2. The Admirals’ Breakfast Club Roger Kerr 26 August 2011

3. A Nation at Risk

4. International backdrop ‘Old’ OECD in deep trouble GFC has morphed into fiscal crises –bank bailouts –stimulus Offset by rise of emerging economies Australia

5. Key challenges Rebalancing of the economy Lifting productivity growth

6. 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

7. 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 re- emerge? (CAD of 7% forecast with recovery) Primary deficit higher than in 1984 At risk of our own financial crisis (credit rating downgrades etc)

8. 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

9. 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%)

10. 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

11. 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

12. Can we catch Australia? Yes – institutions and policies matter Not natural resources, size, location Think Hong Kong, Singapore

13. Obstacles ahead Public understanding Leadership in business circles MMP