Australia in the next decade – A Gen X Point of View

Australians prepared to vote in a new government in September 2013 with Liberal Party and Labor Party leaders, Tony Abbott and Kevin Rudd, campaigning on a new start, with “change” their theme. With the under 40s as the voice of this change – both in the electorates and in Canberra, the views of two younger MPs representing their very safe electorates gave their views at The Sydney Institute. Kelly O’Dwyer is the Member for Higgins in Victoria and was elected to parliament in December 2009. Stephen Jones is the Member for Throsby in New South Wales and entered parliament after the 2010 federal election. On Wednesday 2 September 2013, Stephen Jones MP joined Kelly O’Dwyer MP to address The Sydney Institute on Australia in the next decade from A Gen X point of view.

AUSTRALIA AND THE NEXT DECADE – A PERSPECTIVE FROM GENERATION X

 KELLY O’DWYER

Looking into the crystal ball is always dangerous, even more so for a young politician. Yet in many ways the next decade is precisely what this election is about – not the unaccountable never-never, nor just the next three years.

The next decade will see no shortage of hot topics.  Security policy will be critical, especially given recent underinvestment and the potential for regional instability.  The very structure of our federation will come under pressure as vertical fiscal imbalance continues to widen. Globalisation and changing demographics will raise interesting questions for cultural policy.  Environmental stewardship will remain a concern, particularly against the backdrop of an ever expanding global population.  The implementation of the National Disability Insurance Scheme will present challenges, both known and unforseen.  And the political class will need to confront the process of managing reform.

However, this evening I want to focus on the most important issue for the next decade:  the need to look increasingly to ourselves rather than to government and the need to emphasise resilience, aspiration, self reliance and respect. Let me be clear – this is not a “cuts, cuts, cuts” agenda.  But it is an agenda which puts an emphasis on individuals, families and businesses to look first to themselves rather than Government to meet the challenges ahead.

Four key factors for the next decade

Over the next decade, we are likely to see four key factors converge.

First, a structurally challenged budget on top of unprecedented national debt and unfunded superannuation liabilities.  It is hard to quantify the structural deficit from opposition, but it is clearly substantial.  First, Labor has already accrued the five biggest deficits in Australian history totalling $192 billion, with a $3 billion per week run-rate deterioration going into this campaign.  Second, the government has done this in the midst of a terms-of-trade and resources boom.  Third, the government has committed to very significant, largely unfunded, new growth expenditures beyond the forward estimates.

Second, an ageing population.  The baby boomers are beginning to retire and life expectancies are increasing.  Consider these estimates from the 2010 Intergenerational Report:  in the 1970s, there were 7.5 people of working age to support every person aged 65 and older.  In 2010, there were 5 people.  This is set to fall to 3.9 by 2020 and to 3.2 by 2030. Combined with increasing utilisation of health services, it is clear that health and aged care costs are set to rise materially. This will exacerbate the budget challenge.

Third, ongoing rapid technological and social change.  Australia should embrace the opportunities new technologies present, but we should not be blind to their challenges.  For instance, ensuring older generations are not left socially isolated, and being alive to the potential opportunities and threats for core Australian industries such as education, manufacturing and retail.

Fourth, an even more interconnected world and the continuing rise of emerging markets in the Asian region.  Much of Australia’s prosperity can be attributed to our open trade relationships with the developed and developing world.  While globalisation can widen our choices, it also can constrain them.  This is not always a bad thing.  To remain competitive in the war for talent and capital we must minimise, not raise, corporate and personal income taxes.  In addition, globalisation presents significant free-rider problems.

The middle class in Asia is set to rise exponentially from 500 million people today to around 3.2 billion people in 2030.  This presents an enormous opportunity.  Of course, a rising Asia doesn’t just create more consumers for our products; it also creates more competitors for our businesses.  We must be alive to those businesses having vastly different cost structures to our own.

Social fault lines

Collectively, these four factors will place pressure on both our economy and society. For instance, one of the great achievements of Australian society has been our capacity to largely eliminate social fault lines – notwithstanding attempts to foster class, race and gender wars in recent years.

Over the next decade, I expect the greatest potential stresses to be along generational lines – with many in younger generations faced with housing affordability and unemployment challenges querying why they are supporting older generations who (in their minds at least) faced lower housing costs, did not make appropriate ongoing investments in infrastructure and security, and did not provide for the costs of their care during their working years.

This judgement may well be unfair, but there is clear potential for it to emerge– particularly given the reckless spending and borrowing of recent years.At the same time, there is a risk that older generations increasingly feel left behind by technological and social change, and that they might be left behind economically given increased life expectancies and the rising costs of living.

Generation X’s role – and the role of government

In this context, Generation X has a pivotal role to play.  We must rise to the occasion and be self-sufficient – rather than draw-down on the future.  Inevitably, we will need to provide a bridge between our parents’ generation and emerging social developments, and reciprocate the care needed in their old age, just as they delivered for us when we were young.  Equally, we must foster a values system amongst younger generations that equips them to deal with the challenges ahead.

One of the first things Generation X must do is recognise that government cannot and should not seek to solve every problem. As a Liberal, it won’t surprise that I think government’s role should be limited.  But this is not simply a philosophical perspective, it is also a pragmatic one.

First, government is structurally limited.  Blurred lines of accountability between the Commonwealth and States undermine both levels’ capacity to deliver efficient services. The Coalition’s promised white paper on the federation could not come soon enough.

Second, as the population continues to grow, government becomes more and more removed from the people. Those on the front line of service delivery remain close to the community, but accountable to an increasingly distant central bureaucracy. The Coalition’s commitment to give greater autonomy to the boards of organisations such as hospitals and schools will be critical.

