Kickstarting a cycle of meaningful growth
The following op-ed by NAB Group CEO and Chairman-elect Philip Chronican was first published in The Australian Financial Review on Friday 12 September 2019.
Australian businesses are at a critical impasse. Interest rates are at record lows, they have cash in the bank and ambition to grow. Yet still, they’re cautious. They don’t know if now is the right time to invest.
Slowing global growth, escalating US-China trade tensions and lingering concerns about Brexit are creating uncertainty. Australia’s private sector is technically in recession and capital expenditure is down one per cent on a year ago.
Interest rate cuts may have been useful for the residential property market. But given rates are already at historic lows, future cuts are unlikely to have any impact. And we can’t restart a cycle of meaningful economic growth through property.
We need to foster business investment to create growth and improve productivity.
Navigating this challenge is a shared responsibility of business and government.
Today, political and business leaders are meeting in Auckland at the Australia and New Zealand Leadership Forum to consider what can be done in both countries – and together.
Our economies have increasingly become entwined and strengthened over the past three decades.
In the 1980s, the retail landscape in Auckland and Sydney could not have been more different. Today, businesses such as Kathmandu and Harvey Norman straddle high streets on both sides of the Tasman. And of course, BNZ is an important part of the NAB Group.
Trans-Tasman trade was opened-up in 1983 through the Closer Economics Relations trade agreement and later, through the Single Economic Market agenda. Australia and New Zealand both looked to support each other’s economies.
Businesses embraced the opportunity. But have we lost sight of it?
This week’s NAB Monthly Business Survey showed that, in Australia, both confidence and conditions declined in August and remain well below long-run averages. Trading conditions, forward orders and profitability are all lower.
Australia’s GDP growth is at its weakest since the GFC and only modest growth is expected in the medium term.
Overall the risks to business owners can look one sided – but there are factors we can influence to foster growth. It will take effort on both sides of the Tasman to support increased activity.
A simpler and more efficient tax system would be helpful. The Australian Government’s injection of $8 billion of tax refunds into households is welcome.
An investment allowance that would offer business accelerated depreciation for increases in investment is also on the agenda for both Government and Opposition in Australia. This would more directly target where stimulus in needed.
Long-term asset creation is a logical investment and across several states, it is occurring.
While there is a heavy pipeline of infrastructure projects, long-term planning remains critical as the population grows. Houses need to be built where essential services are accessible, where transport options are available and where communities can thrive.
Long-term planning and investment in non-physical assets, for example education and training systems, are just as important for productivity. So too is lowering the burden of unproductive regulation.
However, most critical, is activity that helps build greater confidence. A return of the Federal Budget to surplus in 2019-20 will contribute as an important milestone in taking the issue of growing public debt off the table.
The challenge of building confidence, indeed all these challenges, are not for governments alone to solve. Business can – and is – taking action. We can boost capital deployment. And we can increase productivity in our own businesses.
Importantly, if we are looking to Canberra and Wellington for pro-business policy, we will need to demonstrate the role we play in building a stronger future.
With the Edelman Trust Barometer showing that more than half of Australians don’t trust business, it is little wonder there’s skepticism, evidenced in the reaction to previously proposed business tax cuts in Australia.
Last year’s Royal Commission highlighted the gap between how financial institutions have been operating – in particular at NAB – and how our customers, shareholders and the community expect us to operate.
NAB has a significant program of internal reform underway to close the gap. It will put us on a sustainable foundation of serving our customers better – and ensure that we meet all our obligations to customers, regulators and the community more broadly.
We are here to serve customers, keep their money safe and enable investment. We are open for business and are lending to businesses that want to grow.
We also support broader mechanisms that help customers, including the Government’s Australian Business Growth Fund – designed to facilitate long-term equity capital investments in small and medium businesses.
More broadly, we can play a role in planning for the long-term. The recent Australian National Outlook report, built from CSIRO data and involving 50 diverse organisations, identified five shifts Australia needs to make to be a prosperous nation in 2060: across energy, land use, culture, industry and the urban landscape.
The research has led to a partnership between NAB and ClimateWorks Australia to help future-proof the agricultural industry against environmental challenges. We also committed $2 billion in financing to help emerging technology companies, and are exploring ways to better support affordable housing.
Increasing prosperity in Australia will be a function of productivity growth and investment. NAB is absolutely committed to doing our part.