The Australian economy needs to find significant new drivers of growth. As the mining investment boom fades and commodity prices retreat, we are struggling to achieve the rebalancing that is so clearly required. The recovery in housing construction has been a welcome boost, but is clearly not enough to support widespread growth across the economy either in terms of industrial or geographic diversity.
Ai Groupʼs annual Business Prospects Survey of Australian CEOs suggests that business leaders remain wary about the outlook for 2015. The dominant impediment to business growth for the year ahead is a lack of demand. This reflects weak business confidence – as evidenced by modest investment intentions, and the impacts the flat labour market are having on job security and consumer confidence.
CEOs expectations point to another sub-par year in 2015 with about 15% more businesses expecting a further deterioration in general business conditions compared to the number expecting conditions will improve. At the same time, on balance CEOs are expecting an increase in sales revenue, modest growth in employment and only a gradual lift in business investment. In more clearly positive results, businesses are anticipating significantly larger productivity gains in 2015 than those actually achieved in 2014 and, with the further depreciation of the domestic currency since September last year, increased export sales are anticipated in the year ahead.
As they confront this patchy outlook, CEOs are taking steps to lift the performance of their own businesses. With broadly similar results across industries, the major strategies CEOs anticipate adopting are growing sales of existing products and services; introducing new products or services; and developing new domestic markets. Interestingly, these strategies rank ahead of further downsizing and cost-cutting, which were leading strategies adopted by businesses in 2014. While cost cutting remains on the agenda for many businesses in 2015, there is much greater emphasis on proactive measures to improve business viability and profitability.
There are clear messages for policy-makers in CEOsʼ 2015 outlook. We are struggling to unearth the new sources of growth needed to re-energise and rebalance the Australian economy. While businesses are working hard to grind out productivity gains and are striving to find new and additional revenue sources, governments also have critical roles to play – to improve confidence and to help create the conditions for more decisive improvements in business competitiveness.
Such improvements are needed to entice greater levels of investment; a more rapid pace of job creation; and the important diversification of our economy from our increased exposure to volatile commodity prices and export markets. In particular, real progress is needed across four business-wide policy areas in 2015:
- Tax and Federation reform, to improve the efficiency of taxation and spending; to reduce barriers to investment and innovation; and to strengthen and stabilise our tax bases and governmentsʼ fiscal positions.
- Skills and education measures, including an increased emphasis on developing science, technology, engineering and maths (STEM) skills.
- Improving workplace relations to remove barriers to business growth and re-organisation and to encourage greater workforce participation including from those presently disengaged from the workforce.
- Supporting a faster pace of innovation, including through broader and deeper collaboration between the business and research communities; and a greater commitment to an effective and non-discriminatory Research and Development Tax Incentive.
Some progress has been made on these policy areas but renewed efforts are required to identify and articulate the links between these policy areas and further national economic and social progress.