Speech to KPMG’s ASPAC Tax Summit, Tuesday, 15 November 2011

16 December 2011

Read my speech to the ASPAC Tax Summit.

It is a pleasure to be here,especially to see our international guests. I think there are 4 big
events happening in Australia, we’ve had CHOGM (the Commonwealth Heads of Government),
we’ve had the Queen, the President of the United States tomorrow but of course KPMG is the
4th in the series of these i mportant events. Of courses there’s the little event in Honolulu that’s
been happening.

What I wanted to do, is take the opportunity to talk, and give people both from Australia and
also overseas, a sense of what the Australian government sees about the future. Some of you
may be well wondering, my goodness an ex union official, a politician, someone who did
accounting, not law, at university... I’ve struck out three times there. What on earth could I say
that might be relevant to the sort of discussions you want to have and even the one that I just
heard? I think therefore to get the best value, what I wanted to do was talk about the future.
The future is not always something that makes the nightly news. Especially in Australia we no
longer have a 24 hour news cycle, we have a 12 hour news cycle and if you haven’t phoned the
journalists by the end of the morning, by the afternoon they want some more red meat for
their news bulletins and they’re not interested in what happened that morning. So it
sometimes becomes difficult, in public life to talk about the future. What I’d like to do is talk a
little bit about where Australia is at the moment and why I think you are visiting an optimistic
jurisdiction despite the cloud over Europe and other parts of the world. I’d like to talk about
some of the forces which I see at work over the next 20 and 30 years, and of course these
forces I believe are the elements changing which you will have to advise your clients on and
around in the next 20 and 30 years. I’d like to briefly mention to you about getting onto a
shopping list some of the specific policy propositions about how Australia wishes to engage
with the world economy, in particular the Asia pacific region, going forward. And I might
briefly, if time permits, talk about some of the threats to the future. But going to the first part
of what I wanted to say, I think there are 8 reasons why Australia has an optimistic future at
this point in time. But in doing that I would also suggest to you that great nations are not
always guaranteed to remain great nations and it’s the decisions we make at those forks in the
road that will influence the future, it’s the skirmishes not taken which can lose you the battles
and the battles which then lose you the wars.

Our public debt, I believe, contrasts favourably with the rest of the world, certainly with the
OECD. When you look at the world weighted average of public sector debt it’s something like
88% of GDP. That great nation of Japan that is an important and close trading and political ally
of Australia has 226%; the USA is coasting to 100% of its GDP.

Government public sector debt is 7%. The interest payments, and again you will know numbers
very well, but if our economy was to be contrasted as a $100,000 annual economy that’s
$7,000 worth of debt and our interest payment is $400. I suspect most private organisations
you would advise with those numbers would rush out and get some more debt. This nation,
however is engaging in the fastest fiscal consolidation to get us back into surplus that we’ve
ever experienced in the history of federation in Australia. So public debt is soon to be
optimistic, certainly contrasting with what’s happening elsewhere.

Another reason to be optimistic of course is our geographical location, there’s a very famous
Australian historian called Geoffrey Blainey who spoke about one of the factors in the
development of Australia being the tyranny of distance between the United Kingdom and
Europe. Now the Economist magazine says we have the advantage of adjacency.
When you look at growth of Asia, a point I’ll come back to a few times, the fact that we are a
lifestyle superpower living on the edge of a continent that is a population superpower then I
think it’s a cause for some optimism. And of course, while we’re greatly concerned by what is
happening in not just Greece, but Italy and other European and North Atlantic countries, 80%
of our export trade is with Asia. Again, they’re good fundamentals, you could also boost upon
that that we’ve lent Michael Andrew to KPMG globally, no doubt that will be a successful
export as well.

The fourth of our advantages to be optimistic is that Australia is a relatively modern economy,
eight and a half percent of Australians work in manufacturing. I like manufacturing and its
important countries still make things but in 1960, 30% of every Australian going to work was in
manufacturing. We will maintain a manufacturing sector here, there will probably be a bit
more structural adjustment but as you know, manufacturing companies of course can be
affected by what else goes on in the world, very heavily. Mining and related services employs
nine percent and whilst the high prices may come off, volumes will increase. In fact agriculture,
which is always sensitive to commodity prices everywhere else in the world - we’re at two and
a half per cent of our workforce in agriculture, we could probably even afford to lift that. The
point I’m drawing to is that nearly 80 in every 100 Australian’s work in services which is
probably the right place for us to be in a modern economy.

The fifth reason is that we have a growing population, not perhaps compared to our Northern
neighbours, but the world’s growing at 1.3%, we’re growing at 1.5%. There is a degree of
rejuvenation in this country which is healthy and positive. We are fortunate that people want
to come and live here. Our birth rates are increasing, our population is growing and that’s a
source of something more fundamental occurring in our market and our society.

