(A speech on Australia and Victoria's business and technology future)

Hon. Mark Birrell MP

Minister for Industry, Science & Technology

29^th July 1999

Grand Hyatt

It is an honour to be given the opportunity to deliver the keynote address for this Outlook Australia Forum.

In a nutshell, the basis for my address this morning is about Australian business being even better positioned to gain advantage in the growing global economy; being smart, being motivated to win markets overseas and being committed to the R&D and skills development that will be the drivers of such success in the new millennium.

I, of course, speak from the perspective of a State Government with an unequivocal industry policy.

We have never had doubts about the veracity of, or the tools needed for a successful industry policy. Such a policy does have a big influence on competitiveness and, just as importantly, is seen to make a difference by global business.

I also speak as a member of a government that is a reform government – some even call it radical – in the sense that we are forward thinking and prepared to initiate root and branch reforms to ensure Victoria’s competitiveness, both now and in the future.

The reforms have paid measurable economic and social dividends – and they must continue.

Back in 1992 when the Coalition was elected to power in Victoria, we were faced with a mountain of debt, a demoralised public sector, and a business community shell-shocked by the recession of the 1980s and labouring under the nation’s highest taxes and Workcover changes.

We had no choice but to wipe the slate and start again, with a strategic rethink on all aspects of policy.

Our first objective was to create the right environment for wealth creation – to build the best business environment in the region and to woo back the investors that had streamed out of the State over the preceding decade and nobody should underestimate our contribution and determination to bring a business ethos into the heart of the Government.

From day one Premier Kennett made it clear that business is an indispensable partner for good government sand thriving communities, and that his new government intended to work in partnership with the private sector to build the basis for sustained prosperity.

We rolled back the bloated public sector and associated debt to give ourselves room to redirect public funds into taxation reductions and building the infrastructure that underpins economic success.

And we ensured that on all important issues there would be a whole of government approach – with State agencies working together and with industry through mechanisms such as the Victorian Business Round Table; Science, Engineering and Technology Taskforce; Multimedia Victoria Taskforce: and Food Victoria – to maximise efficiencies and synergies and create certainty for business.

Next, we set out to be a government that provided strong leadership and long term vision, with clear direction, consistent polices, long term planning and targeted programs as the basis for accelerating positive change and reviving the State’s fortunes.

An essential driver of Victoria’s industry policy has been the recognition that our job in government would not be complete if we just locked in a competitive business environment in the short term.

We made a real effort to focus industry attention on the challenges and opportunities ahead, and to encourage people to let go of traditional business activities where these were becoming less and less relevant in a changing world.

We showcased the best to encourage the rest.

Now, while others are talking about renewing industry policy as the world moves into an economy increasingly based on knowledge, we in Victoria have been working through the agenda to put in place the essential capabilities for success in the global knowledge based economy. We have focused on:

• our skills base
• attracting smart businesses
• infrastructure to move ideas and smart products
• innovation systems, and
• perhaps most importantly, promoting transition to the knowledge economy.

In 1992 we were keenly aware that a global level of competitiveness – of both our business environment and our businesses – was essential, and that knowledge would be the key to economic success in the 21^st century as ingenuity replaces labour and resource costs as the major determinant of competitiveness.

And it was obvious that: the level of technology and skills needed to stay ahead of the pack was increasing rapidly (as it still is); and that sustainable business growth – and indeed survival – would depend on enhancing the store of intellectual capital that drives emerging industries and advances in traditional business.

Australian competitiveness is increasingly defined by skills, innovative capacity and the ability to turn new ideas into products that world markets want to buy.

The education and training system must therefore:

• breed inquiring minds that generate new knowledge and ideas
• provide people with the skills business needs, and
• engender a culture of lifelong learning to keep knowledge current.

This has been the aim of fundamental reform of this State’s education and training system.

Victoria now leads Australia on key business skill indicators:

• we have the highest university participation rate of any State
• we have the highest number of students studying engineering, science and mathematics/computing
• Victoria has the highest TAFE participation rate of any State
• 50% of Victoria’s workers have post-school qualifications
• our ratio of research scientists and engineers in the workforce is higher than those of South Korea, Germany, Canada and the United Kingdom
• we now lead Australia on R&D spending.

