The Real Challenges of 2020
Australia’s good fortune is substantial: we have had nearly three decades of uninterrupted economic growth, and our major cities are some of the most liveable in the world with Melbourne, Sydney and Adelaide ranking in the Top 10.
On productivity we have been beneficiaries of the economic reforms of the 1980s and 1990s, the demand for our raw materials remains strong, we have high-quality public services, and a strong liberal democratic tradition.
However, this benign state masks complex challenges and there is a significant danger that over the longer term we risk facing a period of relative decline by global standards.
In the short term we will see headwinds on global growth; declining terms of trade; weak consumption growth; sluggish wages and employment growth. Yet our overall budgetary comfort, aided by what appears to be relatively conservative assumptions on iron ore price falls and notwithstanding the coronavirus, still acts to douse down any burning platform for change.
I focus on 6 areas of challenge we need to confront both in the year 2020 and the new decade.
New technologies, which will be the main source of future productivity lifts, will substantially alter traditional industries. The rate of destruction of jobs might exceed the rate of creation of new ones, at least for a time, which alarms us.
Three important points here. First, we need to ensure that all will share in the benefits of change. Second, “slowing down” change is not an option. Third, being ahead of the game is an advantage. Thus we should have a large pilot program on autonomous vehicles, despite the potential job losses in the logistics industry. This requires long-term planning.
Australia specifically has a clear innovation challenge based on size, business regulation and culture. We ranked 69 out of 104 countries on the 2018 Global Innovation Index.
On taxation, we need to be internationally competitive and focus on capital deepening:- cutting the company tax rate is the best way of achieving this. At the individual level, the interaction of our system of childcare subsidy and the tax system gives rise to high work disincentive rates for those that may expand their hours of work, with significant long-term economic detriments, particularly impacting women.
Our Federation produces many regulatory burdens on business and funding inefficiencies for governments. We need harmonisation and a recognition that the best solutions will usually require co-operation from all levels of government. Examples of this would include a New Technology and Innovation Plan and a Human Services Productivity Plan. Only then might wages growth pick up.
- Rise of Asia
Within a decade, Asia-Pacific is expected to have 65 percent of the world’s middle class. That is a huge opportunity in virtually every economic sector, eg tourism, health, education, finance and professional services. This will involve negotiating our major geopolitical relationships shrewdly.
We need a new multi-faceted program to embrace these opportunities in our region. This could be a recalibrated version of the 2012 White Paper on Australia in the Asian Century.
We need a clear plan for achieving the Government’s targets on carbon. Obviously the global response is critical, but our position feeds into that response. Ultimately a stable framework will lead to lower energy costs.
Many other aspects of the environment and land use require deep consideration – especially our use of water. Here we can learn much from Israel. For instance, we may need an infrastructure plan that has a greater use of pipes, rather than open canals, to reduce evaporation. Whilst we treasure our biodiversity, it is sad that amongst OECD countries, Australia has the highest rate of decline in species.
- Cities and infrastructure
Ultimately we require our major cities to be denser with multiple hubs and varied housing types which are closer to jobs. We should have greater reliance on mass and active transport. We should seek to develop satellite cities with rapid transport to the capital cities. Again this requires co-operation from all levels of government, beyond the traditional allocation of federal and state responsibilities.
Sadly we are experiencing a decline in our PISA scores in maths and science in particular, but also in our bottom 15 percent of students. Given evolving technologies, our education system needs a refocus on agility, so we have the adaptive skills and creativity for a changing world. This refocus should extend beyond the traditional education system, and become a feature of business culture for those in employment.
- Social cohesion
We need the community at large to be onside as we embrace change. This will not occur if a significant group is left behind. We need a stronger safety net, a social insurance policy. This involves addressing the level of Newstart which we do not believe currently is sufficient to support unemployed people getting back into the workforce. This is one area of public expenditure that should be regarded as investment, paying dividends in the future. Economically and socially it is the right thing to do – as is finding innovative ways of dealing with housing affordability and other areas of disadvantage, including education in particular.
We are also ageing as a society and the Intergenerational Report in July provides a major opportunity to address some of the challenges we face. All of them are hard, complex and require substantial political, business and community leadership. But they are also exciting and we must overcome our fears and deal with them positively in the decade which has just started.
A longer version of this article appeared in the CEDA Economic and Political Overview 2020.