Australia on the march

25 Nov 14
There is little doubt that countries around the world face numerous practical dilemmas as they seek to implement reforms to deliver job-rich and inclusive growth. But Australian Treasurer Joe Hockey is not one for feeling down. He tells us why his will always be an optimistic outlook

By EY editorial team | 25 November 2014

There is little doubt that countries around the world face numerous practical dilemmas as they seek to implement reforms to deliver job-rich and inclusive growth. But Australian Treasurer Joe Hockey is not one for feeling down. He tells us why his will always be an optimistic outlook.

It’s been a good few years to be Australian. Of course, the Australian people — proud patriots that they are — would likely respond that it’s always a good time to be Australian. But a quick look at the country’s recent economic performance would surely sway any doubters. A strong and growing economy? Check. Booming exports? Check. Labor productivity on the up? Check. An abundance of natural resources? Check. And that’s without even mentioning their all-conquering cricket team. But Joe Hockey, Australia’s Treasurer for a little over a year, is not resting on any laurels. He believes that for Australia — and other countries across the G20 and beyond – the process of reform is never ending.

“Because of the global marketplace and because of freedom of markets, there is now no fi nishing line and you can never be satisfi ed,” he says. “There are similar challenges but just on different scales and in different areas. The second part is that governments have run out of money. This means we can’t buy reform, but we have to be smarter about facilitating it.”

Hockey’s approach is rooted in his belief that this is no time for short-term measures, arguing that policymakers need to set their eyes on the horizon — and beyond. “Structural reform is essential if we are going to get the global economy growing in the medium term,” he explains. “We can buy short-term growth with fi scal or monetary policy but neither of those are long-term solutions. Earlier this year at our G20 meeting of fi nance ministers, we talked about the politics of reform because we don’t talk enough about what’s deliverable — we talk about what we should do and how it could be done but we don’t talk about the politics of actually delivering it.”

Here, he goes on to cite privatization as a prime example of an issue that requires careful fi nessing in order to make progress. “Privatization is unpopular in many parts of the world and so, in Australia, I put a bonus pool of A$5b on the table to persuade state governments to sell state assets,” he recalls. “I then said they would receive a bonus of 15% if they sold assets and redeployed the capital into new productive infrastructure such as new roads, new rail and new ports to get the economy going. I didn’t want them to borrow more money and get deeper into debt because there is plenty of money in the private sector to run, for example, electricity assets and transport assets.”

Dealing with debt

Such an approach resonates particularly strongly as many governments continue to run on empty as a result of the global fi nancial crisis. This means that policymakers are now faced with the conundrum of how to catalyze growth without an abundance of funds. However, when looking at how to ensure that the gains from public investment can offset the risks fl owing from a further build-up of debt, Hockey is keen to point out that the levels of debt that countries can cope with varies from country to country. A more bespoke approach is what is required.

“Australia has a very large land mass with a small population,” he points out. “We’ve imported money into Australia every year for the last 200 years — every year since whites settled there. We’ve also had 24 consecutive years of economic growth. We’ve also started to live within our means as a government, which has added to national savings, and it means that the private sector has been borrowing a lot of money for new infrastructure like gas plants, mines and so on. We want to lower our exposure to international market volatility so the sooner we can get out of debt as a government — which is where we were six years ago — then the less exposure we will have. But I’m not saying this is a formula that necessarily applies to every country.”

Build it and they will come

Hockey — like so many of his counterparts around the world — places huge emphasis on the potential of new infrastructure to deliver sustainable growth. But he is also keen to stress that while there is no one size fi ts all — “The fact is that governments have different purposes for different types of infrastructure” — and that there is certainly a need for greater coordination and collaboration among policymakers to this end.

At the G20 this year, we agreed to a global infrastructure initiative which encompasses a multi-year investment agenda, including countries’ commitments to boost infrastructure. In Washington in October, G20 fi nance ministers and central bank governors made good progress toward setting up a global infrastructure hub — an information platform that will service the whole world by sharing model documentation, leading practices in relation to public-private partnerships, access regimes and the training of public servants globally. “This is because we discovered that every country is reinventing the wheel in relation to infrastructure. There is plenty of private sector money to go into infrastructure and we have plenty of needs in that area, but there is nothing yet that brings it together to deliver that cost-benefit analysis. In addition, many public servants need some support on how to run tenders, get information on cross-border issues and so on.”

As a resource-rich nation, Australia is in particular need of good infrastructure in order to transport its goods to market — both within its own borders and in terms of its exports. “I don’t buy the argument that the commodities boom is over,” he says. “I’m naturally an optimist and prices may have fallen on iron ore, for example, but our volumes are up. I want China to build more infrastructure — not less. And in India, Prime Minister Modi wants to raise US$1.1t for new infrastructure in India over the next four years. So he will need a range of different commodities.” Australia’s rich endowment of natural resources leave the country well placed to benefit, he continues.

“Ten years ago, we had a relatively small gas industry, but in fi ve years’ time we will be the biggest exporter of gas in the world,” he points out. “Resources and mining, which have driven 55% to 60% of our exports, represent only 10% of our economy, and agriculture, which we’re quite famous for, is just 2% of our economy. So, what we have to do is look for new markets and we’ve signed new free trade agreements with South Korea and Japan and are negotiating with China before the end of this year. The bottom line is that the world is going to continue to need commodities. The emerging middle class — particularly in Asia but also across Africa — will demand them over the next 30 years.”

Given the proliferation of negativity that has been impacting much of the global economy of late, it could well be argued that Hockey’s injection of positivity is a voice that merits a worldwide audience. As globalization continues to expand, demographic shifts intensify, and economies become ever more interconnected, he firmly believes that our best days lie ahead. Let’s hope he’s right. 

This feature was first published in the November edition of EY's Citizen Today

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