KGB: BCA's Tony Shepherd

The Business Council of Australia president says an independent audit of Canberra spending is long overdue, government should be capped – perhaps proportionate to GDP – and it's time to move past the class warfare debate.

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Business Council of Australia president Tony Shepherd tells Alan Kohler, Robert Gottliebsen and Stephen Bartholomesuz:

The BCA is conducting a detailed review of business performance on major projects, which is an area of major concern.

The Commonwealth is "long overdue" for an independent audit of federal spending, while a cap on size of government proportional to GDP would encourage efficiency dividends.

He wants to get past the class warfare debate, and all BCA members surveyed think the JobStart allowance is too low.

The structure and underlying philosophy of COAG is unsustainable, and the relationship between the federal and state governments probably at a 50-year low.

High-profile political job losses have bred too much nervousness about policy reform.

Alan Kohler: Well Tony, welcome to Business Spectator.

Tony Shepherd: Thank you.

AK: Now Tony, the last time we interviewed a Business Council of Australia president was your predecessor Graham Bradley and we got stuck into him for what we perceived to be the Business Council’s low profile and the lack of a kind of aggression in pushing the agenda of business. So I just wonder if your big speech last week [to the National Press Club] and the plan that you’ve developed is an indication that you agree with our assessment.

TS: Alan, we try to be as apolitical as possible in the Business Council and to inform everything we say with good policy work and good research. We feel though that Australia is at a bit of a crossroads in this election year and we felt that it was good for us to come out and fill what we see is a bit of a vacuum in terms of a long-term vision, but more particularly a plan for Australia.

AK: But has to some extent the Business Council been responsible for in part for the vacuum?

TS: Well, I guess we were hoping that that vacuum would be filled by others, more appropriately, but in the absence of that we felt that it was time for us to put out what we saw as a vision, a holistic vision, for the whole country, but back that up with a plan as well. I mean you can have the vision – you could say we want X per cent of children with higher standards of numeracy and literacy by whatever year, but the key issue is, how do you get there?

AK: Well, in fact just to finalise that, I mean the government’s had this big Asian Century plan which had all those kinds of aspirations -- more or less identical to the sorts of aspirations that you’ve got in your plan -- but they didn’t have a plan.

TS: Well, I agree, I agree.

AK: Is that what you’re saying? They’ve got aspirations, no plan; you’ve got aspirations and a plan.

TS: Yeah. But we’re not saying do this overnight. We know the budgets are constrained. We know that businesses are under pressure, consumers are under pressure, what have you. We’re saying this should be done in an incremental way, but every decision you make should have a look at the plan. So that if you’re making a decision on tax or education or what have you, does it fit the plan, does it assist in achieving the goals of the plan? 

Stephen Bartholomeusz: Tony, you said in the speech that the next six months would be critical – i.e. the period between now and the election. Are you hopeful that we’ll see decent policy and decent legislation in this period or are you just fearful that if the business agenda isn’t listened to, we’re going to have more low quality policy?

TS: Well Steve, what we’re hoping is that we don’t get any sort of electioneering decisions between now and the election and that the government governs for the benefit of the long term for the whole of Australia. And we’re hoping that all parliamentarians -- all politicians of either side and independents and Greens -- in terms of looking at their policies for the election campaign, take a long-term view of Australia, think of the longer term, what the challenges are, what the opportunities are and come up with policies that are long term, not short term.

SB: You’re being very polite and studiously apolitical there.

TS: That’s our role.

SB: It’s been really noticeable over the last six months or so that there’s been a sort of rising tide of aggression from the business community generally and a more aggressive Business Council of Australia. Is that an indictment of the kind of policies we have already seen in this lead-up to the election?

TS: Well, we’ve had some big disappointments in the last six months, I have to admit that. You know, the amendments to the Environment Protection and Biodiversity Conservation Act ran 180 degrees from what we thought was an agreement that the Commonwealth would delegate to the states the power to sign off on major projects. We put detailed submissions to the review of the Fair Work Australia Act, what we thought were concrete recommendations, sensible recommendations and certainly not ‘wind the clock back’ sort of recommendations. Not only didn’t they get up, we’ve come out with a whole new raft of amendments to the Act which we think in fact take us back in time.

So I guess we’re expressing our concern that rather than advancing the cause of productivity, we’re going backwards. The media law announcement we thought increased regulation for no material benefit. So we’re of the view that the government really has got to have a look at the longer term, have a look at every policy it puts forward, get the process right.

I’m a little old-fashioned. I like the process of detailed review, full consultation. If it’s big enough – white paper, green paper, full Cabinet review – then go out and sell it in detail to the community. I like that sort of process. I think that’s the process that’s stood us very well over the last 30 years. The major reforms over the last 30 years are in fact the reason we are in the strong position we’re in now. Let’s not forget that.

