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The Admirals’ Breakfast
Club
Roger Kerr
26 August 2011
A Nation at Risk
International backdrop
• ‘Old’ OECD in deep trouble
• GFC has morphed into fiscal crises
– bank bailouts
– stimulus
• Offset by rise of emerging economies
• Australia
Key challenges
• Rebalancing of the economy
• Lifting productivity growth
Rebalancing
• No growth in traded goods sector since 2004
– in fact 10% down, back to 2002 levels
• Non-traded goods sector, especially
government, grew rapidly
• Gave rise to 8% CADs
• Not a savings issue
Rebalancing contd
• Source of high external liabilities
• Up there with Greece and other cot cases
• One point of difference is equity
• CAD now low, but why wouldn’t same problems reemerge? (CAD of 7% forecast with recovery)
• Primary deficit higher than in 1984
• At risk of our own financial crisis (credit rating
downgrades etc)
Productivity
•
•
•
•
What is productivity?
Big increase after reforms
Drastic slump in last decade – close to zero
Main basis of improvements in living
standards
• No growth in real per capita income since
2004
• At risk of out-migration
Implications
• 4% pa growth to 2025 → economy 70%
larger
2% pa growth to 2025 → economy 30%
larger
• Loss of management talent, skills, firms
• Income gap with Australia would continue to
widen (already 38%)
How to reduce risks? - vulnerabilities
• Focus on international competitiveness/
export profitability
• Shrink government spending share of the
economy (credit rating) – spending cap bill
• Curb excessive regulation (Regulatory
Standards Bill)
• Other improvements eg partial privatisation
How to reduce risks? - productivity
• ‘200 things you must do’
• 2025 TF reports
• Smaller government: spending, regulation,
ownership
• Must regain 1990s performance and do better
Can we catch Australia?
• Yes – institutions and policies matter
• Not natural resources, size, location
• Think Hong Kong, Singapore
Obstacles ahead
• Public understanding
• Leadership in business circles
• MMP