Fireside chat | Common challenges outside infrastructure

► Ken Morrison, Chief Executive Officer, Property Council of Australia ► Andrew McKellar, Chief Executive Officer, Australian Chamber of Commerce and Industry

► Meegan Sullivan, Chief Executive Officer – Australia Asia Pacific, RPS

Meegan Sullivan (MS): Welcome, Ken and Andrew. I know that a lot of people in this room work in the infrastructure sector, but also in other sectors, as well. So, I think this is a fantastic opportunity to hear what’s happening in your space. You both represent a range of businesses across the country. What are you hearing from your members at the moment about the key issues facing them? Let’s start with you, Ken.

Ken Morrison (KM): I think right at the top is what’s happening with inflation. People are as concerned about what’s happening with inflation as they are about the prospect of central banks overshooting the mark. So, I think there is a narrow pathway, and there’s a lot of pessimism around whether that pathway will be landed or whether we’ll overshoot. Skills shortages, supply-side impacts and what these combined issues do to construction when you put those two things together in real estate means that it’s very difficult to make decisions at the moment. We’ve seen a pause in capital, which has been significant. We’ve seen companies get out their recession plans over the last few months, and we’ve also seen it become quite difficult to manage existing construction projects and commit to future construction projects. So, that has meant that there’s really been a rapid sentiment change since the start of the calendar year, when the dominant view was that we were going to slingshot out of the COVID-19 period and everything was going to be tickety-boo.

Andrew Mckellar (AM): I agree a great deal with what Ken has just said. When we look at the data that we see, and the surveys that we get back, what’s going on out there in business and industry is that skills and labour are absolutely top of the list. That is along with difficulty accessing materials, supply chain disruption and the cost of doing business. It’s not just the cost of living that’s going up, it’s the cost of doing business in terms of the cost of materials in the supply chain, as well as energy – they are big factors. Coming back to what we see in the data, when we look back over the years, we have one of the longest-running business surveys in Australia, the ACCI–Westpac Survey of Industrial Trends. It goes right back to the 1960s. If you look back to 1974, which was the last oil shock, we see the difficulty of accessing labour at similar levels – though it’s not quite as bad as that – and the same thing with materials. So, these are really pressing challenges. It’s all about the supply side at the moment.

In terms of the policy settings going forward, this is quite a unique conjunction of events. If we think about the last two or three shocks that we’ve been through – things like the global financial crisis – they were demand-side shocks. The way the Government responded initially to the pandemic was to fuel demand with $300 billion in fiscal stimulus, unprecedented in the history of the country. That really underpinned the demand side of the economy. We still have a bit of an overhang of excess demand. That’s part of what the reserve bank is responding to as it’s now pushing up interest rates, but we have to be really careful. We know that when you’ve got a supply-constrained economy, jacking up interest rates can actually have a counterintuitive effect. So, there has got to be a really careful balancing of policy here. The focus of policy going forward has to be about building capacity in our economy and responding to those labour shortages through an integrated strategy. I’m sure we’ll talk about that in a moment, but I think those are the fundamental ingredients that we’re observing at the moment.

MS: Given that you both represent a range of businesses, are there particular parts or sections of your member base you think are doing it tougher than others, or better than others?

AM: Honestly, it’s across the board. If you look at our membership base, sectors like tourism and hospitality, which were absolutely hammered during the pandemic, are still struggling to recover and to get labour. A big source of their labour force comes through international students and working holiday-makers. They’re only just starting to come back into the country now, so they’re really struggling there. Building and construction is obviously a sector that a lot of people here would know more about, so I’ll let you talk on that. I think with regards to demand for skilled positions, whether it’s mechanics, IT or health services, people are crying out. So, really, we haven’t seen anything like this for decades.

KM: Yeah, I agree. It’s an interesting environment right now because we are all forced to look at this glass as being half empty, but there’s growth in this economy. If you come back to real estate, there was a lot of stimulus put into the housing sector to see us through the lockdowns. That did create a pipeline, which is still working its way through the system. Some big questions were asked in 2020 around commercial property: would anybody ever go to the office again? Would investment stay in the CBDs? Those questions have been asked and yes, absolutely. Businesses are leasing space and investing in our CBDs. It is this funny period where all these risks that we are talking about are real, present and serious. The future is quite uncertain in a number of different areas, but there are also these strength areas of the economy. So, it’s a challenging period and in challenging periods it’s hard to make decisions. I think we’re seeing some of that.

MS: Surely in challenging periods, there’s also opportunity, as well?

