KGB: BCA's Tony Shepherd

Transfield chairman and president of the Business Council of Australia Tony Shepherd tells Business Spectator's Robert Gottliebsen and Stephen Bartholomeusz:

• Australia is "way behind the eight-ball" on the cost of delivering major infrastructure projects

• The federal government has so far been open to OH&S reform suggestions, and seems to genuinely be trying for national consensus

• A budget surplus is good financial discipline but it should never affect productivity or growth

• Australia has taken its eye of the 'reform ball' since the 1980s and 1990s

• We need to refocus on business processes as distinct from input costs to improve productivity

Stephen Bartholomeusz: The Business Council did something unusual this week and joined with the Australian Chamber of Commerce, the Australian Industry Group [and the] Council of Small Business to produce a paper for COAG. Is COAG still a functioning forum? Do you actually expect anything to come out of the next COAG meeting?

Tony Shepherd: Yes we do. We wouldn't obviously go to all that effort otherwise. It's a unique occasion because the federal government has invited the peak business bodies to join together to make a presentation to COAG, including all the premiers, and to put our case: harmonisation and simplification of regulation on a national basis. So, we regard this as actually quite an historic occasion and we are optimistic about the outcome.

SB: The paper talks about six priorities for reform. If you had one wish, what would be your priority?

TS: It's hard to narrow it down to one wish, but I think the thing that we're looking for is an acknowledgement that productivity is the issue and the reforms and harmonisations that we want to achieve are the ones that would contribute most to the productivity of the country. If I could give several examples – In OH&S obviously if we can get a harmonised, national laws, this would make administration of health and safety a lot easier for national companies, but obviously that's got to be on the basis that we don't end up worse off. It's not harmonisation at any cost. In terms of things like trade licensing, obviously we would like it to be simplified so that tradespeople can shift between the states without the need for relicensing every time they need to do it. In planning and planning approvals, we believe that we could cut considerably the delays in the approval of most projects and even housing projects if there were simple, national principles adopted that reduced duplication and shortened the time in which it takes people to get developments approved.

Robert Gottliebsen: The problem is illustrated by occupational health and safety, where the Commonwealth legislation is no good; it's been badly drafted and Western Australia, Victoria and Queensland are now putting together proper legislation. It's very hard to get the people in Canberra to admit they're wrong.

TS: Robert, you're right. This is difficult. I must admit when I took up the job at the BCA I thought ‘why don't they just get on with it', but obviously we've been federated for 112 years; every state and the Federal government has developed their own procedures and laws and regulations and to get national agreement is a lot tougher than people think. And obviously you want to make sure that when you do get harmonised, national laws that it is not a set of laws and regulations which are worse than what we've got at the present time. So, this does take effort and it will take effort and so we agree with the states that this must be a set of national regulations which are no worse than they are at the moment and in fact may be even better.

RG: But it's very hard when the talent simply is not in Canberra and you've got to rely on the states to produce what it is required for the nation.

TS: Well, I think that's a little bit harsh, Robert. I think you'll find that the federal department that's running this and the ministers that are running this are very open to ideas and suggestions. They are not adopting that doctrinarian approach that sometimes can happen and they are really trying to win a national consensus. I think they are genuinely trying to get a national consensus.

SB: Tony, you gave a speech recently where you talked about where Australia ranks in the globe on things like competitiveness and quality of infrastructure and so on. We're 20th in competitiveness, in quality of infrastructure we're 37th, ports we're 40th, roads we're 34th. How is it that we've lost our way? How is it we've slipped down the ranks so quickly?

