Demographic change, economic opportunities and future prosperity

20 June 2011

20 JUNE 2011

Good morning.

Thank you for inviting me to speak here today. CEDA plays an important role in shaping the public policy debate on the issues which affect all Australians.

When you've done it for 51 years, as CEDA has now, you develop a unique reputation as a heavyweight of the national economic polemic.

From Sir Douglas Copeland's earliest wisdom and guest speakers like Roy Jenkins back in the 1970s, through to someone like Yotaro Kobayashi (CEO of Fuji Xerox) in the mid 1990s and on to Joe Stiglitz just last year - many of the contributors under the CEDA banner have truly been both authors of history and authors of the future.

Of course today events like State of the Nation allow key decision-makers to witness fresh perspectives on direction for our great country.

Can I also say at the beginning of my remarks that I believe the future course Australia is on today is definitively the right one with Prime Minister Julia Gillard at the nation's helm.

Our Prime Minister possesses a steady eye on the horizon, not the waves and wind around us.

And I do think that all of us - in the Labor Party, the Parliament and indeed across the general public at large – should acknowledge that Julia Gillard is actually a Prime Minister that genuinely, genuinely does stay focused on the long term.

Focusing on the long term won't mean you win every headline in the weekly retail political contest, but it is absolutely in the best interests of the country.
Developing a low pollution economy, spreading the proceeds of the mining boom, 12% compulsory superannuation, a lower company rate of tax, methodically working on breaking the people smugglers' business model, keeping a tight lid on spending, investing in training and skills, building new infrastructure - each and every one of these are serious pieces of work.

Outcomes that will pay off big not just in the future few years but for future generations.

And Prime Minister Gillard deserves more credit - for focusing on the long term - than she is currently is getting from some far left or conservative commentators in the national discussion.

Global economy

In getting on with my topic today of "demographic change, economic opportunities and future prosperity", I'd like to provide a brief snapshot of the global economy.

The cinematic phrase, "the good, the bad, and the ugly", neatly sums up the situation.

The "good" part of the equation is continued robust global growth. The IMF expects the global economy to grow by around 4.5 per cent in both 2011 and 2012.

Emerging and developing economies will continue to drive the global recovery, with the IMF expecting developing Asia, which includes economies such as China and India, to record growth of around 8.5 per cent in both 2011 and 2012.

The "bad" aspect is that the global recovery remains exposed to a number of significant risks.

These risks include the build-up of inflationary pressures in emerging economies, the threat of a further sustained rise in oil prices, and uncertainty over the direction of medium‑term fiscal consolidation in advanced economies such as the US.

And the "ugly", of course, refers to the biggest risk to the current global outlook, the sovereign debt crisis in the euro area, particularly in Greece, which continues to pose the risk of contagion to global financial markets.

Domestic economy

By contrast, Australia's economic fundamentals are strong.

Our GDP has been growing steadily. It's notable that, today, Australia's GDP is significantly higher than it was before the onset of the global financial crisis. Even as other advanced economies struggle to make up lost ground, Australia has been steadily moving forward.

Our unemployment rate is holding steady at under five per cent. Since the Labor Government was elected in 2007, we have created over 700,000 jobs — an outstanding result among Western economies.

And the most recent National Accounts figures show that our terms of trade rose 5.8 percent over the March quarter to be over 22 percent higher over the year, reaching their highest level since 1950‑51. Another outstanding result.

But to continue making headway, we must be open to change and innovation.

Mining Boom Mark 2 created what our Treasurer has dubbed a "patchwork economy". To ameliorate this, we are implementing policies to ensure that the wealth from the mining boom flows to all regions and all sectors.

I believe the impact of current mining boom will force structural change associated with the floating of the dollar, and the reduction of Australia's tariff walls in the 1980s.

I believe we can't afford to take our current good fortune for granted.

I believe that the rest of the world does not owe us a living.

Our Australia is a relatively small nation, fortuitously located on the edge of Asia, is blessed with natural resources, a stable and effective system of government – including good health and education - and a large capital market.

We have challenges and we have competitive advantages. The biggest fault however would to be complacent about either.