KM: And getting set for opportunity, which is also, I think, what many are doing.

MS: We have spoken a lot about skills, and there was obviously the Jobs and Skills Summit recently. I’m sure you’re going to tell me there’s no silver bullet, but is there anything interesting or innovative happening in the sectors that you

represent that we could potentially learn from?

KM: Well, I agree there’s no silver bullet and it was very encouraging to see a focus on migration and population at the Jobs and Skills Summit. I think the announcements that were made there are very positive, such as freeing up visa processing – more money and resources going into that – and lifting net overseas migration. But it would also be nice to see more focus on the ramp-up. I think the disappointing thing is that the Australian economy needs a fast ramp-up back to a more normalised population growth level. There’s been a lot of debate about what the right population growth is, and how that integrates with long-term skills training and development. That’s a good discussion and debate to have, and we certainly support the Government looking at that, but we have to get people back into this country as quickly as we can. If we take a 12-month ramp-up here, that’s a lot of lost opportunity. And if we’re talking about the supply bconstraints, the closest thing you could find to a silver bullet would be a fast ramp-up to a re-normalisation of our population flows. That would address a lot of the immediate skills shortages we’ve got, so we’d encourage the government to have lots of urgency about that issue.

MS: It’s an interesting experiment, isn’t it? Shut the borders and throw a lot of money at it.

AM: I’d agree with that; it was good to see at the Summit some immediate measures being proposed and migration a part of that. Certainly it was important to see the increase in the permanent skilled migration intake. So, pushing the overall permanent migration intake from 160,000 places a year up to 195,000 places a year is a good measure. Importantly, as was throwing in resources to speed up the visa processing time frame at the moment, because that’s been very slow. We are seeing cases of six to nine months. We have to make up for lost time. There are other things that can be contemplated, as well.

At the moment, for business to bring somebody into the country, we have to negotiate a web of different bureaucratic hurdles. There are the priority lists that you’ve got to be on, and if you’re not on those, you can’t come in. There’s the income thresholds – that is a challenge – and the visa costs, the processing delays and the Skilling Australians Fund levy. These things are making it very difficult to respond in that space. I think we did see some progress on that last week and that will be helpful, but there’s a lot of other things that go onto the list now, and the agenda that we’ve got to work through. It includes investment in skills and other very important things that need to be done there to keep that pipeline flowing, including encouraging participation in things like the childcare incentive the Federal Government has as part of its platform. It might mean advantaging or encouraging other areas of demographics to come back into or stay in the labour force. I think these all have to be part of the solution we’re working towards if we’re going to address some of those challenges.

MS: And you were at the summit, Andrew, I understand?

AM: That’s right. There are a couple of familiar faces in the room.

MS: Any particular highlights from your perspective or any missed opportunities that didn’t get covered?

AM: I have to say, from a political and an optical point of view, it was a success for the Government. I do think that they set it up reasonably well. I’m sure that for many people it would’ve appeared very orchestrated, and that is probably true. But, nonetheless, there was a degree of dynamism and a degree of consensus in the room that I felt was very positive. I think we’ve got some short-term measures on vocational education and training places where they’ve made some commitments, and that needs to be resolved for the longer term. There are migration measures and some other points around industrial relations. I mean, the concession to start working on things like the ‘better off overall test’ is a good thing, but we’ve got huge risks in the longer-term agenda there, which we’re just starting to grapple with now in the industrial relations space.

There are things we talked about at the Summit, such as multi-employer bargaining – this is a real unknown. We don’t know the details of what’s proposed there. It’s a bit of a thought bubble that’s coming out of the Australian Council of Trade Unions, but there are real risks from a business point of view. What we don’t want to see is a situation where we’re going back to something that transforms into industry-wide sector bargaining. Productivity is driven at the enterprise level and at the workplace level. We have to make things like enterprise bargaining work effectively. We know where the problems are and we have to address those problems, not create a new problem by opening up another front that really isn’t going to lead to a solution. I think there’s real risks in that space.

MS: How do you think we can move the needle on

productivity issues? Has there been anything that’s come out of, say, the pandemic that you think might enable us to drive greater productivity in the Australian economy?