To add to that, my sixth point, we’re a confident society, again my analogies will be more
measuring confidence against Europe and North America, I suppose it’s a factor and again
some of our North American friends are more qualifies to judge this. But Americans can
oscillate between great optimism and pessimism and perhaps that’s the price of being the
world’s policeman. A role that I’m profoundly grateful the American’s have played since WWII.
But of course when you look at the terrible events of 9/11 and security I think there are great
movements of confidence in the United States from great optimism to pessimism and back
again. That I think will recover without doubt but the duration and the pace of the recovery is
a much tougher question. Even taking England, my dad was a British migrant; from the
measures I’ve seen on balance they have not been happy since WWII. They have a few
moments, which unfortunately involve sporting victories over Australia, but we can’t be a
sustentation for their national optimism. There is a source of optimism about Australia and we
are, more often than not, positive about our future. We are a confident people, not prone to
great mood swings.

Let me suggest to you the seventh reason I think Australia should have a positive view of the
work – our political stability. We had Captain Arthur Philip, a British naval captain given the job
of setting up a penal colony. We’ve had 72 national leaders since then if I include all the
governors of colonial England, colonial Australia under British rule and prime ministers. We do
have a fair degree of political stability. For those of you that are political punters I would
suggest to you that one in every four of these have been abysmal failures, two in every 4 have
been reasonably competent and may get to directorship at KPMG, and one in four have been
quite outstanding. And one of the attributes of this one in four has been pragmatism. It
doesn’t matter if you start on the left or the right, the best of our leaders generally gravitated
to the centre, formed by values. As an aside, the best of our leaders have come from the
middle/upper working class. The point about political stability is we’ve have reasonable good
leaders, and if not great then confident. Leaders, our federal government generally runs to 2.5-
3 years, our state government for 3-4 years, and political transition in Australia is done in a
pretty orderly manner.

The final reason for being optimistic is that this country has made great progress. And many of
you come from countries that have made great progress and many of you work in jurisdictions
that make remarkable progress, but I’d like to humbly submit to you three measures of how
this country progressed in the last 50 years. In 1960, in a population of just over 10 million
people we were educating 50,000 people at university. Our population doubled, it’s heading to
23 million, and we’ve got 1.2 million at university. So our rate of education has accelerated far
greater than the population growth rate. Another cause of celebrating is that an Australian
man in 1960 had a life expect of 67, it’s now 81. Women, even though perhaps they may not
get the same equal promotions and are overdue for more leadership roles in the nation, their
life expectancy is now 85-86 in Australia. So Australian’s have a good long life.

In 1960 4.5% of our GDP was expended on health, it’s now 9%. That tells me Australians are
living longer, more robustly and living pain free lives. So in health, life expectation, education,
Australia has made progress.

But having said to you this country has more reason to feel positive than negative at the
moment, there are forces at work which are going to be irreversible regardless of who is in
power. Two years ago I had the privilege of being a parent, when you raise kids you get by on
the day to day and I just want my child when they hit their 20s to have a good education, to be
happy, to have a few friends, to be set up for dealing with life. And it’s important that politics
infuses itself with the passion for the long-term whilst dealing with the day to day. So these are
forces which I would submit to you – one is that Asia will keep rising, KPMG knows that better
than me. Treasurers inform me that there will be 3 billion members of the ‘middle class’
throughout Asian societies by 2030. I’m a political moderate, maybe slightly to the left, but I
believe in the middle class. When people have a stake in society, when they have rising
standards of living, when the have prospects for jobs, good health, education, some
recreation, some control over their lives, then I think this planet progresses faster than in
other sets of circumstances where there are great disparities of wealth and privilege and great
poverty. So the rise of Asia is an unmitigated source of good news for Australia. And anyone on
the Australian political landscape who thinks otherwise just doesn’t know what they’re talking

It’s not just that, we’re living longer than ever before. It means we’re redefining what it is to
retire and how much money you need to have when you stop working. In 1800 the average
peasant was working 80 hours a week and their life expectancy was about 38. We’re now
working on average 41 hrs a week but we’re working twice as long.