We need to be clear-sighted about the forces currently at play on our economy, and have an optimistic sense of what our economy will look like in 20 or 30 years.

Australians should not fear our future.

Our economy is in transition, and the forces acting on it are complex.

The re-emergence of Asia, an ageing population, a services economy, the power of information (and therefore education), a sustainable society and economy. These are all forces which will consistently govern public and private economic activities over the next decades.

An economy in transition: rise of Asia

The re-emergence of Asia has seen the centre of economic gravity shift to this part of the globe.

It is important to say re-emergence, because in 1580 what is now modern Asia was the world's largest economic region.

Our recent history with this re-emerging part of the world has been enthusiastic no doubt. But I believe the time is upon us to deepen not just our economic links with Asia but more and more of our cultural and social links too.

In 1990, Japan and Korea were already among Australia's top five export markets. Today, with the rapid rise of China and India, four of our five largest export markets are in Asia.

Asian countries constitute seven out of our top ten trading partners.

The continued rapid growth of emerging economies will continue to shape our trade and economic environment.

In 1990, China and India accounted for less than one-tenth of global production. Today, that share has more than doubled.

By 2020, China and India are projected to account for a quarter of global GDP. And by 2030, one-third.

This shift in geo-economic weight will spur the growth of a new Asian middle class. One which will demand niche, high-end manufactured goods, and higher-order services exports, such as education and tourism.

For example, according to Tourism Australia, in 2010 the China inbound market contributed over $3.2 billion to the Australian economy.

By 2020, this market has the potential to contribute $7 to $9 billion annually.

An economy in transition: mining boom

The growth of China is already driving infrastructure investment and construction activity in Australia. New business investment is expected to reach 50‑year highs as a share of GDP.

This investment boom will be underpinned by a massive pipeline of resources projects planned for the next five years and beyond.

According to the latest ABS CAPEX survey, mining investment in Australia is expected to reach $51 billion this financial year, and a record $83 billion next financial year.

ABARES estimates that this high level of investment is set to continue, with an estimated pipeline of resource investment of $430 billion.

And crucially, as leading private sector experts such as Stephen Roach, MD of Morgan Stanley, have recently pointed out, the urbanisation of China still has a long way to run.

According to UN projections, China's urban population will have nearly doubled between 2005 and 2050. In the same timeframe, India's will have nearly trebled.

These trends mean that we are likely to see ongoing strong demand for our commodity exports for some time, even as we also start to benefit from the associated growth in Asian middle-class consumer markets.

This is the upside of the boom.

But on the downside, our nation faces skills shortages and infrastructure bottlenecks.

This is why the 2011 Federal Budget included many initiatives to build the more productive workforce our economy needs to take us into the future. It's crucial to get this right, so we can make the most of the boom conditions.

Our strong dollar brings big challenges.

The Australian Financial Review recently noted that 6 June marked the 100th day that the Aussie dollar closed above the greenback since it was floated almost three decades ago.

As the AFR concluded, "A strong dollar has become the new normal".

But our strong dollar is exerting pressure on the traded sector which can't compete with cheaper imports — particularly tourism, education and domestic manufacturing.

An economy in transition: Digital revolution

The digital revolution is another powerful force transforming our society and our economy.

It took the monasteries and the universities at least 2000 years to collect and store the world's learning and knowledge. Google has done it in ten years. This is the type of powerful force we're dealing with today.

The digital revolution has fundamentally changed, not only the way we access information, but also the way we work, study, shop, entertain ourselves, and communicate with each other.

It has made it possible to work from your home on the central coast, while interacting with clients across Australia or around the world. A design shop in Launceston can bid for an Adidas shoe contract in Hong Kong.

And the digital revolution has made it possible for consumers to source and buy a wide range of goods at competitive prices online.

But this means that segments of the retail sector, particularly those which have traditionally relied on brick-and-mortar stores, have to evolve to compete.

And the information pipeline means we need to keep thinking shrewdly about what fingertip access to information means in both positive, and potentially negative, ways for our lives.