The State also has a strong and growing cohort of professionals at the forefront of enabling technologies – such as information and telecommunications and biotechnology – that will form the core of the knowledge rich businesses of the future.

While governments can do much to help build skills, it is ultimately up to firms and individuals to develop and adopt a learning culture and to invest in lifelong skills development and building on entrepreneurial capacity.

The Government has recently launched Skills for the New Millennium, outlining our policy and programs for partnering business, individuals and education and training providers in ensuring Victoria maintains its skills advantage.

A key direction of Victoria’s industry policy is to position this State as the best place to build the emerging industries based on knowledge and innovation. Our focus is on making sure that Victoria stacks up as the leading regional location to do business long term – one of the best investment destinations in the world – and providing a smart facilitation service to investors.

Indeed, our model has been heavily borrowed by the Commonwealth in Invest Australia and we are delighted to be able to work co-operatively at the national level.

We have made a strong effort to attract regional headquarters and back-of-house corporate centres, as they are home to:

• decision makers who have opportunities to shape the destinies of their companies and influence investment choices
• centres of innovative thinking that add to the critical mass of Victoria’s intellectual capital.

More significantly in the knowledge economy, we also made a conscious decision that we would pursue R&D intensive companies, high tech manufacturing and sophisticated services firms.

Victoria has had outstanding success in attracting world class firms seeking to set up new state of the art manufacturing plants or service delivery centres, and in persuading existing businesses that this is the best place to renew and expand their operations.

We have Robert Bosch in Clayton producing automotive electronics for car producers worldwide, Bonlac selling dairy products from Gippsland to the world, Toyota’s $1 billion boost to its car production centre, the General Motors Asia Pacific design hub at Holden in Fishermen’s Bend and the British Aerospace plan for its new aircraft design centre in Melbourne.

Many more major investments like these have re-invigorated the Victorian economy.

They have 3 great common characteristics: they are export focussed; skills based; and R&D reliant. And – in Victoria – they are now part of Australia’s largest concentration of diverse and sophisticated multinationals and home grown companies.

Supporting business efforts to build clever infrastructure has been a feature of our approach. Just two examples are:

• the excellent base we now have for growth of this State’s burgeoning IT and multimedia sector, nurtured by the groundbreaking Victoria 21 policy
• the strong infrastructure for biotechnology enterprises developed by the world class cluster of private and public sector organisations in the Parkville Strip, and in the emerging Alfred precinct.

We see investing in the infrastructure for the creation of new knowledge as vital for future competitiveness and fundamental to our future well-being.

So much so that in the 1999-2000 State Budget we committed to providing ongoing funding through Investing in Innovation.

This initiative will provide $310 million in its first five years to:

• catalyse knowledge creation
• facilitate infrastructure development
• aid commercialisation of new ideas.

This is the most important single injection of funding invested in the State’s science, engineering and technology base, a real breakthrough in terms of governmental leadership.

Finally, where business growth programs were once the sole centrepiece of industry policy, they are now complementary to getting the business climate right and building business capabilities.

Nevertheless, providing practical tools to assist firms to compete, expand and export can promote business transition deeper into the global marketplace and the knowledge economy.

We have re-engineered our business growth programs to focus this catalytic effect, and a summary of the Business Growth Initiative is available here today. Examples of our change of focus include:

• a new emphasis on group business activities – government sponsored workshops that give groups of SMEs access to business development programs
• extension of business development programs to the knowledge-rich services sector, important at a time when Melbourne has become a key centre for many of the smart services that form a rapidly growing part of the knowledge economy.

Over two terms the Victorian Government has made major changes in direction that have been of great benefit to business and to Victoria’s citizens.

Victoria is doing well on the jobs front, with major growth in the services sector, and on all ABS measures employment in Victoria’s manufacturing sector has increased since 1993.

There are 2.19 million Victorians at work today, the highest employment level ever recorded in this State’s history.

Gross State Product is up 25%, private business investment has more than doubled and exports have grown substantially, despite the Asian meltdown.

Australia as a whole is not doing too badly either, and Victoria can claim a major share of the credit for Australia’s current competitive strength.

We might be tempted to sit back and let the benefits of the work done so far flow in. But in reality we cannot.