Third, as I have already pointed out, there are going to be significant limitations on funding for government activities, with a budget that is already in structural deficit, a population that is ageing and practical limitations on Australia remaining competitive if we increase taxes.

Fourth, in an interconnected world the practical limitations on government solving every problem will be limited.  Think issues like cyber-bullying and the online proliferation of adult content.

Yes, government has a role across a whole range of areas. A compassionate society demands that we step in to assist those who genuinely need support. An opportunity society requires investment in quality public education. A functioning society requires ongoing investment in productivity enhancing public infrastructure. A secure society requires significant investment in national security.

My concern is that our culture has developed to expect government to solve every problem.

Productivity as a case study

Let’s take increasing productivity as a case study.

What is the appropriate role for government in delivering productivity improvements over the next decade?  Remember, while some of the benefits of productivity improvements are captured by the public, many are private. Clearly, government needs to drive productivity growth in its own operations.  Amongst other things that means eliminating duplication and confused lines of accountability in government, and driving a culture of excellence and productivity growth throughout the entire public service. But the discourse around productivity tends to surround private sector productivity.  In this context, government needs to shift its focus further along the spectrum from funding and regulatory interventions to getting the settings for productivity growth right.

We need to create an environment where it is worthwhile for businesses and not-for-profits to invest in productivity enhancing initiatives:  like further education and training for their staff, new capital projects or new innovations.  That requires initiatives like minimising corporate taxes and restoring predictability in public policy.

We need to recognise that an innovation culture is at least as much about restoring the entrepreneurial spirit and genuine reward for effort, as it is about public funding for science and R&D.

And we need to ensure that government doesn’t strangle the private sector – for instance by addressing chronic over-regulation.  The Coalition has committed to cut $1 billion a year in red and green tape.

Clearly, there is a role for government in regulation, and there is equally a role for government in funding measures which support productivity growth.  I have mentioned education, but this equally applies to infrastructure. Importantly, the Coalition’s policies on the NBN, the East-West Link in Melbourne and WestConnex in Sydney all recognise that a mix of public and private funding is appropriate.

But ultimately the bulk of productivity growth over the next decade must be delivered by individual businesses and not-for-profit organisations performing better. Government’s most valuable contribution will be to reduce the obstacles in their way.

Resilience, aspiration, self-reliance and respect – the key to the next decade

Managing the necessary reduction in emphasis on government and the emerging intergenerational fault lines requires four core Australian characteristics to be restored to their rightful place:  resilience, aspiration, self-reliance and respect.

First, resilience. Throughout Australian society, we must rediscover the patience, perspective and resilience to withstand difficult times, criticism and failure and to cope with change.

Politicians must be prepared to say “no” to a poorly thought through new regulation or government hand-out and risk negative short-term headlines. We must be prepared to weather the storm on difficult reforms. Businesses must be prepared to adjust and manage through difficult times on their own.  Investors must be prepared to wear short term share-price hits and back long-term vision.  Employees must expect and be ready to embrace new work practices and new work places as challenges and opportunities evolve.  Schools must be prepared to fail our children, so that they learn to come back again and do better.  And we must steel those same children for the threats of cyber bullying and our youth for the inevitable day when a mistake recorded forever in the cloud comes back to bite them.

We have it in ourselves to rediscover resilience.  Time and again, our communities demonstrate it in the face of natural disaster.  Indeed, those experiences highlight not only that each individual must build resilience, but that we also need to invest in the relationships which reinforce that resilience.  Quite simply, families, friends and communities can provide emotional reassurance and support that government simply cannot.

To a large extent, aspiration relies on resilience.  After all, no-one achieves without hard work and without taking risks.  But there is another sense in which it relies on resilience – the need for society to accept difference and not be afraid of it.

We should celebrate successful people, including those in business, not demonise them.  We should encourage our brightest children to learn more, not seek to hobble them in a misguided fear that their classmates will be discouraged.  We should be prepared to be different.

Critically, aspiration must be coupled with a strong understanding of self-reliance.  We need individuals, families and communities to want the best for themselves and their communities.  That’s what drives society forward.  But equally, we must recognise that individual, family and community action should deliver on that aspiration– not government.

Self-reliance reduces the call on the Australian budget, but more importantly offers enormous social benefits through the dignity of supporting oneself and one’s family. If aspiration finds its expression primarily in a productivity agenda, self-reliance finds its expression primarily in a participation agenda. That is, participating in the economy and society to stand on one’s own two feet, and to return to the economy and society at least what one has taken out of it.  In the context of the intergenerational divide, it translates to recognising that each generation should at least provide for itself.

Finally, I want to spend a moment talking about fostering respect for one another.

Regrettably, I think mutual respect has deteriorated in recent years. Increased online communication without the benefit of visual and facial cues hasn’t helped.  And I am the first to raise my hand to say my colleagues and I need to do better as leaders and raise the standards in national debate.  But, frankly, we all need to do better.

Respect isn’t just about person-to-person conduct, it’s about a deep understanding of different people’s contributions and points of view. Along with economic growth, I think this will be one of the key solutions to the potential intergenerational fault lines in the decades ahead – just as economic growth and increased understanding underpinned the great Australian success in managing other potential fault lines such as race, class and religion.

Over the next decade we will need to build an increasing understanding of and respect for the contribution that older generations have made to Australia.  Equally, we will need to build an increasing understanding among older Australians about the challenges facing their grandchildren and great-grandchildren, and respect for their approach to addressing them.

Generation X is the pivot generation that will bridge this divide.  The challenge is there for us.  Like so many of the other areas I have discussed tonight, I am optimistic we can deliver.