Australian Chamber of Commerce and Industry
Address to PACIA Breakfast and Annual General Meeting
Crown Towers, Melbourne, 14th September 2011
Last week the official statistician told us that the Australian economy was growing at a healthy rate and faster than market expectations.
From my Canberra office in the mid-point between the Prime Minister’s Lodge and the federal Treasury I could almost hear collective sighs of relief.
Twenty-four hours later the same official statistician told us that the labour market had softened, with the unemployment rate rising above market expectations to 5.3% and having increased for the fourth consecutive month. From those same quarters, the collective groan was almost audible.
Nothing more starkly illustrates the complexity of the Australian economy and doing business today than these contrasting messages in the space of 24 hours.
Yet the complexity is not confined to the economy. On Monday I publicly welcomed the government’s decision to convene a Jobs Forum on 6th October to look at ways of arresting the rise in unemployment and the jobs pressure on manufacturing.
Twenty-four hours later, yesterday, the government introduced into the Australian parliament 18 Bills that will unquestionably detract from the competitiveness of manufacturing and make it harder to keep jobs in Australia. Those Bills price carbon emitted by our economy at a level and in a way not done by any of our international manufacturing competitors.
At a time of uncertainty and low confidence it is the task of government to use every tool at its disposal to build confidence and strengthen the economy against global threats. One of those tools is policy coherence. In other words, all arms of government working towards one economic objective – building productivity and competitiveness.
Unfortunately the complicated political circumstances the Gillard government finds itself in are making it difficult for that coherence to cut through. It is being pushed and pulled in multiple directions.
Yet we know in business that our investment needs to be calibrated to common coherent goals if our business model is to work efficiently, and if competition is to be warned off.
My call this morning is for the government to discover that policy coherence. It can send a very visible signal of its desire by requiring its officials and Ministers to test all arms of regulation and programmes, whether tax laws, workplace laws, infrastructure spending, skills spending, health and safety laws, employment policy or carbon policy against two simple measures – does this add to productivity, does this add to competitiveness.
The reason why these measures are the right ones is not complicated.
On both measures our nation has slipped badly over the past decade.
Yet both measures are what give us our living standards. Productivity pays our way.
Competitiveness is what keeps us in jobs.
I have no doubt that the government knows this, and is deeply concerned at the backsliding on both of these criteria.
There would not be a Tax Forum or a Jobs Forum in a few weeks if this was not the case. There would not be strong investment in the May federal budget on skills and training if that was not the case.
There would not be dialogue with industry about the need to increase the workforce participation of unemployed young people, of women, of mature aged workers, of workers with a disability if this was not the case. Nor would there be a desire to push on with the COAG regulatory reform agenda.
I know the COAG regulatory reform agenda is important to the plastics and chemicals industry. I also know as an insider to the process how difficult it can be, and how changes in the name of reform can sometimes be elusive or not even real reform.
This is why I was really pleased to be briefed over the weekend by PACIA on progress which it has made with the Australian government on some regulatory issues, including dangerous goods regulations, the NICNAS plans for chemical screening, and the review of NICNAS announced last Thursday by Minister Nick Sherry and Parliamentary Secretary Catherine King.
It is hard work on the inside of these processes. Business owners don’t see it but more often than not there are competing views being urged on government.
Sometimes those views, including views that come from regulators and the bureaucracy, can be well meaning in their own right, but when coupled with the totality of the regulatory burden that a single business has to bear, are quite another story.
Another area of the COAG regulatory reform agenda that has intrinsic merit but requires careful attention to content and caution against over-regulation is the harmonisation of health and safety laws.
Just as we need good OHS practices, we need good quality OHS duties and regulation. I am a strong supporter of the harmonisation process because OHS laws lend themselves to national harmonisation. They set duties and standards, deal with largely common issues, and aside from the former NSW laws, did not have great areas of difference – at least not at a principal statute level. For companies operating across State boundaries there is an efficiency saving in harmonisation.
At the same time, harmonisation can go off the rails if in the name of harmonisation the regulatory content gets ratcheted up. We have seen an example of that in the IR system in the past few years when in the name of a single national award system employers in some industries in some regions are now paying higher weekend and evening penalty rates - not because those rates were assessed as fair, but simply because of a reorganisation of regulation.
Harmonising OHS laws involves not just harmonising principal legislation but the ambition has extended to hundreds, indeed thousands, of pages of regulations and now dozens of codes of practice.
The more one digs deeper into the regulatory pyramid, the more the differences in regulatory content emerge, and the more change that has to be negotiated, and fraught the process becomes.
As an insider, it is a tough process, not at all sexy, and very time consuming. ACCI has led industry representation and advocacy in this task. We established over a dozen industry working parties to make sure that our views were grounded in practical reality, not theory. I have been greatly appreciative of the input that PACIA and the chemicals and plastics industry have provided. Throughout this process it has been clear to me that high quality OHS practices, as well as compliance with sensible OHS regulation, is top of the mind in doing business productivity and competitively in your industry.
We are now approaching the pointy end of the OHS harmonization process. COAG intends harmonisation to be in place by 1st January 2012. There is media speculation that some States may find this too big or quick a task.
My message today is three-fold. To business, I say that we should keep supporting harmonisation without giving governments or regulators a blank cheque. To the States, I say that you should work inside the process to ensure that legitimate issues about the content of regulation does not deflect from the genuine need to get harmonisation over the line by 1 January. To the Commonwealth and its regulators, I say that too much ambition on either the amount of regulation to be included in the harmonisation package or too much inflexibility in the dates of operation for codes of practice could be damaging to the process.
I have recently written to the States to ensure that our position at ACCI is clearly understood as we approach the next few critical months. I am releasing that letter today, so that industry representations can be seen in the proper context.
