Andrew McKellar interview with Paul Barclay, RN Drive

Event: Andrew McKellar interview with Paul Barclay, RN Drive
Speakers: Andrew McKellar, chief executive Australian Chamber of Commerce and
Industry, Paul Barclay, host RN Drive
Date: 16 December 2021
Topics: MYEFO, skilled migration, wages, productivity growth, Omicron variant.

E&OE

Paul Barclay, host RN Drive: Andrew McKellar is the CEO of The Australian Chamber of Commerce and Industry. Welcome to RN Drive.

Andrew McKellar, chief executive Australian Chamber of Commerce and Industry: Yes. Hello, Paul.

Paul: A number of estimates have been revised in today’s update. What are, as far as you’re concerned, the takeaways for the commerce and industry sectors?

Andrew: I think the very good news in what we’ve seen today is the strength of the economy. It certainly looks like we are positioned for strong growth in 2022, and that very much gels with our own research. The feedback that we are getting from business, they are quite optimistic about the outlook for the year ahead. Sentiment overall is as strong as it’s been since really the mid 1990s. Expectations about where future orders will go are very strong. So if anything, we are looking to bounce back extremely strongly in 2022. The labour market is very tight. And one of the greatest challenges that business faces at the moment is getting access to labour to fill the job vacancies that we have.

Paul: Is this a better situation than you were anticipating, say, in the midst of the Melbourne and Sydney lockdowns?

Andrew: Oh, I think it is. I think what’s very heartening here is that actually business has been able to ride out that challenge pretty well. Obviously, there are some sectors and some businesses who’ve been affected more than others. But now, we start from a very strong position, to see the unemployment rate today coming in at 4.6%. So to start a recovery phase with an unemployment rate of less than 5%, even if you say some people have dropped out of the labour force and we need to get them back in, it’s a very strong position to start from.

Paul: So in a normal year, a $7 billion improvement to the budget deficit would be seen as fairly impressive. But when your budget deficit is over 100 billion, I suppose that number looks rather modest. Is it a significant improvement though?

Andrew: It certainly has to be put in context and these are unprecedented times. I don’t think anybody could have envisaged that we would’ve gone into a situation where government would have to spend over $300 billion in stimulus. That’s just unheard of in the historical context. But look, I think we’ve got to give credit where credit is due. The support to the economy has provided a very essential buffer. Of course, at some point, we are going to have to turn that around. We’re going to have to recover the fiscal position. But I think from here, we are in a position where the economy can bounce back very strongly over the next 12 months and beyond.

Paul: We know that real wages will not keep up with the cost of living. What does this mean for employees and employers?

Andrew: Well, the outlook for wages is, I think, not unfair. We’re looking at growth of between two and three per cent underlying over the next 12 months. The inflation outlook in the forecast we’ve seen today is nothing for concern. Of course, we want to see real wages and living standards increasing. Now, the secret for that to occur is going to be to get productivity improvements into the economy. What we don’t want to have is we don’t want to have a wage price spiral that’s driven by shortages on the supply side. So whether that’s shortages of labour forcing up wages or shortages of material forcing up the prices of goods, that’s not going to lead to a sustainable outcome. To get that productivity growth, we have to invest in skills, we have to bring people back into the workforce, increase participation of people who have good experience and can add value. And of course as well, we are going to have to bring in some of that skilled labour as well. We’re going to have to restart migration as soon as possible. We’re seeing the first steps of that right now, starting yesterday. But we can’t ignore that that’s part of the solution and that will boost the economy and boost demand over the medium term and beyond.

Paul: I’ve been struck anecdotally by the number of new businesses that seem to be starting, the extent of expansion. You’ve seen some of those empty shop fronts that now have leased signs on them or businesses within them. Does today’s outlook more generally give business the confidence, do you think, to employ new staff and invest in capital and equipment?

Andrew: I think very much so. The employment equation, as I said, is extremely strong at the moment. In fact, business is struggling to fill many of the vacancies which they have. So that’s going to be a major challenge going forward. Business investment has dropped away in the last couple of quarters. That is an area that has been affected. I think it’s going to be important to ensure that as the economy now does open up, as we drop the borders or the barriers across the borders between states, as we start to get the international borders reopened, that business does begin to invest more strongly again. That’s going to be essential. We have some important policy measures in place to encourage that, so things like the immediate asset write-off, which has been put in place now over the next couple of years, it will stay there till 2023. But this is important encouragement that, I think, we may have to keep that going for longer, possibly an investment allowance for the bigger end of town. If we’re really going to get those significant steps in investment, we’ve got to look at some of those sorts of measures.

Paul: Yeah. Labor shortages still a problem for some businesses. Unions are questioning whether we should quickly return to those pre-pandemic levels of migration and what that might mean for wages and jobs. What are your thoughts on higher levels of migration to meet that demand for labour? Is that a good idea?

Andrew: It’s essential. And I think here, look, we’ve got to be really cautious. I don’t understand this line from unions. I know that this is a political sensitivity and we are seeing politicians on both sides of the fence skipping around this issue, ducking and weaving. But look, the history of this over a long, long period, the economics of this is well established. Migration has been a positive for the Australian economy over a long period of time. We know that it will add to demand. We know that it will add to our skills base. Of course, we have to invest in skills acquisition locally with Australian people, with Australian jobs. We have to encourage older workers to come back into the workforce. We have to give opportunity to young people as well, encourage them to stay in the workforce, not to be discouraged. We have to do all of those things, but don’t ignore migration. We have to get back to much stronger levels of migration and even the numbers that are factored into the budget at the moment, I’m not sure that that’s enough. I think we have to be more ambitious and we shouldn’t run away from it. We shouldn’t be afraid of it. We need leadership on both sides on this issue, to tell the truth.

Paul: Yeah. Nothing wrong with ambition, of course, but these forecasts are reliant on Australia not returning to lockdowns. Today, we saw New South Wales record, I think, its highest ever total for daily COVID cases. You get a sense that just as the country has come out of lockdown, to big states anyway, and borders opening in Queensland and so on, you just get the sense that some people are just starting to get a little bit worried, especially about the Omicron variant. How is this being viewed by business? And could this possibly be a spanner in the works?

Andrew: Oh, look, I don’t think we should overreact. I think that’s the clear message that we are hearing from health experts and the experience that’s coming through from other parts of the world. So we have to stay the course. Of course, there are some risks there and we don’t know what’s down the track, but the initial evidence says that we should stay the course. Let’s not panic. We are opening up. We are moving into the stage now where we have to live with COVID. Part of that will be that we will need to maintain some appropriate measures, but we cannot just have a knee jerk reaction and go back into some of these more severe restrictions. So I think in general, we’re seeing states and the Federal Government move in the right direction on this, but we have to stay the course and I think educate, inform the public, have confidence to carry through on that. And hopefully, then those worst case scenarios won’t be realised. But it has to be down to, what’s happening in the health system? Where are the pressures there? If we see hospitalisations go up, if we see capacity in ICUs being really pressured, then obviously, then some more measures are going to have to be considered, but let’s not panic.

Paul: Andrew McKellar, thanks for talking to us.

Andrew: Thank you very much.