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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