TS: It's something that's bemused me and probably one of the reasons that I decided that I should take on this role as president of the BCA is the fact that we seemed to have lost focus and lost our way in the past. You know, I don't know whether it's happened over the last ten years, probably. I think we came out of those huge reforms of the 80s and 90s with a little bit of ‘reformitis' and dropped the ball and didn't realise that this constant improvement in a globally competitive world is vital. So, we took the eye off the ball in terms of economic infrastructure in particular. We took the eye off the ball in terms of continuing microeconomic reform and I think we are now seeing the results of that with multifactor productivity, for example, in negative territory for the last four or five years and labour productivity now in negative territory. So, this is a wakeup call. This is the time for the nation to say: we're a great country, we've got terrific resources, well educated, we've got great social safety nets which we all support, we've got the ball at our feet, we're at the doorstep of Asia, and we should really now seize the opportunity and take the country to another level.

RG: Tony, I agree with you about the basis of what you're saying, but I think it's bigger and more insidious than that. Telstra recently had a survey which showed that only 20 per cent of Australian CEOs measure productivity and those 20 per cent of enterprises are the growth engines of the country. This means 80 per cent of our CEOs don't understand productivity, and that's really the ABC of being a CEO.

TS: Robert, I agree with you. Productivity is essentially at the firm level. Now, the government can contribute to that through things like the regulation, infrastructure, skills and training, but the driver is at the firm level. And productivity fundamentally, if we want to get rid of some fancy terminology, is all about cost reduction. It's producing the same amount with less money, less cost which improves your efficiency and hence your productivity. I'm concerned about that 20 per cent. It's probably if you surveyed the 80 that said they don't measure productivity, asked them whether they're pushing for cost efficiency, they'd say yes absolutely – absolutely that's what we're doing. I mean you wouldn't be running an aluminium smelter or a steel plant, an oil refinery, a cement plant here in Australia at the moment if you weren't chasing every last cent on your cost base to get your business more efficient which is in fact more productive. I think though, in some respects, we do need to focus more on innovation. We look at the United States, we have about 87 per cent of their productivity rating. I think it's only 60 per cent in retail which is surprising given the fact that our retailers are suffering so much. But we do need to focus on innovation, I agree, but I think certainly those people in the non-resources sector in Australia – who are doing it hard with the high Australian dollar, low labour productivity, high costs – are doing everything in their power to lower their costs and improve their productivity.

RG: Tony, I think you're only half right. Productivity is about reducing costs. If you talk to the companies that measure productivity, they'll explain to you that they actually look at the way they do things and it's not just cost; it's doing things in a better way. And our problem is that our companies just think of it in terms of simply sacking workers or reducing costs and not about the actual way they do things.

TS: Certainly, Robert, I agree with you in as much as we need to have a refocus on our processes as distinct from our input costs. That is a major issue and again if we take the Walmart example, they were the earliest adopters in the world of IT. Their supply chain management is a model for the rest of the world. In fact, their competitors use the Walmart model now. They talk openly about the Walmart model. So, obviously, yes we've got to do those things. But to get those supply chain benefits, you also need to have the right planning arrangements. You also need to have the right infrastructure. I can remember when we completed the Eastlink project. I went and saw a factory on the way that made parts for trucks. Their destination was about 10km away. Once Eastlink was in they went to four deliveries a day from the original two deliveries a day. That is: they doubled their output at that plant. It was an incredible increase in productivity for the construction of a simple road that reduced the travel time between them and Dandenong. So, Australia battles a bit because of this infrastructure problem as well in terms of such things as supply chains. Trying to get in and out of the Sydney market, for example, is difficult. Our supermarkets can't distribute at night. They've got to do it at peak periods in the morning. I mean how ridiculous is that on already-crowded roads?

SB: Tony, you referred in passing a moment ago to labour productivity and I know it's only one of the issues. There's a review of the Fair Work Act being undertaken. Have you got a view about whether the Fair Work Act is damaging business at the moment?

TS: Well, we've made it very clear that we regard it is and we regard it as a contributor – not the sole contributor obviously. There are some supply and demand effects going on here. I mean the supply of skilled labour is limited, particularly in the areas where it's required, and so, you know, the price invariably goes up if we believe in a proper functioning market. But we don't believe the Fair Work Act is acting in the best interests of the country as a whole. We've put a comprehensive submission to the review panel. We've met with them. We've done a follow up submission. We've met with the minister on several occasions. And we're hopeful that in this review that out of it will come a far greater focus on productivity, on getting reasonable terms and conditions of employment and getting the companies the flexibility they need to compete on a global stage.

