The last time Australia had a recession in the early 1990s, Terminator 2 was the top grossing movie, Bryan Adams had the top charting single, and Australia’s most popular TV personality was Steve Vizard.
More recently, however, Australia’s economic growth has slowed.
At the same time, the global economy has also slowed. Slower global trade is expected to continue for some time with the potential impact of an escalating trade war between the US and China, and wildcards like Brexit.
But looking through these concerning risks, the underlying drivers of demand in the Australian economy remain sound.
Our population growth is well above most developed markets. State and Federal infrastructure spending commitments are large. Our relatively low dollar should continue to support export earnings, and historically low interest rates should stimulate consumer spending. The Morrison Government’s recent tax cuts should also provide significant stimulus to the economy.
That’s all good. But it could be a lot better.
There is no simple answer to drive Australia’s growth rate back towards its potential, other than the observation that all of us – governments, regulators, the financial sector, and businesses themselves – need to work together to rekindle confidence and fire up the ambition of business leaders to invest in the growth opportunities of the next decade.
Recently this collaboration has not been as strong as it needs to be.
The political dynamics within and between the major parties has made genuine policy reform difficult. The cases of inexcusable behaviour by banks and other financial services entities exposed by the Royal Commission have damaged trust in banks, and businesses themselves lack confidence due to an uncertain tax, regulatory and competitive outlook.
To address this, there are three areas where I believe governments, regulators, and banks need to work more effectively together: credit growth, business investment, and economic diversity.
The rate of mortgage credit growth is at an unprecedented low, and lending to businesses has grown only marginally compared to this time last year.
Tighter bank credit is often cited as a cause.
But banks want to lend. It’s a big part of why we exist, and how we make money.
And we want to do it responsibly. The responsible lending laws introduced by Parliament in 2009 are well intended, based on sound principles, and generally speaking, have worked well.
But in recent years, we’ve seen regulators become more prescriptive in their interpretation of what they believe banks need to do, both to comply with the law and to demonstrate that a borrower is creditworthy.
And given the severe consequences of getting it wrong, it’s not surprising that bankers are building extra ‘buffers’ into their policies and processes to make sure they stay well clear of the line.
But I do believe the unintended consequences of the current legal and regulatory approach pose a danger for our economy.
Why? Because highly prescriptive, micro-prudential regulation reduces lenders’ ability to exercise judgement in helping customers reach their aspirations.
Kerry Stokes, one of Australia’s most successful businessmen ever and a long-time customer, summed it up beautifully when he recently said to me: “If we end up with only prescriptive regulation on credit policies, and no human touch, no entrepreneurial spirit, nor a continuing human support system provided by the lender, we will lose the next generation of budding business men and women.”
That’s not the bank we want to be for our customers.
And that’s not the banking system that Australia needs if we aspire to improve our standard of living and maintain our position as one of the world’s most successful economies.
As for demand for credit, there are ways we could help more Australians achieve the great dream of home ownership and the Federal Government’s First Home Loan Deposit Scheme is a great step.
However, to address long-term affordability we need to consider other changes.
For example, the big upfront cost of buying a home – particularly stamp duty – is both a barrier for buyers and a disincentive for people to sell a home that’s bigger than they need. Replacing stamp duty on purchases with a broad-based land tax would fix this and provide governments with stable revenue, as the ACT has been rolling out since 2012, without radical disruption of the property market.
I recognise that proposals like this are politically difficult, but they are worth considering if we’re going to help more Australians into their own homes.
In terms of business investment, when we speak to business customers about what’s holding back investment, the most common response is “bottlenecks in the system”.
For perspective, the cost of complying with government regulation has been estimated by Deloitte at around $94 billion per year – that’s money that isn’t being invested in technology, research, expanding overseas, reducing costs, and improving productivity.
In fact, total R&D spending is down dramatically over recent years. We’ve also seen a drop in the number of local patent applications over the last few years – which is not a great sign for future commercialisation.
The good news is that tackling bottlenecks is high on the Federal Government’s “to do” list. And states such as New South Wales have made great strides in modernising systems and simplifying the process of interacting with local government.
I don’t doubt you’d see an uptick in investment if there were fewer regulatory differences across jurisdictions, if state utilities and local councils moved faster on development decisions, if planning approvals for major projects were quicker, and if tax structures further rewarded investment in R&D and training.
And if we can get the demand for investment going again, banks like Westpac will be there to provide the funding.
As part of this, today we announced that we will soon launch a new digital, unsecured lending service which uses real-time transaction data and advanced analytics to make fast, online credit decisions for small businesses. We estimate we’ll make an extra $10 billion available in unsecured, conditionally approved limits for small businesses, without needing to put up other assets as security.
We remain excited about Australia’s economic potential. The latent potential is there, the physical and human capital is there, but it will take a focused and constructive dialogue between all of us to realise that potential.
For Westpac, we accept, and are clear-eyed about, the significant work needed to lift our standards.