An economy in transition: Low carbon economy

The need to transition to a low carbon, sustainable clean energy economy is another transforming factor.

Just as the digital revolution has shaped our current environment, the need to act on climate change will shape the Australia of the future.

As the Treasurer said earlier this month at the Press Club:
"I refuse to let this country become an old-world, high-polluting technological backwater. There is no excuse for this as a forward-looking country in the most dynamic region in the world."

There is no serious economic case to resist the clean tech jobs of the future.

I want Australia to be able to run as swiftly as possible in the race for those jobs of the future and the industrial production and human resource development incentives of a carbon price are a source of speed in that race, not slowness.

Bumbling opposition or confused interference on setting a price on carbon and transitioning the Australian economy to a low polluting one is nothing less than a material risk to our future job prospects and greater prosperity.

In this way Tony Abbott is on the wrong side of history.

Not only is Malcolm Turnbull not convinced by his views and political approach, the negativity has led to the sad situation where a once proud Liberal Party has no economic heartbeat whatsoever.

The Leader of the Opposition is playing a heck of a spoiling role right now, but it's not in the long term interests of Australians.

An economy in transition: Ageing population

While the gift of longer life is something to celebrate, longer life brings new challenges.

As highlighted in the Government's Intergenerational Report 2010, the number of Australians over 65 years old is projected to grow from three million in 2010, to 8.1 million by 2050.

During the same period, the ratio of working-age Australians to those aged over 65 will decrease from 50 to 10 to just 27 to 10.

Inevitably, these changing demographics will have consequences for economic growth and government finances. We can expect an increased demand for age-related payments and higher quality health care services.

At present we spend about 9 percent of GDP on health, the United States spends upwards of 16 percent – so we're not doing too badly. But increased health demands spike as you go past 80 years of age – so we know we know health costs is a big part of an Australian population growing older.

On the upside, an ageing population will also provide opportunities for new industries to develop to meet the needs of mature consumers. And the opportunities to retain older workers in the workplace.

Government's policy responses: Rise of Asia

I have set out five forces of change.

Now I'd like to outline a range of the Gillard Government's policy responses.

The rise of Asian economies and the growth of an Asian middle class will drive demand for our knowledge-based industries. Demand which will extend well beyond Mining Boom Mark 2.

We are a diverse economy today but the recent story of our economic development has substantially been a story of services – and Asia's growth means this story will continue.

Mining today rightly gets plenty of headlines and it is an important provider of labour – around 250,000 jobs.

Our bush has long been part of our national economic picture – today there are 380,000 workers in agriculture, fisheries and forestry.

Manufacturing was central to our employment story during the wars – it's still substantial – there are one million people working in manufacturing today. And there is still a smart future for manufacturing in Australia.

Services is the big beast though – now and only more so in the future. In mid 2011 8.8 million Australians work in some part of the services sector – whether you're perhaps one of the 500,000 in tourism or the 880,000 in education or the 1.2 million in retail.

As Australia maximises the opportunities presented by Asia based shift in economic power, many of our services industries should become more export-oriented.

This is why the Australian Government is working on several fronts to support competition amongst our financial markets, and open Australia to foreign investment.

Building financial services is crucial, as the opportunities will only keep growing to manage the new Asia based wealth – both private and institutional.

I can assure you the Gillard Government is committed to competition in financial markets – and is open to the participation of foreign firms under the right circumstances.

We have approved the Chi-X operating license, subject to certain conditions. And Chi-X could be operating later this year.

Our superannuation reforms, which will grow Australia's superannuation savings beyond the nearly $1.4 trillion we already have under management, will only develop an independent economic Australia. After 223 years this helps make us less reliant on overseas capital.

Education is another crucial area for investment and ongoing public policy focus.

Already Australia has the greatest proportion of international students in tertiary enrolments in the OECD.

As Asia grows we can and should quench their growing hunger to study at renowned learning institutions.

Why can't we provide the Harvard, Yale, Oxford and Cambridge of Asia?

This is why Julia Gillard commissioned the Bradley Review of Higher Education 3 years ago - to not only assess the sector's fitness for the Australian community but also its fitness for our economy.