AM: Well, there are two areas. Labour force is one, and we’ve talked about that extensively. I think the other area is business investment; the productivity of our infrastructure is absolutely critical. The efficiency of ports is a key area. We’ve seen reports from the Productivity Commission highlighting some issues in that space. Not one major Australian port featured in the top 250 most efficient ports anywhere in the world. So, we know that workplace practices in our ports is a big issue and has to be addressed. Does the Government now have the appetite to start looking at those things? I think, really, it’s got to be seriously on the agenda and this will be the challenge. We have a government that had the courage to pull people together for the Jobs and Skills Summit – an absolutely great start. If they want to channel the reform agenda that we saw from previous governments, like the Hawke and Keating Government in the 1980s, then they have to have the courage and the ambition to follow through. They have to start to create an agenda for reform, which will include addressing some of the efficiency of our infrastructure, like our ports, if we’re going to go forward.

KM: Productivity is the next big thing to really unpack with the new Federal Government. It’s good to see that it’s part of their language pre- and post-election, and many of the reforms from the Jobs and Skills Summit were coached in or pitched in the productivity framework. This is what it’s all about. In the economy now, we’ve got this massive disruption post-COVID-19 that we’re working through, but then, longer term, it’s about productivity that’s going to drive the country.

Productivity has an urban dimension. The sort of gold standard blueprint is the previous work of the Productivity Commission, Shifting the Dial. What are the big things that are going to shift the dial on productivity? Well, one of them is better-functioning cities and towns. That’s about infrastructure and getting the planning right. It’s about having good housing policy and efficient taxation. It’s about having land-use planning systems that get to good outcomes without adding loads of cost and time uncertainty. And there is a lot of work to do in a lot of those different areas. The review of Infrastructure Australia is an important piece of work in productivity. We want governments putting money into infrastructure projects that are going to be the best infrastructure projects. The Government also has a commitment to ramp-up and deepen the previous government’s cities agenda. When you are thinking about infrastructure and cities’ policies, those two things absolutely go hand in hand, and are a huge productivity drive if we can get those right. So, we are very keen to be part of that conversation with the Government over the next six months.

MS: I guess a related issue with the labour side of productivity is the role of innovation and automation in the industries and businesses that you represent. So, I am interested in some views that you might have on that.

AM: Well, it’s not something that we should be afraid of at all. Artificial intelligence and increased automation is part of the future. This is part of creating jobs that are going to deliver much greater fulfillment. They’re going to be the jobs of the future, with much better living standards. So, I think we’ve got to grasp that opportunity in Australia to see how that can fundamentally change so many of the ways in which we do things, whether it be in transport, infrastructure, manufacturing, or in almost any walk of life. Those sorts of processes are going to have an influence. We do see examples where there’s still pushback on that, and resistance to things like automation, but it gives young people so much more opportunity to be able to get into the STEM fields, to be looking at science, and to be looking at things like engineering and software. I think these will deliver jobs that create higher living standards and greater opportunity, and improve lifestyles. We should be very excited about it.

KM: It can also be a big drive for the productivity agenda. Look at what the New South Wales Government has done with its service delivery model and using digital technology to enable better-quality service there; it’s world leading. I mentioned land-use planning systems before; well, we’re doing that pretty much the same way we did it in the 1980s. We’ve invented PDFs since then, but that’s about it. So, there’s a huge productivity agenda here, which is not a small issue. It’s actually a very sizeable issue and goes fundamentally to economic outcomes, but also quality of life as our cities evolve and grow.

AM: If you’re going to encourage this kind of investment innovation by business, it’s not necessarily about Government spending big dollars. Before the pandemic, I was fortunate to be able to go and have a look at what’s happening in California and Silicon Valley, and around San Francisco, in the space of vehicle automation. At that time, there were around 60 different companies working on exploring, developing and bringing to the market vehicle automation technologies. What they’d done there is just provide a safe space for business

to innovate and test those technologies operating out in the community, in a safe way, so their confidence could be built and the investment could go forward.

I had the opportunity to drive with Zoox and Waymo out on the open streets, but in very controlled conditions, in a vehicle that was driving itself, fully automated. You could see the computer operating, recognising that 100 meters down the street there was a pedestrian coming to the curb behind a telegraph pole. You can see that on the computer before you, just as a driver could see it. I think, if you give the opportunity for business to invest, create and undertake that innovation, then that’s how it will really work. It’s not about going in and having big, old-fashioned industry policy support; it’s about enabling business to take the lead and to invest with confidence.

MS: So, if I take us from digitisation back to human factors, there’s a lot of conversation around skilled migration, but also boosting domestic skills training. Sometimes it is being positioned a little bit as an either-or situation. I am interested in your views on whether it is an either-or proposition, or if we need both.