The Asian economies are bouncing back into contention – especially in exports – and international competition will intensify.

Competitors worldwide are reshaping their industry policies with a heavy emphasis on, and commitment to investment in, building skills and the capabilities for generating and using knowledge.

Australia has the capacity to grab more than its "fair" share of global investment and growth – as Victoria has done – but if we let one round of global investment slip by we make ourselves less attractive for the next.

And we must move faster in developing a smart economy, if we are not to fall behind.

Although the last couple of years have seen Australia lost some momentum as an improver in the innovation stakes, the moment could not be more auspicious for national industry policy renewal.

The 1999 mid-term Kearney index of foreign direct investment shows Australia in seventh place among likely world destinations for investment over the next three years, up from fourteenth just six months ago.

But global investor interest is volatile, and to keep track for future success we must continue to attract the knowledge rich investors who will bu9ld on strengths, plug gaps in supply chains and offer good prospects for employment and export growth.

We believe our State priorities must also be national priorities.

Governments across Australia should take the Victorian approach to promoting business growth:

• adopting industry policy strongly predicated on enhancing global competitiveness
• cutting the cost of doing business so companies can get on with providing jobs and growing the community’s wealth (with our successive cuts in payroll tax and lower Workcover changes and local government rates being clear examples of what can be done)
• removing impediments and smoothing the path for business development, especially through regulatory and tax reform (our total deregulation of shop trading laws being a classic example)
• leading in making competition policy work – especially by withdrawing from activities which are more properly the province of the private sector (energy and transport privatisations are key examples)
• catalysing the shift to knowledge-based business and assisting industry to handle the impacts of that shift
• nurturing the clusters and networks that promote the emergence of new ideas
• fostering an entrepreneurial culture
• providing access to catalytic business growth programs, and
• ensuring that infrastructure to support knowledge creation, innovation and efficiency gains is created and constantly renewed through partnership between the private and public sectors.

The Commonwealth’s release of Investing for Growth was a welcome sign of business policy renewal. The action now being set for priority sectors, along with major funding commitments to science and medicine, are to be applauded.

But as we eagerly await the imminent report of the Ralph review of business taxation, I want to stress the fundamental importance of a sensible business tax regime to attracting the industries of the future to establish and expand in Australia.

Victoria is proud to have led the charge for generational tax reform, campaigning hard for a broader tax base and materially influencing Federal policy on this issue.

The State Government has provided major policy input to John Ralph’s team and to our Commonwealth colleagues at this crucial next stage of taxation reform, arguing that half-hearted reform will not do the job.

Australia has so much going for it: able and creative people, a stable political environment, abundant resources and a lifestyle that is the envy of the world. It is high time for the Commonwealth to complete this picture by delivering a new business taxation regime that:

• is broadly based and at as low a rate as possible, within revenue and other constraints
• encourages R&D innovation
• facilitates continuing public sector reform
• complements Australia’s other great strengths in attracting foreign and domestic investors
• provides stability and certainty.

We can stay competitive, but only if the Commonwealth Government gets it right, and very soon.

When Jeff Kennett spoke to a CEDA gathering back in April, he mentioned several instances of companies getting out of Australia and sending R&D offshore for tax reasons. And currently we are talking to potential investors whose decisions depend on the Federal response to the Ralph review – investment really does hang on tax treatment of profits, capital gains and R&D.

The Prime Minister’s recent comments on capital gains tax are very welcome, but other incentives to attract investment and promote the supply of venture capital will be vital to:

• maintaining investment growth
• maintaining our knowledge edge
• preventing the ideas that will drive the industries of the future going offshore.

With a big year ahead – including events like the Sydney Olympics - it would be a major coup for this nation if we could unveil a business environment re-energised by business friendly tax reforms – locked in for a decade to provide certainty – while Australia is in the world spotlight.

Victoria will be expecting major reform, and we have faith in a positive outcome due to shear nerve shown to date on this key issue by the Commonwealth.

This morning I have given a very broad brush outline of how one State has turned itself around, and my key message is that neither government nor business can go it alone in ensuring Australia has what it takes to compete successfully in the global economy of the new millennium.

CEDA members have a great capacity to promote and catalyse positive change, as governments do, and we must continue to work together to take this nation further into the knowledge economy.