Robert Gottliebsen: I agree with you that government actions have lowered our productivity, so we’re not debating that. But I would put to you that you and your members have a bean in your own eye and it’s a very serious bean. Let me give you four examples where corporations have I think let the country down, let their shareholders down and deteriorated our productivity.

The first of course are these agreements that the big builders are doing with the unions which increase the price of commercial building. The state governments have had to come in to try and stop them doing this. And one of the builders, Lend Lease, has been banned by the Victorian government.

Obviously others will follow in the other states. We’ve seen in Western Australia the chief executives delegate industrial relations to the local Chamber of Commerce with huge implications, billions of dollars of costs to their own project. We’ve seen… 

TS: There’s plenty of debate on that one too.

RG: These are all facts, there’s nothing to answer. It’s how you handle this. We could go to the PricewaterhouseCoopers Report which shows the problems in the mining industry. We can go to Curtis Island, what’s happened there. What we’re seeing is a series of corporate situations that have deteriorated Australia’s productivity. How do you handle that?

TS: Okay, well there are a number of ways of answering that, Bob, and I’ll run through each of them.

In terms of industrial relations, obviously the building industry works within the industrial framework we have and I think the removal of the powers of the Australian Building and Construction Commissioner has had a big impact on the capacity of the construction industry to control its own workforce and to negotiate and implement greenfield agreements. So they’ve obviously got to look after their own shareholders and their own skins, but if the industrial framework is not appropriate, then you will get these results.

In terms of the performance of business overall in delivering major projects, this is a major concern for the Business Council to do something, and we will deal with when we come out with our detailed plan. In fact, we have a special taskforce which I chair that’s looking into this. It’s not all industrial relations, I agree, absolutely. There are a number of other factors that impact on Australia in terms of being a high cost producer of major projects. They do include project management and skills; they do include infrastructure and remoteness; and they certainly do include government processes. So we don’t lay the blame at the door of the trade union movement, far from it. But we are in fact doing a detailed review of this at the moment.

It was originally going to be something the Council of Australian Governments did, but they couldn’t reach agreement on the terms of reference, so we’ve decided to fill that vacuum. But in the end, Bob, if we do it wrong, we pay. Our shareholders pay. We pay. So we have a constant pressure to improve productivity and delivery. If the government does it wrong, what happens? The country then is saddled with that poor decision-making for the long term.

RG: Of course you’ll isolate the government decisions and the situations like that, but will you in your report isolate the fact that chief executives have made mistakes too?

TS: Oh, absolutely. And in business, as we all know, they pay…In the modern era, Bob, there is no doubt there is not a lot of forbearance or forgiveness.

RG: Do you think we need a ‘CEO school’ to improve everything?

TS: We do have a CEO school. It’s called the market. 

SB: Tony, in the speech that you gave you’re advocating a ‘hard cap’, I think you described it as, on the size of government. Does that mean that you think government is too large and too intrusive into the lives of business and institutions?

TS: Well we certainly don’t want to encourage them. I mean, I reckon we are becoming the regulation kings of the world or queens of the world… There’s not a regulation they see that they don’t like. And the kneejerk reaction is ‘let’s have a regulation on this’. And we’ve really got to wind back from that approach and have a really good risk-based approach to regulation and the creation of more and more bureaucracy.

SB: So when you say a hard cap on the size of government, what does that mean to you and how would you do it?

TS: Well, it could be as a percentage of GDP. It could be as a tax percentage of how much tax they can raise as a percentage of GDP. I think the Kiwis are now working towards a target of lowering the proportion of government expenditure to GDP. I think that’s a worthy way of approaching it. That then puts the pressure on governments which don’t have a profit and loss type of pressure to in fact get the efficiency dividends over time.

SB: But almost by definition you’ll say we spend too much to date.

TS: I think we do… We’ve called for a complete commission of audit into federal spending, duplication with the states and efficiency of programmes. I think an independent audit is long overdue and I am sure there would be significant savings in there. Queensland has done that with some significant savings. New South Wales has done that with significant savings. I think it’s time for the Commonwealth to have a look in the mirror.

AK: Tony, you say in your speech that we need to have political leaders who are prepared to lose their jobs to do the right thing, which I think it was picked up very widely. It was one of the big statements in your speech. But it’s kind of been happening, hasn’t it? I mean Julia Gillard is probably going to lose her job over climate change policy which the Business Council agrees with emissions trading. Malcolm Turnbull and Kevin Rudd both lost their jobs over the same thing. John Howard arguably lost his job over the changes to workplace relations, industrial relations laws. So, I mean there is a history of political leaders losing their jobs for doing the right things.