In the 2009 Budget we announced an additional $5.4 billion to support higher education and research over the following 4 years in a comprehensive response to the Bradley Review.

This includes improving resourcing for research and investing in world class tertiary education infrastructure. Our commitment and focus has not waned.

Government expenditure on higher education (teaching, learning and research) is projected to increase to $13 billion by 2012.

I already mentioned the importance of the tourism sector to capture the benefits of a more cashed up and adventurous middle class.

According to a recent report by Boeing, Australia will be getting around 25 million or so tourists by 2025 - with 15 million from China alone.

The Commonwealth will contribute around $650 million in direct support for tourism over the next four years.

The 2020 Tourism Industry Potential report, released by Tourism Australia at the end of 2010 predicts the possibility of total tourism consumption growing from $90 billion in 2009 to $140 billion by 2020.

A very big export business is going to get much bigger.

Government's policy responses: Mining Boom Mark 2

I mentioned earlier that the Gillard Government is working to ameliorate the effects of a patchwork economy.

This is why we are spreading the prosperity through the Minerals Resource Rent Tax, corporate tax reform and greater investment in infrastructure and superannuation.

The Government recently released draft legislation for the introduction of the MMRT for public comment. Exposure draft legislation to extend the Petroleum Resource Rent Tax to all onshore and offshore oil and gas projects will be released shortly. I encourage CEDA members to contribute to this discussion.

The introduction of the MRRT and changes to the PRRT will come into operation from 1 July 2012.

These taxes will ensure that Australians receive a better return from their non-renewable resources. They will apply to our biggest and most profitable commodities — commodities which represent three-quarters of the value of Australian exports and resource operating profits.

The MRRT is expected to raise about $8 billion in the period from 2012 to 2015.

The introduction of the MRRT certainly won't harm the international competitiveness of our resource industry. Quite the opposite.

Mining profits were $22 billion in the December 2010 quarter, about 60 per cent higher than a year ago.

Infrastructure investment

To take full advantage of the boom we shall need to build the infrastructure we need to extract and explore our mineral wealth, and to ensure that Australia preserves its reputation as one of the most attractive places in the world to invest and do business.

That's why the Government has invested $6 billion in the Regional Infrastructure Fund so that we can invest in the nation-building projects that will enable us to sustainably grow our economy in the years to come. And to continue creating new jobs, now and into the future.

The Fund will mean more investment in rail, roads, ports and the other critical infrastructure needed to support the workforce and jobs in regional and mining communities.

Of course, it's critical that we get infrastructure investment right.

As part of the 2011 Budget, the Government announced a reform package to strengthen Infrastructure Australia and drive lasting improvements to the way our nation plans, finances and builds the infrastructure it needs to compete in the 21st century.

The package improves the governance of Infrastructure Australia and transparency in the Australian infrastructure market and encourages private investment in key infrastructure projects of national significance.

As part of these reforms, funding for Infrastructure Australia will be increased by 40 per cent. This will allow Infrastructure Australia to provide independent policy advice on national infrastructure reform such as the National Port and Freight Strategies, while working with governments and the private sector to develop a deeper pipeline of priority infrastructure projects in the Australian market.

Infrastructure Australia will also establish an Infrastructure Financing Group of private and public sector advisers to identify ways we can further encourage private financing of infrastructure.

New infrastructure tax incentives will leverage more private sector capital investment in infrastructure projects designated to be of national significance. This tax incentive will uplift the value of project losses at the government bond rate and allow those losses to be accessed where ownership of a project changes.

ETMs and high tech manufacturing

To complement the Government's other initiatives to equip our economy to meet the challenges of the future, we are supporting elaborately transformed manufactures and high-tech manufacturing.

R&D is a key mechanism for future growth. It has helped Australia to develop new competitive edges in high-technology exports, such as scientific and medical equipment, telecommunications and aerospace products.

The new R&D tax incentive will replace the complex and outdated R&D Tax Concession scheme from 1 July 2011. This more generous and better-targeted R&D tax incentive will have positive flow‑on effects for elaborately transformed manufactures.