KM: Well, it’s not either-or. We’ve run the experiment of switching off migration. We know we had to do that with the pandemic, but we know the dislocation impacts and we are living with those now. So, we need both. Yes, you need to invest in the future. It’s good that the Government is focusing on the policy frameworks that could encourage more investment in future skills development. We are a migration country. We need that population growth. It’s been an important part of the Australian success story. We actually do it very well, overwhelmingly, so we need the two things together.

MS: People always ask me what the skills of tomorrow are in the industries that you represent. What do you think the skills of tomorrow are?

KM: The skills of tomorrow? I mean, what you need to be is flexible. Who knows what the skills of 30 years away are? What you need to have is flexible workforces, able to handle complexity and change, and individuals who are able to continue to learn throughout their careers. The old days of finishing whatever your post-school education was and then that was it for life, well, that’s not really the new world. You need to be more flexible than that, and that’s across the whole value chain.

AM: Yes, and to go back to the previous topic, it’s not either-or. Our approach that we emphasise all the time is that there has to be a three-part strategy to respond to our labour force demands. There has to be the fundamental investment

in skills training and vocational education, and things like apprenticeships. You’ve got to make the business case work for things like that, and ensure that the higher education system is providing the requisite skills and the flexibility so that as people pick up skills during their work life, they’re able to package those up, get credentials that go with those skills, and take them with them as they go forward in the future to get recognition for the training that they’re undertaking and the skills that they acquire. That then becomes something they can value and monetise in the marketplace. I think we have to ensure we’re responding in that way.

Yes, we do need to have a sustainable and ambitious migration program to go with it, and we have to encourage participation, as well. So, there are many demographics in our economy where we’re not optimising that, even if we’re at record levels of participation right now. There’s more that we can do. We can find ways to encourage people to come back into the workforce more rapidly after having children, ensuring they’re not disadvantaged by taking time off. In other sectors of our community, people want to work longer. People are living longer, so they want to work longer; but they want to have the flexibility to do that. They don’t necessarily want to work five days a week beyond 65 or 70. You want to have the flexibility to work two or three days a week and not be financially penalised when you do that. Make sure those people can still participate and contribute in our economy.

MS: You used the word ‘sustainable’; environmental, social and governance (ESG) is something a lot of businesses and governments are talking about. We are quite good at the G element in Australia, but there is still some work to go on the E and S. From the range of businesses you represent, where do you think we could up the ante on the E and the S? Ken?

KM: Real estate’s probably an interesting case study for infrastructure because it’s such an adjacent sector with so many similarities. One of the things we’ve been driving over the last seven or eight years is a big focus on diversity, and partnering with Liz Broderick and the Champions of Change group to really understand those barriers, particularly around gender, but also other forms of diversity inclusion. I think there’s an opportunity to learn from some of the things real estate has done. My observation is that incremental change is not going to get us very far very quickly. So, if you want to have a crack at this, you’ve really got to go all in. On the environmental side, the property industry’s wake-up call was the 2000 Sydney Olympics – we created the Green Building Council of Australia off the back of that. We’ve had quite supportive policies in some places and we’ve got great rating tools in place.

We have a very productive focus on energy efficiency, which is a well-known opportunity area. We are now looking at the opportunities that really exist within existing housing assets and

some of the sectors that haven’t been movers in this space. The embedded carbon story is a shared problem to solve and real estate is very focused on it; there’s some good work going on. Again, the New South Wales Government is leading through the NABERS team, which hopefully will be quite helpful there. So, I guess the key thing on that sustainability side is that in real estate, we’ve seen drivers, and we’ve seen perhaps more multiple drivers than we’ve seen in infrastructure. We’ve seen tenant demand for great space and great space means sustainable space. We’ve seen investor appetite for green buildings, green assets, and green precincts for some time now, and we’ve seen governments – not always as consistently as we’d like – taking a leadership position in their real estate positions. So, those things have led to quite a lot of momentum and some really great progress.

AM: I think clearly there’s been an evolution sweeping through business and many other parts of society, as well. So, we are diversifying and broadening the way in which we measure the importance of some of these other indicators. It’s not just financial; we’ll see the Federal Government talking about a ‘wellbeing budget’ this year. I think it’s similar. I think business has got to see the opportunity. Making our operations more sustainable, ensuring that we’re supporting greater diversity in our workforces, providing that sort of opportunity in the way that we go about structuring our businesses at the end of the day will deliver broader benefits to society and the individual business itself.