TS: But that’s bred a certain amount of nervousness about reform. And when I talk about reform I mean reforms which really take the country forward. Reforms can in effect impact on the consumer. Reforms can impact on business, you know, in the shorter term. So, I’m talking more about those real reforms of Hawke and Keating, Howard and Costello with the GST, those tough reforms where you’d say boy we’re going out on a limb on bringing in some of this stuff; this is really going to cost us political capital but we think it’s in the best interests of the country in the longer term, so we’re prepared to take the chance and sell it to the community. Now, you must bring the community with you and I think that’s even more important.

AK:  Just like a CEO he had to bring the market with him and the market is not always right.

TS: Yeah. And the market’s not always right and so you have to turn them around and you have to bring them with you and I think that’s the sort of politician that we need for the future. We need politicians that are prepared to say ‘look in the short term you guys may not like this, but this is why we’re doing it, this is the long term benefit to the country and this is how we’re going to do it incrementally without, you know, hurting you too much in the short term’. And I think that’s the style we need. But you know I guess the real risk is people saying ‘well they don’t like that, so we won’t do it and they don’t like talking about that, so we won’t do it’. And I think that is restricting the policy options of government in many cases and certainly bringing a sort of a short term approach. 

SB: One of the centrepieces of the institutional framework within which reform is supposed to occur is COAG. You want to get rid of it. Why?

TS: I just don’t think it’s working. I’ve been in business and dealing with politics for fifty years, in the public service and what have you, and I just think the relationship between the Feds and the states and territories at the moment is at probably an all-time low. And that’s just not sustainable.

It’s not just the structure, it’s the underlying philosophy. It’s the attitude that this is actually, or should be, a partnership. And I’m not saying they all sit around the table and link arms and sing Kumbayah, but I’m saying they really should be looking at what’s best for the country as a whole. Canberra doesn’t necessarily know what’s best and they’ve got to find an accommodation to get these major reforms through and major changes through and sort of arm wrestling the state over funding and things like that, that’s not the answer. That’s not what Australians expect.

We’ve suggested more emphasis on the first ministers and, you know, territorial leaders getting together, but also ministerial councils which have worked really well in the past. I’ve sat in on councils in transport and stuff like that and I thought they actually made really good sense and good progress because they got right down to the detail and tended to sort things out without the glare of publicity and…

SB: … and the kneejerks.

RG:  You’re asking politicians to look longer term and act in the total interests of the nation. Should we not ask the CEOs to do the same thing about their companies? Too often, would you agree, that they pander to the short-term thinking of the institutions rather than taking a longer-term stand, even though that longer-term stand might give them problems with the shorter-term institution opposition?

TS: Look, I think the institutional pressure for the quarterly return is an unhealthy influence on how businesses can figure themselves, but if we look at the heavy spenders in Australia in the last five to seven years, you know, boy oh boy they’ve taken long term views in BHP and Rio and Chevron and Shell and Woodside and Santos and Origin and British Gas.  I mean they’ve taken very long-term views on mega projects and should be congratulated for it because that is visionary stuff. Now, they won’t always get it right and they may not always achieve all the goals they intend to get, but they’ve certainly taken the chances and invested significantly and we believe that governments and the community should support them in that.

RG:  They’re all resource companies. You didn’t mention one industrial company.

TS: Well, at the moment I guess industrial companies in Australia are really struggling. The high Australian dollar is I guess the primary cause, but you know very significant energy costs are also having a negative impact on the competitiveness of Australian industry more broadly.

Again we say, look at the elements of that. What can we do in the light of the high Aussie? What can we do to reduce the operating costs of businesses in Australia?  Not ‘oh well we’ll give them subsidies or we’ll watch them shut down’. I think we really should have an industry program which says ‘wel, they are suffering.  There’s no doubt about that. Now, what can we do to make them more competitive? What regulations can we get rid of?  What can we do about energy costs? What can we do about, finance costs, what have you, to make them more competitive?’ 

SB: There’s quite a big social spending agenda in the BCA platform, education and health and social welfare. Given the fiscal boundaries and the structural deficits we have at the moment and how realistic is it to be advocating more spending? I assume it needs more spending, education, health and the other softer elements of spending.

TS: Yeah. Look, our fundamental, core premise is that we should not spend money that we do not have and we should not make commitments, future commitments which are unfunded or unfundable. So Steve, if we give the impression that we’re spraying the dollars around, that’s a misconception. What we are saying though is ‘yeah public education is very important’.