Another force at work is the rise of the services economy. I used to be a union rep for jockeys.
We venerate our horse and we have jockeys but there are only 850 of them. One of our
favourite de facto national anthems of Australia is Waltzing Matilda, the story of a shearer who
took a sheep and put it in his bag and, whilst being chased by police, rather than be captured
he jumped into a billabong, an Australian watercourse. Yet there are only 3000 shearers in
Australia. What does alarm me is that there are 86,000 registered personal trainers in
Australia. I just can’t see us singing about a personal trainer being chased by 3 unhappy middle
aged matrons to get their refund on their lesson. And the day that we have an accountant on
the ten dollar bill rather than a singer... The point is that services are rising and it’s a good

The work that KPMG and the accounting profession do in helping us change for the future is a
valuable part of the Australian story. The rise of Asia, these forces are going to happen
regardless of who is in power, doesn’t matter who’s running KPMG or who the Assistant
Treasurer is, it’s going to happen. The need for sustainability, is going to keep happening
whether you’re putting a price on carbon pollution or not, the truth is the more we can
measure our inputs into our energy costs the more efficient we can be in the way we use our
energy. Australians aren’t turning their back on sustainability, nor do I believe is the rest of the
world. There are also a couple of other forces at work – the rise of the digital economy,
certainly we see that in taxation, sports betting, where the Australian regulatory authorities
are finding it hard to collect revenue from Vanuatu and Malta where people are going online
to bet. We see our retailers complaining in Australia that people can buy items under $1000
from strawberry.com - a cosmetic internet site from Amazon. The digital economy is changing
the way we do business and again, this firm is at the forefront of understanding those things.
There is another force at work – in the next 25-30 years there will be far more positions in
women of power. Our government has helped lead the way; we have a female prime minister.
It’s interesting, when the Queen came to visit she was greeted on the steps in Canberra by an
army colonel, the governor general, the chief minister of the ACT and by a prime minister and
they were all women. So I think increasingly women will continue their march through the
corridors of power.

If you accept there are some reasons why Australia should be positive about its future, and if
you accept there are some forces at work that aren’t going to change so therefore, business
and governments are smart to organise these activities around these forces understanding our
strengths then that gives you a template for the future. In Australia we don’t expect politicians
to be standing on the sidelines as their children play sports on a Saturday or sitting at the
dinner table, talking about how to pay the utility bills – or sitting at an interview when you’re
going for a promotion in a financial services company but we do reasonably expect the
government of the day to have some idea about the future and how to navigate it.

Lewis Carroll, Alice in Wonderland author, wrote – “if you don’t know where you’re going, any
road will get you there”. So this is a government that is interested in how we get to the future.
In politics, you can have a debate between those who will tell you that we can stay as we are
and that change is not a convenient thing to do at the moment, next week or next year.
Regardless of the political affiliations of the people in this room, I think you all get grasp by the
day to day work that you do, that change is a fact of life. I spoke about the forces that show we
are changing and I’ve spoken about the factors that show we should not be afraid of the rest of
the world. That we are capable of changing and making change that ensures Australians come
through with a high degree of resilience and capacity and prosperity.

The government just 2-3 weeks ago announced a white paper on Asia. The process of having a
discussion about what should be Australia’s settings with Asia in the Asia century. We’ve
announced, courtesy of the work being done by groups of Australia’s business leaders and
Treasury that we want to make it easier for foreign funds to be invested in Australia through
the investment management regime changes and there will be more news on that in the near
future. We are certainly keen to see a pilot Asian region fund passport, although I’m sanglime
that the finance ministers at APEC in Honolulu endorse this in their communiqué as recentlky
as the last 24 hrous but I am realistic there are other jurisdictions in Asia that may not want
these funds moving in and out. In some jurisdictions there is more concern about capital
inflows and outflows than we have in our own economy.

We’re also trying to list our national savings. We have a savings system in Australia where
people have developed from 1985 to now, where all Australians that go to work, their
employer puts aside 9% into a compulsory savings account for Australians when they retire.
One of the challenges of living long is that the aged pension will not be able to fulfil everyone’s
expectations of a comfortable retirement. So we have the fourth largest privately managed
funds in the world, there’s not many things that Australia comes fourth at and we’re now
seeking in parliament to get it lifted from 9% to 12%. Now, imagine if the United States in 1985
had gone down the path that we’d gone down, moving from zero to 3% of defined
accumulation – 3% of people’s pay going into a savings account, not eligible to be touched
until retirement and then in 1992 when we lifted it from 3% to 9% over the next 10 years, if
the United States had done this then there’d be 9% accounts accumulating for every American
who goes to work. Now I’m not saying that the 401K plans and that other systems aren’t good
but I put to you this proposition that if the effect of going from zero to 3%, and then from 3%
to 9% meant we now have a private savings retirement savings system which is equal to the
size of our GDP – and when you add in other savings, Australians have got about $1.8 trillion
saved and out GDP is roughly $1.3 trillion. Imagine if that had happened in the great and
powerful United States, if they had compulsory defined savings, I just think perhaps that some
of the economic landscape would look differently.

