in modern telecommunications, co-location still matters, perhaps more than ever.
I often quote Ed Glaeser, the Harvard Economist, who puts it beautifully: “Ideas travel faster down corridors and across streets than they do across oceans and continents”.
That’s why cities matter so much in a service economy.
Each of our cities and centres is in competition with others around the world, not just those around Australia.
Businesses and people move to where the collisions of the fast moving modern service economy happen most, and where people really love living and working.
Businesses look for commercial advantages, like lower tax rates
We should never underestimate how places like Singapore and Hong Kong have used tax to create the conditions I’m describing.
But it also why our most successful cities are struggling to deal with growth, and why we risk giving away our productivity gains sitting in traffic jams and unaffordable housing.
More of the jobs are at the centre or in major job centres, and fewer are on the periphery.
A former line worker at Narellan may have to travel to the city each day for a building maintenance job, when once he worked in a local factory.
Meanwhile, a desperate shortage of housing around our fastest growing job centres like the CBDs, airports and universities, is pushing lower paid workers further out.
That’s why we are focusing so much of our attention in the budget on more housing in the right locations - near job centres and transport hubs - and more investment in road and rail to move people between housing, jobs and services.
Our $75 billion infrastructure package, the 10 billion rail package, the national housing infrastructure facility as well as a range of social housing initiatives all align behind this goal.
It’s also why we want to create big new job centres closer to where people live.
The new Western Sydney Airport matters, not just because three million people west of Parramatta like to travel by air, but because they need local jobs, and airports are magnets for jobs.
As cities like Denver have found, if you move the airport, you move the city.
And with companies like Northrop Grummond, a world leading aerospace and defence service provider, committing jobs and investment to the new airport precinct, we can already see how a credible government commitment to the airport has a multiplier effect.
Our regional centres need to adapt as much as our capitals, as we see in the increasing political divide between our inner city areas, and the rest of the country.
In cities like Townsville and Launceston there are great opportunities in tourism, education, IT, defence and advanced manufacturing.
Government has a role to play, if only getting out of the way of entrepreneurs who can see a clear path forward.
In particular, federal, state and local government have to align behind a strategy for our urban centres – moving beyond the traditional buck passing and finger pointing.
So public and private investment in cities matters enormously for modern productivity gains and all that comes with them.
But our budget is at breaking point.These investments can’t add to our budget deficit.
The only way through is to encourage more private sector investment and off budget investment. Private sector investment should be the first port of call, but that’s not always possible.
Whether we like it or not, the Western Sydney Airport can now only be developed by the government, because of a contract signed many years ago and the decision by SAC not to take up its option to build and operate the airport.
To invest well, we don't just want to be an automatic teller machine for the States.
We want to have the skills to attract as much private sector investment as possible, but to invest from our balance sheet where we need to.
So we are establishing a small high calibre team in the PM's department to attract investment in city shaping infrastructure investment.
We are doing that with Western Sydney Airport, just as we are already with the Moorebank Intermodal terminal and Westconnex.
Facilitating more investment in the productivity of these cities and centres without stretching the budget requires new skills.
Other governments responding to similar pressures, including the NSW government and the UK government, have developed these skills in recent years.
Let me turn now to the other side of my portfolio – digital and IT.
Much of the productivity potential in the service sectors depend on IT, digital and better use of data.
That’s where real wage gains can come from.
Of course, only those who work inside the IT sector really care about how we get there, but most of us do want easy to use digital channels.
A small portion of the population just don’t care – but you might be surprised how few.
Almost 80% of bank transactions are now online or using mobile channels, with only 10% of customers restricting themselves to branches.
If we are to drive twenty first century productivity, opportunity and aspiration, we have to acknowledge that in many service industries we – the government – we are the big gorilla in the room.
If we don't raise our performance, we can't expect others to do the same.
Worse, if we can't drive continual improvement in how we deliver health, disability services, education, and welfare then we won't fix the debt problem.
Despite much emotion about our spending habits, we have contained spending far more than previous Labor governments, or the latter years of the Howard government.
Our spending growth is sitting just under 2% in real terms, Labor was over 3.5%.
But with sluggish productivity and wages growth, revenues have risen less than expected.
Everything is easy in hindsight, but we should have been faster to anticipate a senate focused more on grievance than government.
I know there are very significant savings opportunities in how we deliver government programmes, much of which requires better IT and little of which requires controversial legislation.
In particular, in the UK, the US and many other countries, very strong savings have come from improved compliance – eliminating fraud, abuse and error in our government programmes.
We have seen copious evidence of this in recent times, well beyond the stereotypical doll bludger.
In education, health, welfare, and tax, compliance is a big opportunity for fairer, more frugal programmes.
Alan Tudge and Christian Porter are spearheading this work supported by the Digital Transformation Agency in my area.
Better IT is crucial to delivering these savings, but it also gives us the data we need to better target our interventions to deliver positive outcomes for the people who need it.
The NZ government was amongst the first to use actuarial analysis to target welfare recipients with interventions which can deliver better outcomes, and save taxpayer money.
We are going down the same path.
As we generate more quality data about the effectiveness, or otherwise, of our programmes, we shouldn't be frightened to open this data up.
MySchools has played an important role in allowing parents to compare schools and choose, but we need to go further.
Releasing government data, like you can find on National Map, and allowing the private sector to use this data is crucial.
Meanwhile, with an annual Federal government IT investment of up to $9 billion, we need to get more bang for our buck.
We are increasingly moving our IT infrastructure and services to the cloud, delivering more secure, lower cost services.
We are breaking monolithic projects into smaller bite sized pieces, so that our local IT entrepreneurs get a crack at winning government tenders.
We also know that these smaller projects are far more likely to deliver quick wins, without running into trouble.
Just recently, we certified two home grown protected cloud providers, Vault and Slicetech, to deliver services to government.
We need to give more control of data to our citizens, through projects like digital identity and tell me once, which have received a boost in the budget.
In time, this won't just improve government delivery, it will unleash a new round of competitiveness across the economy as transactions become frictionless.
If we get this right you won't need 20 usernames and passwords to access your services, and you'll be able to switch between banks, telcos, utilities and others with the click of a button. Imagine.
Indeed, I believe that digital transformation is the new frontier for competition policy – taking over, where old style regulation is just too heavy handed.
It's now possible to see petrol prices for every petrol station in NSW, live on our phones.
We have achieved Kevin Rudd's beloved Fuelwatch, without a single dollar from the federal government.
This can work for public services.
When customers can compare the performance of hospitals, disability service providers, schools and universities , and then make well informed choices, improvements will follow.
And let's face it – customers do a better job of driving reform than governments and regulators, as we've seen with the extraordinary transformation of the taxi industry and accommodation sector.
This is how you drive productivity in the twenty first century, and we need to get on with it.
Some see this as lacking the sex appeal of old style economic reform.
Perhaps. But give me boring and achievable over sexy and unachievable, any day of the week.
Let's move beyond the debates of the 80s and 90s.
They were important and enormously fruitful. But the world has changed.
As a centre right party, we Liberals need to hold on to the values that are dear – opportunity and aspiration, freedom, constrained public spending, lower taxes and accountable government.
The values stay the same, but the toolkit has changed.
Menzies' forgotten people now use smart phones, live and work in our major cities and regional centres and spend more than ever on travel, entertainment, education, housing and health.
Of course, many run their own businesses, and just as their customers are more demanding than ever, they demand more of government.
Centre right governments need to adapt to this changing world.
In Australia, we are now on this crucial journey.