‘It is the responsibility of leaders across business and at every level of government, to work together and ensure this is not the case. It is not a challenge for governments alone to solve. Historically, recessions have at least provided the opportunity to implement reform and ‘clear the pipes’ for the next cycle of growth. In this crisis, and in the lead-up to it, we have collectively accepted that doing better than other advanced economies, is the equivalent of doing objectively well ourselves.’
While this recession was not caused by financial system collapse or structural changes in the economy, Mr Chronican said that we must use it to drive meaningful reform.
However, the productivity growth which had plateaued prior to the pandemic meant that Australia must use this opportunity to look at where our weaknesses lie in the long-term. ‘The first step is to look under the hood and recognise what’s not working as well as it should — and acknowledge any band-aid fixes that won’t last.’
Mr Chronican laid out three areas of weakness:
- Business investment and growth.
- The rate of improvement in living standards.
- Australia’s place in the region amid geopolitical tensions.
‘Understanding and accepting these challenges is the foundation and impetus for creating change. To get businesses investing and to get Australia’s economy moving we need to make it simpler and faster to do business in this country.’
While the banking sector plays a critical role, whether in extending capital to help new business, or existing ones to grow, there is an urgent need for broader action to launch the next era of growth for the Australian economy, Mr Chronican said.
Changes to economic policy settings are needed today to encourage business investment in Australia and promote growth and job creation.
Encourage business investment and growth
Firstly, this called for encouraging business investment and growth. ‘Changes to economic policy settings are needed today to encourage business investment in Australia and promote growth and job creation. Despite a recent post-COVID rebound in business capex, the trend over the longer-term, since the GFC, has seen business investment fall to slightly over 10 per cent of GDP.’
The biggest barrier Mr Chronican pointed out is business confidence. He called on business leaders to have trust in the underlying strength of the economy, and a clear and consistent set of rules, in order to confidently commit to long-term investment.
There is a need for a more efficient and competitive tax and regulatory system, said Mr Chronican, pointing out to the time and effort spent by small business, which he called the backbone of our economy, navigating multiple levels of government, holding back productivity and growth.
‘Research commissioned by NAB shows that excess red tape costs small business $9.3 billion every year and tax compliance costs them 225 times more than it does for a large business.’
‘We need to keep looking for ways to make it easier for businesses to find the right people, with the right skills. The Government’s work on bringing manufacturing, financial services and health sector skills is a helpful start.’
Mr Chronican also welcomed measures like tax incentives to encourage businesses to invest, and wage subsidies to create more jobs. ‘The JobMaker and SME Recovery Loan schemes are good examples of support available for businesses that see long-term growth potential. Now is the time to do more, at every level of government; to remove hurdles, streamline the bureaucracy and make our systems easy to navigate. Business too can act – and there are many who are, by boosting capital deployment and increasing their own productivity.’
Rate of improvement of living standards is critical
On improving living standards, Mr Chronican referred to the drop, in rate of improvement in living standards highlighted recently by The Lowy Institute. ‘In the ten years to 2008/09, average income per head increased by one fifth. In the next ten years to 2019, it increased by only one tenth. Upward pressure on real wages is unlikely until unemployment gets to around 4.5 per cent. Based on the current unemployment rate of 5.6 per cent, that means 154,000 jobs need to be created before we see wage pressure.’
For this we need an overall productivity improvement using the resources and capabilities available, Mr Chronican said. And to consider strategically, the shape and flexibility of our workforce — and the education and training systems that support it. ‘The pandemic has accelerated an already rapid change in jobs in this country – and we must be agile to remain competitive. For example, within NAB we moved more than 1,000 additional people to our frontline teams, because that’s where our customers needed the support.’
Skilled migration must return to help close the gap and give business access to the capabilities they need to grow. However, this must be achieved at levels that are supported by infrastructure investment and housing stock availability, particularly in Sydney and Melbourne where housing prices are expected to continue to soar in the rest of 2021 Mr Chronican said.
Australia’s place in the region
‘Thirdly, we must actively support Australia’s place in the region amid geopolitical tensions. I am a strong advocate for Australian business leaders being more aware of, and more immersed in, what is happening in Asia. Even with current trade tensions, China will continue to be Australia's largest trading partner. In the 12 months to February, two-way goods trade between Australia and China was nearly four times that of trade with Japan, our number two trading partner.’
Mr Chronican called the trade and investment relationship extraordinarily significant. He also pointed to the fact that there are broad opportunities for Australia given the substantial growth in Asia.
‘One of the impacts of the US-China trade tensions and the disruptions of the early pandemic is changes to supply chains. Whether temporary or not, a shift in manufacturing from China to other Asian economies has occurred, which could increase demand for Australian goods and resources in those countries over the long term.’
Mr Chronican said the pandemic has exposed the need to improve domestic resilience and reduce risk, through strategic stockpiles and multiple supply chains. But local manufacturers had been agile in slashing the logistics time and filling the demand that could no longer be met by China.
‘These newly formed local supplier relationships have potential to become enduring, as end users recognise the benefit of faster, more tailored and easily accessible solutions. But there is more to do. COVID has shown that having domestic capability in areas of medical research, pharmaceutical production and medical diagnostics is critical.’
‘Australia must be proactive in managing future risk. More strategic planning and investment is needed to bolster the scale and sustainability of essential industries and to build domestic strength in these areas.’