So we are making decisions for the future, we want to engage with Asia, we want to make it
easier for funds to come here. We want to attract investment here, we also want to encourage
our superannuation or pension funds to invest in, I think the term ‘emerging markets’ almost is
too clumsy now but ‘growing markets’. We want to have a pool of savings, a distinct national
advantage which gives otherwise small nation opportunities. The other thing were doing is we
are embarking on the largest federal investment in our education system, in primary and
secondary system of capital works. We now have half a million Australians doing training or
apprenticeships, again some of our numbers I accept sound small by some of the jurisdictions
from within which you operate, but we recognise that the mining boom will end. That is why
we’re keen to share the proceeds of the mining boom; it’s creating a multiple speed economy.
Our dollar keeps pushing above parity, it’s good if you’re an Australian travelling overseas, and
it’s not so good if you’re one of the ministers in charge of Commonwealth revenue. It’s
certainly not so good if you’re running a domestic tourism operation, domestic education
service or domestic retail where imports and other jurisdictions are more attractive than our

Also we’re seeing a lot of capital investment, we’ve got a big pipeline of capital investment
going into mining and we’re seeing $82 billion last year, there’s $430 billion worth of work
been nominated for project from mining to hydro-carbons to LNG in Australia. We’re also
seeing that our unemployment is at about 5.2% which is pretty good. There is certainly
regional tenderness in our economy and sectors that are doing it harder than others. Our cash
rate has gone down, we’ve been at the high end I think compared to some jurisdictions but
that’s going down.

The Australian economic story is one I think of reasonable optimism, but we need to
understand that there are forces at work. We also need to understand that governments
shouldn’t be intervening at every question – and whilst Michael said I got through a lot of tax
legislation, I didn’t know if some of you would have thought that was something to boast
about. But we’re certainly trying to remedy outstanding issues within our taxation system step
by step. But with our mining prosperity, the mining companies in Australia and overseas who
are operating in Australia, have recorded $92 billion worth of profit in the last 12 months.
There’s discussion around does the mining tax threaten the mining boom? We estimate we’ll
take $3 billion of that $92 billion. That’s not sovereign risk, that’s a pretty modest deal. We
intend to use that to help underwrite tax concessions so that all Australian’s can increase their
compulsory savings from 9% to 12% to lower the corporate tax rate to provide instant asset
write-offs for 2.7 small businesses in Australia.

Just to recap, I think there are reasons to be optimistic in Australia at this point in our history. I
think there are forces at work which governments of all political persuasions are well-minded
to go with. Australians. And I suspect citizens elsewhere, they’re organising their lives around
ideally living for as long as they can, with as much quality and meaning and prosperity and the
ability to cope with catastrophe and healthy lives. Our citizens have worked this out, that Asia
is a fantastic opportunity for Australia. They’ve worked out that most of their kids will work in
services and that they’re no longer only going to have one job for life so they need to
constantly be in the education system and we’ve also worked out that we can’t simply retire as
some did at 55 anymore and that we’ll be working to a longer point in our life than we ever
have before. But want to make sure that we have the economic and educational skills to have
8 jobs in your life not just one career in your life.

There are the odd threats to this picture of the future. Australia, like all nations, needs to resist
the tendency to protectionism or ‘little Australia’ thinking. The people who say we can’t
compete with the rest of the world that we need to pout more tariffs on our farm product that
we need to prevent foreign investment, because somehow Australia just isn’t up to being a
part of a global environment. The government has a diametrically different view. Most
recently our prime minister and treasurer have been working on how we improve trade within
the pacific region. We welcome foreign investment. 60% of all our food in Australia is
exported. It generates 75% of the income for agriculture yet 90% of what we consume in
Australia is grown locally.

I think Australian’s can afford to be optimistic about the future but we constantly have to be
on our guard against people from the far left who would say Australia’s a tired old continent
that we can’t take any more people, that Sydney is full, that Melbourne is full, that if we can’t
live in cities anymore and we also need to be wary of those on the right who would say that
somehow immigration is a threat to the Australian way of life. From 1788 most of us are
actually immigrants, I got a notice from the Minihan family (Minihan is an Irish name, they
come from County Limerick), they said did I want to go to a reunion of the Minihans to
celebrate the arrival of Thomas Minihan in 1836. So I rang Mum and said I thought most of you
came in the gold rush in 1851, and for a long while it was cool to have your family arrive here
after 1851 for reasons which Australians will explain to you – but anyway my great, great,
great uncle to the power of 8 got a free ticket from London, he wasn’t a very good thief but he
made a good life in Australia after 7 years of working for the government and just as the
Minihans now number several hundred I think that we should all be optimistic about the
future but you should also believe we’ve got a government is Canberra who in is engaged for
the rest of the world and we are enthusiastic not just for our success but for the success of
KPMG, but the contribution that Australians at KPMG can make on the global stage and we
are enthusiastic and ambitious that for the next 20 or 30 year for Australian life.