Tax assistance for small business

As part of the Gillard Government's work to avoid the effects of a patchwork economy, we are providing tax relief for Australia's 2.7 million small businesses.

In response to the Australia's Future Tax System review, we announced an increase in the immediate write-off threshold for small business assets from $1,000 to $5,000 from the 2012-13 income year.

In addition to this measure, small businesses will be able to immediately write-off up to $5,000 of any motor vehicle purchased from the 2012-13 income year. The remainder of the motor vehicle value will be depreciated in the general small business pool, at a rate of 15 per cent in the purchase year and 30 per cent in later years.

The Government has also announced a reduction in the company tax rate from 30 per cent to 29 per cent for incorporated small businesses. This will apply from the 2012-13 income year, one year earlier than for other companies.

These measures will result in tax relief for small business that delivers a real benefit by improving cash flows and helping operators to reinvest and grow their businesses.

The Government is also acting to provide a $700 million cash flow benefit to small business and other eligible taxpayers through lower quarterly income tax instalment payments in the 2011-12 income year.

By reducing complexity, cutting red tape and providing tax relief, we are helping small business grow and expand — benefitting all Australians.

Government's policy responses: Digital revolution and information flows

The Government's National Broadband Network will ensure that Australia realises the potential of the digital revolution, driving improvements in national productivity and boosting social inclusion.

The NBN is set to revolutionise health, education and the delivery of some other government services.

It has the potential to fundamentally change the way people work, overcoming the "tyranny of distance" of our vast continent. The NBN will greatly expand existing markets for business and open up new markets, leading to greater employment opportunities.

But to unlock the full benefits of the NBN, Australia must improve online participation.

The World Economic Forum recently ranked Australia 17th in its 2010-11 Network Readiness Index, which measures how economies leverage advances in information and communications technology for increased growth and development. That puts us behind competitor economies such as the US, UK, Singapore, Hong Kong and Korea.

Clearly, this isn't good enough.

To improve participation in the digital economy, the Government has launched the National Digital Economy Strategy.

As well as articulating eight high-level goals, the strategy is funding several practical initiatives. We will provide $23.8 million over three years for a Digital Communities initiative, to establish a Digital Hub in each of the 40 communities that will first benefit from the roll-out of the NBN.

The Digital Hubs program will help residents of local communities to gain the skills they need to maximise the benefits of the NBN, and contribute to the Government's vision that Australia will become a leading global digital economy by 2020.

As well, in the 2011 Budget, we provided a further $10.4 million to continue the Broadband for Seniors program to ensure that older Australians can share the benefits of the digital age.

Government's policy responses: Low-carbon economy

Just as the global economy has been driven by the digital revolution, future success will be powered by cleaner energy innovation.

And the only way to drive investment in this technology is to put a price on pollution. As the Treasurer remarked recently:
"You can have a first-rate modern economy and a carbon price, or you can have neither."

The Productivity Commission's recent report, Carbon Emission Policies in Key Economies, confirms that the world is increasingly acting on climate change and a carbon price is the lowest-cost way to cut pollution.

The Commission examined action taken in seven of our top ten trading partners — China, Germany, Japan, New Zealand, South Korea, the United Kingdom and the United States. It found that all the countries examined had adopted major policies to reduce pollution and support the move to clean energy.

The research highlights the fact that, far from striking out on our own, Australia risks falling behind the rest of the world if we fail to put a price on pollution.

And if we fail to act now, we run the risk that the rest of world will impose a penalty on our exports in the future, inflicting a greater economic shock to our economy, and undermining our long-term competitiveness.

We are also examining new ways to support investment in clean-energy projects and provide additional support for innovation in a way that is supported by unions, environmental groups and superannuation funds which want to invest in the technology.

The Government is still committed to supporting renewable energy through the Clean Energy Initiative and the 20 per cent by 2020 Renewable Energy Target, which will drive $16 billion in investment in renewable energy over the life of the scheme.

Government's policy responses: Ageing population

As I mentioned earlier, our ageing population brings its own set of challenges.