As time consuming as these regulatory issues are for industry and industry bodies like ACCI and PACIA, regulatory and compliance issues can be as much a drain on productivity and competitiveness as regulatory reform can be a positive.
The problem is that governments tend to send the same mixed messages on regulation that I mentioned earlier. While governments collectively in COAG are talking about regulatory reform, governments individually that make up COAG are almost every day making new regulations and establishing new compliance agencies staffed with hundreds of thousands, indeed millions of taxpayers’ dollars.
Even when progress is being made, I always have to check myself by asking if it is progress in theory, or progress in practice. As those of you in business know, there is a difference.
This hit home a couple of days ago when I received a well-reasoned message of frustration from a small and medium business manufacturer in Queensland. This businessman said as follows:
“Small and medium sized businesses have been working to constantly reducing profit margins in their efforts to remain ‘in the game’, whilst ‘on costs’ have continually increased. Many manufacturers with established overseas markets left our shores and took their operations into other less hostile environs. Those that have stayed have been forced to fight what seems a losing battle with ever increasing compliance regulations and associated costs, ever rising operational costs with materials, power, fuels and labour and a diminishing market share due to ‘the China Factor’.
Certainly the high Au$ does not help Australian companies that export and works in favour of those that import products, however it cannot be blamed for the high cost of doing business within Australia as an Aussie producer.
The sense of balance has been lost and the focus turned from striving for efficiency and competitiveness, to mandatory compliance with a plethora of statutes and regulations, policed by armies of inspectors.
The inevitable result has been that domestic manufacturers are losing out to imports unable to compete with price. The flow on effect has been enormous as retailers (battling the highs and lows of economic conditions), project managers, purchasing officers and developers, turn to imported product over local manufactured goods in their efforts to reduce costs and remain viable themselves. This ‘merry-go-round’ has diminished the size of the market available to Australian manufacturers to the extent that those that are surviving are servicing ‘niche’ markets, unable to be price competitive in the broader theatre of commerce and industry.
It has nothing to do with the quality of our workmanship or products, or the ability of our personnel to seek out and identify market opportunities. It remains an undeniable fact that we can no longer manufacture a product that is price competitive.”
These are sobering thoughts, and as I considered them, I wondered just how many echoes of similar thinking were out there in our cities, suburbs and country towns. Many, I suspect, if our industry surveys are accurate.
This business owner put his finger on the compounding effect of over regulation or poor quality regulation on the productivity and competitiveness of doing business in Australia.
My point is, that given that we do not and should not compete with Asian countries on labour costs, then we need to make every other post a winner if we want to keep producing goods and services and compete in international markets.
That is why acting unilaterally to remove one of our historical competitive advantages, low cost energy sourced from our abundant coal supplies, by placing a carbon tax on our economy is a mistake.
This is not to say that the business sector is indifferent to carbon abatement. It’s just that the policy response is wrong, and couldn’t be worse timed. And I say that as a member of the Government’s Business Roundtable on Climate Change.
While some mixed views exist inside the business community, the overwhelming bulk of opinion is opposed to the carbon tax on one (or a combination) of grounds – it weakens industry competitiveness (as it is not conditional on international agreements); it raises energy prices for business (including uncompensated small business) for miniscule global abatement; a carbon tax is a tax, not a market mechanism; the carbon trading scheme will operate as a tax in industries where technology does not yet exist to change behaviour; the government start-up is neither ‘low nor slow’; and the weakness in Australian manufacturing consequent on currency appreciation and global uncertainty makes the 2012 timing inappropriate.
ACCI policy, since the opening of this debate at the end of the Howard years, reflects our fundamental concern (and consensus) that unilateral Australian action in the form of an economy-wide carbon price should be opposed in the absence of a global trading scheme that is underpinned by international agreements.
ACCI has worked both inside the government and parliamentary processes to advocate this position, and in the public arena. We will continue to do so this week, and in the ensuring weeks of 2011.
Over the next two months we will particularly bring to the fore the position of small and medium businesses, such as the small manufacturer who wrote to me. Not only are SME’s the bulk of members of Chambers and Industry Associations across the country, but most do not have lobbying strength in their own right in the corridors of Canberra. They rely on the ACCI National Member Network to do this heavy lifting.
Under the carbon tax legislation to be introduced this week, SME’s receive no compensation for higher energy costs. Depending on the type of business, those rises will be in the order of another 20% to 35%.
ACCI commissioned research tells us that for some, this will be a significant impact on profitability. For most, changing the way of doing business is not viable, and for many substituting new technology for old is not affordable. Even if they could, they don’t have the capital to finance new large-scale plant and equipment.
Whether for reasons of technology or cost, if behaviour does not or cannot change then the tax operates as a tax, not as a solution to global warming. It becomes a costly feel-good exercise, one of wellmeaning futility.
Ladies and gentlemen, there are many other aspects of the productivity and competitiveness debate that in the time available I have not covered.
Skills, labour force participation through employment and contracting, removing infrastructure capacity constraints in transport and ports, innovation through investment in research and development and flexible workplace regulation are also high on the list.
In each area, using the test of how policy and programmes impact productivity and competitiveness could help ease the frustration I sense out there, and right the ship before our labour market weakens or global conditions or markets move against us.
While our problems of uneven growth, poor quality regulation, a complicated political landscape and labour markets softening from a low level of unemployment are much more manageable problems than other nations, my concern is to make sure we don’t kick any own goals. Past structural economic reforms on both sides of politics were unambiguously directed at increasing the productivity and competitiveness of industries like yours. In today’s world the mixed messages from Canberra are more ambiguous. It is our job on your behalf to speak clearly in this very clouded space.