21 December 2012
Reality bites: magic pudding a myth, says business
Australian Financial Review
The pivotal moment for Australian business in 2012 was a Wednesday afternoon in August when BHP Billiton shelved its $US20 billion Olympic Dam project.
While the project had been under a cloud for months, the decision was confirmation Australia’s competitiveness was threatened by poor productivity, high costs and a rising dollar.
It sent politicians into a spin and led to the first declaration out of Canberra that the mining boom was over.
That evening Opposition Leader Tony Abbott gave his infamous interview with the ABC’s 7.30 program where he was taken to task for incorrectly blaming the carbon tax for BHP’s actions.
Resources Minister Martin Ferguson declared an end to the resources boom the following day and the headlines screamed what most in the industry knew was coming.
Many business leaders embark on much-needed breaks this week exhausted and frustrated by a year of transition, structural upheaval and political uncertainty.
While there is relief the government has woken up to economic reality and let go of its budget surplus promise, there are many issues to tackle next year.
Any CEO writing to Santa this year would ask for the following: lower costs, better workplace productivity, a new industrial relations system, tax reform, a lower dollar, stable majority government.
That Christmas wish-list will be unfulfilled this year although there is a sense the economic shocks will be gentler in 2013 despite a permanent adjustment to a low-growth, high-dollar environment.
The key to this will be addressing the high costs and low productivity which are being masked by Australia’s strong terms of trade.
“Now is the time to put in place the policies which will lift our productivity and hence our prosperity and put us in the best position to take full advantage of our great opportunities,” Business Council of Australia president Tony Shepherd told Chanticleer.
“We are a happy, well-educated, healthy and safe country with abundant natural resources but the magic pudding is a myth. We cannot keep taking without replenishing the bowl.”
Barclays analyst Kieran Davies this week predicted that productivity may be a turning point, which could boost growth even as mining investment starts to come off late in 2013. But to ensure this happens, rebalancing the economy must be a priority for policymakers as mining investment peaks and spending on almost everything else remains subdued.
With high-growth Australian companies like ResMed moving a bulk of its manufacturing to Asia, competing with lower wages is never going to be easy. Manufacturers need help without being given hand-outs that support an unsustainable business model.
Manufacturing Australia chairman and former Reserve Bank board member Dick Warburton has been telling everyone since the start of the year to start preparing for a transition from mining to non-mining investment.
Manufacturing, one of the big losers from the mining boom, is also being held back by a strong Australian dollar and lower wages but is relying on a change of government to help fix the things it can change.
“We are in a state of chaos from both sides. It is a feature of the minority government not being able to get things done properly and efficiently. A change would be a breath of fresh air,” Warburton told Chanticleer.
Talks between manufacturers and opposition politicians are going on behind the scenes to find a solution to issues like duplicate regulation, the Fair Work Act and the carbon tax if there is a change of government in 2013.
ResMed, which makes masks to treat sleep-disordered breathing, is one of those companies which is not waiting for things to get better in Australia.
Favourable tax rates and governments in Asia it says want to work with it rather than against it make the decision to move operations offshore a no-brainer.