But we are not letting our internal challenges distract us from the role we must play building a stronger and more sustainable Australian economy — because we’re all in this together.
This is an edited version of a speech Brian Hartzer delivered at a Trans-Tasman Business Circle event in Sydney on 30 July 2019.
Brian joined Westpac as Chief Executive, Australian Financial Services in 2012 and was Managing Director & CEO from 2015 to 2019. Prior to joining Westpac, Brian spent three years in the UK as CEO for Retail, Wealth and Ulster Bank at the Royal Bank of Scotland Group, ten years with ANZ in Australia and ten years as a financial services consultant in New York, San Francisco and Melbourne. He graduated from Princeton University with a degree in European History and is a Chartered Financial Analyst.
{"topicSelector":[{"tagId":"newsroom:topics/economy","name":"economy","description":"Explore more Economy insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Economy","url":"/news/topic.economy/"},{"tagId":"newsroom:topics/banking","name":"banking","description":"Explore more Banking insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Banking","url":"/news/topic.banking/"},{"tagId":"newsroom:topics/digital","name":"digital","description":"Explore more Digital insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Digital","url":"/news/topic.digital/"},{"tagId":"newsroom:topics/diversity","name":"diversity","description":"Explore more Diversity insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Diversity","url":"/news/topic.diversity/"},{"tagId":"newsroom:topics/workplace","name":"workplace","description":"Explore more workplace insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Workplace","url":"/news/topic.workplace/"},{"tagId":"newsroom:topics/community","name":"community","description":"Explore more community insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Community","url":"/news/topic.community/"},{"tagId":"newsroom:topics/sustainability","name":"sustainability","description":"Explore more sustainability insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Sustainability","url":"/news/topic.sustainability/"},{"tagId":"newsroom:topics/technology","name":"technology","description":"Explore more Technology insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Technology","url":"/news/topic.technology/"},{"tagId":"newsroom:topics/property","name":"property","description":"Explore more Property insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Property","url":"/news/topic.property/"},{"tagId":"newsroom:topics/westpac","name":"westpac","description":"Stories featuring Westpac corporate news.","title":"Westpac","url":"/news/topic.westpac/"},{"tagId":"newsroom:topics/sme","name":"sme","description":"Explore more Small Medium Enterprise insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"SME","url":"/news/topic.sme/"},{"tagId":"newsroom:topics/innovators","name":"innovators","description":"Explore more Innovators insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Innovators","url":"/news/topic.innovators/"},{"tagId":"newsroom:topics/leadership","name":"leadership","description":"Explore more Leadership insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Leadership","url":"/news/topic.leadership/"},{"tagId":"newsroom:topics/covid19","name":"covid19","description":"Stories influenced by the COVID-19 pandemic.","title":"COVID-19","url":"/news/topic.covid19/"},{"tagId":"newsroom:topics/investing","name":"investing","description":"Explore more Innovators insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Investing","url":"/news/topic.investing/"},{"tagId":"newsroom:topics/startups","name":"startups","description":"Explore more Startups insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Startups","url":"/news/topic.startups/"},{"tagId":"newsroom:topics/personalfinance","name":"personalfinance","description":"Explore more insights about personal finance, financial literacy and financial wellbeing. ","title":"Personal finance","url":"/news/topic.personalfinance/"},{"tagId":"newsroom:topics/agribusiness","name":"agribusiness","description":"Explore more Agribusiness insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Agribusiness","url":"/news/topic.agribusiness/"},{"tagId":"newsroom:topics/billsbites","name":"billsbites","description":"Explore more insights from Bill Evans at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Bill\u0027s Bites","url":"/news/topic.billsbites/"},{"tagId":"newsroom:topics/data","name":"data","description":"Explore more data insights at Westpac Wire.","title":"Data","url":"/news/topic.data/"},{"tagId":"newsroom:topics/scams","name":"scams","description":"Stories about the latest cyber scams news and trends. ","title":"Scams","url":"/news/topic.scams/"},{"tagId":"newsroom:topics/environment","name":"environment","description":"Explore more Environment insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Environment","url":"/news/topic.environment/"},{"tagId":"newsroom:topics/payments","name":"payments","description":"Explore more Payments insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Payments","url":"/news/topic.payments/"},{"tagId":"newsroom:topics/fintech","name":"fintech","description":"Explore more Fintech insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Fintech","url":"/news/topic.fintech/"},{"tagId":"newsroom:topics/politics","name":"politics","description":"Explore more Politics insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Politics","url":"/news/topic.politics/"},{"tagId":"newsroom:topics/career","name":"career","description":"Stories providing career insights, tips and trends.","title":"Career","url":"/news/topic.career/"},{"tagId":"newsroom:topics/social-enterprise","name":"social-enterprise","description":"Stories relevant to or featuring social enterprises.","title":"Social enterprise","url":"/news/topic.social-enterprise/"},{"tagId":"newsroom:topics/regulation","name":"regulation","description":"Explore more Regulation insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Regulation","url":"/news/topic.regulation/"},{"tagId":"newsroom:topics/indigenous","name":"indigenous","description":"Explore more indigenous insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Indigenous","url":"/news/topic.indigenous/"},{"tagId":"newsroom:topics/wellbeing","name":"wellbeing","description":"Stories featuring wellbeing trends, insights and stories.","title":"Wellbeing","url":"/news/topic.wellbeing/"},{"tagId":"newsroom:topics/superannuation","name":"superannuation","description":"Explore more Superannuation insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Superannuation","url":"/news/topic.superannuation/"},{"tagId":"newsroom:topics/westpac-scholars","name":"westpac-scholars","description":"Stories featuring Westpac Scholars. ","title":"Westpac Scholars","url":"/news/topic.westpac-scholars/"},{"tagId":"newsroom:topics/reinventure","name":"reinventure","description":"Explore more Reinventure insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Reinventure","url":"/news/topic.reinventure/"},{"tagId":"newsroom:topics/asia","name":"asia","description":"Explore more Asia insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Asia","url":"/news/topic.asia/"},{"tagId":"newsroom:topics/podcast","name":"podcast","description":"Explore Westpac Wire\u0027s podcast series.","title":"Podcast","url":"/news/topic.podcast/"},{"tagId":"newsroom:topics/history","name":"history","description":"Stories unearthed from Westpac\u0027s private archival collection. ","title":"History","url":"/news/topic.history/"},{"tagId":"newsroom:topics/businesses-of-tomorrow","name":"businesses-of-tomorrow","description":"Stories featuring Westpac Businesses of Tomorrow program winners. ","title":"Westpac Businesses of Tomorrow","url":"/news/topic.businesses-of-tomorrow/"},{"tagId":"newsroom:topics/tax","name":"tax","description":"Explore more tax insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Tax","url":"/news/topic.tax/"},{"tagId":"newsroom:topics/goodpair","name":"goodpair","description":"Explore more Good Pair stories, showing two people making a big difference together. ","title":"Good Pair","url":"/news/topic.goodpair/"},{"tagId":"newsroom:topics/opinion","name":"opinion","description":"Expert opinions and insights. ","title":"Opinion","url":"/news/topic.opinion/"},{"tagId":"newsroom:topics/deals","name":"deals","description":"Explore more Deals insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Deals","url":"/news/topic.deals/"},{"tagId":"newsroom:topics/veterans","name":"veterans","description":"Explore more insights about defence force veterans at Westpac Wire.","title":"Veterans","url":"/news/topic.veterans/"},{"tagId":"newsroom:topics/currencies","name":"currencies","description":"Stories providing currencies insights, tips and trends.","title":"Currencies","url":"/news/topic.currencies/"},{"tagId":"newsroom:topics/analysis","name":"analysis","description":"Expert analysis on economic news and other trends.","title":"Analysis","url":"/news/topic.analysis/"},{"tagId":"newsroom:topics/IWD","name":"IWD","description":"Stories focusing on International Women\u0027s Day, on 8 March annually. ","title":"IWD ","url":"/news/topic.IWD/"},{"tagId":"newsroom:topics/luciscall","name":"luciscall","description":"Explore more insights from Westpac\u0027s chief economist Luci Ellis at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Luci\u0027s Call","url":"/news/topic.luciscall/"},{"tagId":"newsroom:topics/rework","name":"rework","description":"Stories of businesses pivoting in the face of the COVID-19 pandemic.","title":"Rework","url":"/news/topic.rework/"},{"tagId":"newsroom:topics/10Qs","name":"10Qs","description":"\"10Qs with...\" is a series that asks leaders what makes them tick.","title":"10Qs","url":"/news/topic.10Qs/"},{"tagId":"newsroom:topics/commodities","name":"commodities","description":"Insights into commodities markets.","title":"Commodities","url":"/news/topic.commodities/"},{"tagId":"newsroom:topics/quarterlife","name":"quarterlife","description":"Explore more Quarter Life insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Quarter Life","url":"/news/topic.quarterlife/"},{"tagId":"newsroom:topics/shareholders","name":"shareholders","description":"Stories relevant to Westpac shareholders.","title":"Shareholders","url":"/news/topic.shareholders/"},{"tagId":"newsroom:topics/climate","name":"climate","description":"Explore more climate insights at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"Climate ","url":"/news/topic.climate/"},{"tagId":"newsroom:topics/esg","name":"esg","description":"Explore more insights on environmental, social and governance issues at Westpac Wire. Subscribe to the Westpac Wire newsletter to stay in the know.","title":"ESG","url":"/news/topic.esg/"},{"tagId":"newsroom:topics/boardwalk","name":"boardwalk","description":"A series of in-depth podcast interviews with board directors to find out what\u0027s on their minds. ","title":"Board Walk","url":"/news/topic.boardwalk/"}]}