We like the premise in the Gonski report that schools that are struggling should be given more money because we are wasting so much of our talent in human resources by low funding of schools that actually need more. We think $13,000 a year for the dole is just too skinny for people that you’re trying to get back into the workforce. However, you can’t spend what you haven’t got and the first thing you’ve got to do is to make sure you keep your fiscal policy tight, don’t make commitments that you can’t fulfil, don’t sign up to a Gonski or a NDIS and forget about what it might look like ten years out. Have a look at what it might look like in ten years out and how you’re going to fund it. Then when you’ve got that plan in mind and agreed with the states, then go ahead and do it. 

AK:  But how would you fund the things you’re talking about? I mean yes we ought to spend more on education, we ought to lift the dollar and so on, but so what are you going to do? I mean you’re presumably against the mining tax. You’re against taxes on business in general. What spending are you going cut?

TS: Well, I guess there are a number of avenues to create the wealth necessary to fund what we need to do. The first thing is get government a lot more efficient, focus on the outputs of government, not on the inputs. What do we want out of government? You know, how do we measure success? And are we getting full value for money? That’s the first thing. Secondly, get governments out of things that people should look after for themselves. So, have a hell of a lot closer look at…

AK:  Such as?

TS: User pays. More user pays because in the end we have a $70 billion dollar structural deficit by 2050 if the lines keep going the way they’re going; unsustainable.

AK:  Well, user pays is just the same as tax increases.

TS: Well, it is except the user has a discretion as to whether they pay or not. With tax increases you don’t.

AK:  Well, it depends what it is.

TS: Yeah. The third thing you’ve got to do then is prioritisation. So, given the limited amount of cash, what are the priorities? Where are we going to get the biggest return on our dollar? That is an absolute must. 

And the fourth thing, a novel concept I know, is why not try and grow the pie? And this is where business tax and things like that come in. What’s the proper balance between business tax and business incentivisation? In the end what has grown Australia in the last thirty years has in fact been the growth of business. It’s been the growth of our economy. How do we grow business? How do we make business more successful, more competitive? Then the pie grows. You have more people employed. Higher income tax. Higher company tax. Higher royalties and what have you.

RG:  The bottom line of all that is that there’ll be a lot fewer public servants in Canberra and probably in most of the states. 

TS: Well, there may be. There may be, but in the end is the public service there as a job generator or is the public service there to provide public service, efficiently, cost effectively to the level we can afford?

RG:  But almost certainly therefore the only way to do that is to have a lot fewer public servants.

TS: Well, maybe that’s the answer. I don’t know. It might be make the ones you’ve got more cost effective. Make the ones you’ve got work harder or more productively. I’m not going to second guess the number of public servants. As I said, I’d be focused on the outputs. What do we get for this? What are the health results we get from our significant investment in the health sector? What are the education results we get for our increasing investment in the education sector? What are the results in defence for our investment in defence? Measure the outputs.

SB: Tony, you’ve talked about the role of business and creating wealth a moment ago. There’s been a lot of talk about class warfare over the last little while, but that balance between creating wealth and redistributing wealth, do you think the emphasis has been far too much on redistributing as opposed to creating?

TS: I think so. Yeah, I think so. Look, again the reason that we’re trying to be inclusive in this is that we don’t see this really as business versus the rest of the economy or the rest of the community. We say we’re all in the one boat. If I go around the CEOs of the Australian companies I deal with, every single one of them is a firm believer in the strong social safety net. When we polled our members on JobStart -- on the, you know, $13,000 a year -- every one of them said it was too small, every single one of them. 

So, I want to try and get over this class warfare thing. It’s rubbish. It’s a furphy. It’s got no bearing on the truth of the situation. Business recognises that one of the great strengths of Australia is our fairness and our social cohesion and we don’t want to tackle that, but it must be done efficiently and it must be done within the bounds of what we can afford. And when I talk about business too, note that I’m always talking about all business now; I’m not just talking about big business. I know the thing is, you know, we represent the top one hundred companies and all that, but we are now working very closely with ACI, AIG and COSBOA. We see this as a business issue, not a big business issue.

RG:  Do you believe that it’s highly unlikely that Tony Abbott can change, significantly, the industrial relations laws in his first term?  It’d have to be done in government as part of a second term project.

TS: Oh gee, Bob, you always save the best question to last, don’t you?  We’re waiting to see the Opposition’s industrial relations policy and we will, you know, subject them to the same rigour that we do government policy and we’ll let you know once we’ve seen them. I’m not going to hypothesise on where they’re going to go or how far they’ll go and what have you, but we’ll certainly give a full and frank view on it when it’s published.

AK:  Thanks, Tony.

TS: Thank you.

SB: Thank you, Tony.

TS: Thank you.

RG:  Thanks, Tony.

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