While a quarter of a century longer life is the great gift of 20th Century Australians to 21st Century Australians, we need to start preparing for its working age ratio and fiscal implications – they are big.

Successive Labor Governments have long-recognised that the current Superannuation Guarantee rate of nine per cent is inadequate.

In fact, gaining support for the increase in the Super Guarantee to 12 per cent has been something of a personal crusade for me. The increase will gradually come into effect from 1 July 2013 to 1 July 2019.

This increase, together with the increases in the age pension which we introduced in 2009, will allow many Australians to enjoy a significantly higher standard of living in retirement.

These changes will provide a 30 year old on average wages with over $22,000 a year more, in real terms, than they would receive on the age pension alone. And a real benefit of $108,000 more than if the Super Guarantee had remained at nine per cent.

For an 18 year old entering the workforce today on average full-time wages, the increase in the Super Guarantee translates into an improved real lump sum of $205,000 on retirement.

The increase in the Super Guarantee will boost the retirement savings of about 8.4 million people.

As well as providing hard-working Australians with a more comfortable retirement, increased super is boosting national savings.

On 9 June, APRA released statistics showing that Australia now has $1.36 trillion invested in superannuation. That's a substantial pool of domestic capital available for investment.

And that figure will grow, thanks to the increase in the Superannuation Guarantee and other super reforms we announced in May last year. This Government's super reforms are projected to boost Australia's total superannuation savings by $550 billion by 2036.

We also recognise that, while older Australians already contribute significantly to Australian workplaces, we need to address any barriers that prevent greater engagement.

We simply cannot afford to ignore the skills and experiences of mature-age Australians who want to work. The workforce participation rate of mature-age Australians — those aged 55-64 — stood at 61 per cent in 2009. That put us above the OECD average of 56.9 per cent.

The Intergenerational Report 2010 predicts that the mature-age participation rate will be 62 per cent by 2049-50, and if we were to raise the mature-age participation rate to 67 per cent by 2049-50, real GDP per capita would be 2.4 per cent higher in that year.

Recognising this untapped potential, the Gillard Government has introduced several initiatives to encourage the recruitment and retention of mature-age people.

These include the More Help for Mature Age Workers program, funded at $30 million dollars over three years to provide skills assessments and training for mature-age workers who have trade skills but no formal qualifications... the $43 million Productive Ageing Package which will start on 1 July 2010... and the Experience+ Career Advice service to support senior Australians remain in the workforce.

As well, the Advisory Panel on the Economic Potential of Senior Australians, established on 30 March this year, will examine how Australia can best harness the life experiences and intellectual capital of the senior members of our community.

The Panel will consult with stakeholders nationwide to inform a series of independent reports that will be released in the second half of 2011.

Government's policy responses: Disability

We also simply cannot afford to allow any more distraction and complacency about the workforce potential of people with a disability.

This is why the Government asked the Productivity Commission to go away and come back with a new way of giving Australians with a disability the support they need to live the life they deserve.

It's not only about recognising the inequity and confirming that the staus quo is unacceptable. It's also about seizing the workforce productivity opportunities that come from getting people who want to work into jobs.

This Government has added $6.2 billion over five and a half years to disability funding under the National Disability Agreement.

We are developing a National Disability Strategy and a workforce strategy aimed at finding jobs for Australians with disabilities.

We've rolled out new places in Australian Disability Enterprises – creating employment opportunities for people with more severe disabilities.
And we've made it easier for people on the Disability Pension to look for job.

There was also substantial new funding of $200 million in the May Budget giving children with a disability the best education outcomes and the best start in life.

Both immediately and over the much longer term this is a Labor Government that appreciates now the significant transformative pressures our workforce will come under as the baby boomers retire and generation X-ers retire, and then generation Y-ers retire... significantly improving the circumstances for people with a disability (and their carers) is an important step in addressing this economic transformation.

Vision for the future of the Australian economy

Australia watchers, the coming decades will see a profound shift in Australia's economic evolution as we respond to the challenges of the future.

But Australia has already proved that our nation is responsive to change.