It’s an inevitable trend that business is learning to grapple with, as are other parts of society. The productivity commission highlighted things like climate change and responding to climate change as an economic reform. It just hasn’t been traditionally measured in that way. It’s been much more about the costs of making that adjustment rather than understanding the broader benefits and how that’s captured in our traditional economic accounting frameworks, versus perhaps some of these broader measures. I think these are important things. We’re building a broader perspective in many of the ways in which we approach these challenges, and that’s progress.

MS: Yes, I think one of the important conversations Infrastructure Australia has been having is around capturing social value and environmental value into business cases in a way that is easily robust and defensible. It would be good to continue that debate and potentially learn from jurisdictions like the United Kingdom, with its Social Value Act, and things like that around how we build this into our decision-making for projects and infrastructure. Any last comments?

KM: That’s a lovely free kick you’ve given me there! Thank you, very much. This is a really momentous phase in the economy and I think good policymaking plays a huge role at times like this. We’ve got a new government that has come to the job with fresh energy and some fresh ideas, but it’s really going to need the business groups and other groups to really work with Government to land on the right outcomes here. So, I’d encourage this sector to get behind Adrian and the team to make sure that we get some of those right outcomes. I think the decisions made in the next six months are going to be very important and we’re going to be living with their outcomes for quite some time.

AM: Yes. I’ll close by saying I think we’ve got a huge opportunity here – once in a generation – to restart an agenda, a discussion and a dialogue around the economic reform priorities for this country. Productivity is at the core of that. Infrastructure plays a key part in that. Here, we’ve got to build real consensus and unity within the business community on achieving some of those goals. Across the major business organisations, we’ve got to stick together. We’ve got to work together. We’ve got to advocate for that because reform is difficult.

Even when it has been successful, there has never been a full consensus behind it. This is why it is so important that business really pulls its weight in this. I think we’ve got the opportunity to do that. I’m sure we can do it. And I think I would encourage everybody in this room to really focus on that, because that’s the way that we are going to deliver better living standards and achieve some of those aspirational goals that we’ve got for the future.

MS: Well, thank you, Ken and Andrew, for sharing your thoughts and showing that there is a lot of aligned issues, but then also some things that are specific to the businesses you represent.

Andrew McKellar is Chief Executive of the Australian Chamber of Commerce and Industry (ACCI), the nation’s largest business organisation, representing employers of every size and sector in Canberra, across the country, and around the globe. Under McKellar’s leadership, ACCI champions policies that enable businesses to innovate, invest and grow, promoting Australia’s economic strength and international competitiveness.

Previously, McKellar served as Secretary General for Mobility at the Federation Internationale de l’Automobile, based in Paris; Chief Executive of the Australian Trucking Association; Chief Executive of the Australian Automobile Association; and Chief Executive of the Federal Chamber of Automotive Industries. Earlier in his career, McKellar worked in Government, serving as a Senior Adviser to successive federal industry ministers. He also worked in the Department of the Prime Minister and Cabinet, and Commonwealth and Queensland treasuries. McKellar holds a Bachelor of Economics from the Australian National University.

Ken Morrison is the Chief Executive Officer of the Property Council of Australia, which champions the industry that employs 1.5 million Australians and shapes the future of our cities. Morrison has played a significant role in shaping cities, tax, planning and infrastructure policy for more than two decades, and sits on a range of Government taskforces and committees. He is also a Director of the Green Building Council of Australia, a Director of the Australian Sustainable Built Environment Council, a member of the National Affordable Housing Alliance, and a Property Champion of Change working to achieve a significant and sustainable increase in the number of women in leadership roles.

Before taking up his current position in 2014, Morrison was the Chief Executive of the Tourism & Transport Forum, the peak forum for the tourism, aviation and transport sectors. Prior to this, Morrison held several executive positions at the Property Council of Australia, including Chief Operating Officer and New South Wales Executive Director. Morrison holds degrees from the University of New South Wales and the University of Technology Sydney, and has undertaken courses at the Australian Institute of Company Directors and Harvard Business School.

As Chief Executive Officer for RPS’s Australia Asia Pacific business, Meegan Sullivan leads a team of around 1000 consultants and service providers working across the region. Based in Melbourne, Australia, she has held business and people leadership positions for 20 years, with significant experience in government agencies, privately owned and publicly listed companies. Within RPS, Sullivan has held various executive positions in business operations, growth and strategy, including corporate acquisitions and integration. She has extensive consulting experience across transport, water, government and infrastructure projects, such as Western Sydney Airport, Melbourne’s Level Crossing Removal Project, and Sydney Desalination Plant.