RG: Again, if you had one thing you'd really like the government to do in this area, could you nominate it?

TS: You keep going back to this one thing and there are a whole lot of things that I'd love to see happen in the review.

RG: Two, then.

TS: I think one of the things that's really worrying me at the moment is the greenfield sites and the big payments and settlements that are made to win industrial peace, to get mega projects going which then have a knock-on effect to the whole of the sector in terms of ongoing operations. I think that is one that really needs a resolution. You're sitting there with a rig costing you $1 million a day. You tend to be forced into taking a deal which is really unproductive. The BCA has done a body of work which we'll release in the not-too-distant future comparing the cost of delivery of major projects in Australia with the cost of delivering similar projects in the United States and the Gulf region and I can tell you now Australia is way behind the eight ball.

RG: Do you think our mining investment boom is now peaking and there are signs that some of the projects are not going to go ahead or slow down?

TS: I think that $400 billion pipeline seems to be reasonably locked in, but I wouldn't bet the house on it. It will depend on whether the commodity prices, our competitive advantage in the resources that we export is retained and the demand from China and India and Japan and what have you continues. So, I think it's very dangerous to assume that this boom will go on forever almost and that every project on the list of projects will be completed.

SB: If Wayne Swan delivers on his promise we're going to have one of the most contractionary budgets in living memory and we're going to get the carbon tax. How nasty could the impact on business be of having those two things at that same time?

TS: Our advice to government is, and to the Treasurer in particular – and I don't envy his job at the moment but I guess I don't envy the people that run steel plants and aluminium smelters and what have you in Australia either – our advice is a surplus is a good financial discipline; that we do need to rebuild our reserves in case there is another shock. And there will always be another shock, whether it be now or in ten years' time or thirteen years' time. However that should not be at any cost. So, we don't believe that a surplus at any cost is wise and certainly not at the expense of productivity or growth.

SB: And the carbon tax?

TS: We've gone over and over and over again on this. Well, I'll say it again. We believe the starting price is too high. We believe the floor price is too high. We believe that the legislation has not got sufficient flexibility within it to make adjustments should the Treasury projections prove to be invalid in terms of the impact on our competitiveness, in terms of the take-up of the rest of the world.

SB: And you don't like the $10 billion slush fund?

TS: These things can be extremely dangerous as we've seen in the past and can lead to poor use of resources. We far more fervently believe in setting up a competitive market and letting the market forces decide which technologies are going to be the most successful and the most cost effective. So, the market is not perfect, but in the end it's all we've got.

RG: Tony, we had a company collapse this week in part because it couldn't afford to retrench the workers – it's a motor company and of course the demand had fallen. Is this a very widespread problem where the companies who need to downsize face huge payouts to workers which they really can't afford to make and can send them broke?

TS: I haven't personally looked at that particular case, but I do know that it is an issue. I don't know how widespread it is, but it will be a growing problem. There is no doubt that carbon intensive industries in Australia will have to look to their future and this could lead to further reductions in employment. I notice that Adelaide Brighton Cement recently announced the closure of one of their plants. Now, I'm not blaming the carbon tax for all of this either by any stretch. I mean the Australian dollar is the fundamental issue for these firms. But I think in a globally competitive world with a high dollar, a lot of companies are going to have to face this issue. Now, companies that have globalised, like Orica, with perhaps a great proportion of their business offshore are much more naturally insulated, but ones that have got most of their business located here in Australia are really going to feel the punch.

RG: So, you can see a lot of retrenchments coming up?

TS: No, I don't want to say that because I don't want to be spreading doom and gloom, but I think it will be difficult for a lot of businesses in Australia.

SB: Tony, we do appreciate your being with us. Thanks again.

RG: Thanks, Tony.