We have adapted since the time of Federation, from being a primarily agrarian economy... to a manufacturing economy during the World Wars... to the knowledge-based economy that we are today.

And we must be prepared to continue to adapt and change.

The key to reaping the rewards of the 21st Century is that we cannot expect opportunities to just fall into our laps.

Taking advantage of these opportunities will require a significant change in the structure and mindset of the Australian business sector.

It will also require us to lay sound foundations for the economy's continued adaption and transformation. We will need to continue to build productive capacity and ensure that the economy remains flexible and open to change.

We have already started this process of adaptation and transformation.

And we can't go back. Nor should we want to return to our 20th Century industrial manufacturing past, even when the resources boom is over.

This raises the important question of the "Dutch disease", a term coined in a 1977 article in The Economist, in reference to Holland's experience after the discovery of a large natural gas field. At that time, the resultant real appreciation of the Dutch currency, combined with enhanced competition for labour and capital, saw a decline in the Dutch manufacturing sector and a rise in Dutch unemployment.

Some commentators have expressed concern about the possibility of the Australian mining boom leading to long‑term economic underperformance — our own version of the "Dutch disease".

But we are unlikely to see this phenomenon occurring here.

As I have outlined this morning, the main reason we are seeing a structural change in the Australian traded sector is because of the re-emergence of China and India into the global economy.

As well as generating a massive and growing demand for energy and mineral commodities, this rapid economic growth is also creating a growing middle class in China, India and elsewhere in Asia.

We don't know how long the demand for our mineral and energy resources will last.

But we do know that, in the longer term, the increasing numbers of people in the Asian middle class, with disposable incomes to match, will generate rising demand for our goods and services.

It is here where our future prosperity lies. To make the most of these opportunities, we will need to embrace the changes they bring.


I'd like to make a couple of final points in conclusion.

The questions we grapple with in State of the Nation type gatherings, as citizens as much as professionals, these questions fundamentally come back to considerations of how to improve the physical and social world beneath our feet and between our people.

Our sense of community.

These are incredibly important questions to ask because they aren't abstract ones - they are real.

This sense of community, this sense of place, is something I think all political figures, especially those in the Federal political scene today need to remain vigilantly mindful of.

A Scottish friend of mine, John McTernan, recently wrote something about what he calls a critical dimension of economics and politics – and that is place itself. And he was actually doing some thinking and writing about the political demise of the New Labour Government in the UK and the short journey Labour have had since that election loss.

John said this:
"If my town, my neighbourhood and my street are changing and politicians haven't got a clue, let alone an explanation or a story, then I have the right to get angry."

John is dead right and I raise this because I think there is something here for CEDA and for this audience and indeed this Parliament to think carefully about in the weeks and months and years ahead as we grapple with the forces of change that are unavoidably occurring.

In 1900 about 60 percent of people lived in the bush but now it's about 15 percent.

Australians have moved to our cities, to where they jobs are, in the past hundred years. More and more are already, and will continue to, gravitate to coastal areas.

Our two biggest cities - Sydney is 4.3 million people and Melbourne is 3.9 million – both of them are consistently in the world's Top 20 most liveable. And that is rare for cities of that population size.

The Australian population is of course only getting bigger – so how do we create more great cities?

The answer probably lies on the coast. So what will Margaret River, Merimbula or Bega, Port Macquarie or Warrnambool look like in 30 or 40 years?

These questions about how we maintain the liveability of our existing major cities and how we build the next big ones (probably by the sea) these are important but also complex questions.

We all have a curiosity in the considerations of place.

The Australian people naturally have frustrations about the world we live in – perhaps more than anything we are increasingly time poor. We don't want to take hours to travel to and from our place of work, it's just time away from family.

And we want to live in interesting, safe and happy communities.

Australians are already organising their lives to adapt to the transitional forces of which I've spoken a bit about today.

The secret for us – in government or in business – is to make sure our policies and practices are fitting neatly into these lives that Australians are changing already.

If that can be a principle underpinning much of the national policy debate ahead, I think the cause for Australian optimism is strong.

So thank you for your time today and your ongoing substantial contributions.