Australia may be unable to meet its priorities unless there is reform around regulation, the workplace and tax framework. Ai Group Comment – Innes Willox, Chief Executive, Australian Industry Group
Ai Group’s annual survey of more than 220 senior executives across manufacturing, construction, technology and supply chain and industrial services fields paints a picture of a slowing economy, rising costs and, for the first time in the survey’s history, a sub-par outlook for profits.
As we head toward the federal election, our leaders must acknowledge the time has come to look at real change, not the piecemeal efforts that have illustrated the most recent past decades.
Standing still, fiddling around the policy edges or implementing productivity-killing measures mean we will continue a slide to mediocrity, declining living standards and increasing irrelevance.
The world around us is changing rapidly. President Trump’s first week is proof that standing still or doing the same old things will push us down the ladder of growth, economic complexity, innovation and competitiveness.
Our business leaders recognise this. Negative sentiment from inherently optimistic business leaders who drive our economy’s engine room is alarming.
ensure our national success and prosperity. Image: sittinan/stock.adobe.com
Three factors stand out.
First, we have weak market conditions. The local economy offers limited opportunities for growth, and businesses say a lack of demand is the top-ranked challenge, with some reporting that investment is being reoriented to protect existing markets rather than drive business expansion.
The disappointing national accounts figures released in December – which pointed to recession-like conditions across much of the private sector – reinforce the urgent need to enable and encourage investment.
Second, lingering inflation and high energy prices mean businesses have a laser-like focus on controlling costs. This year is the first in the ten-year history of our survey that more businesses expect their profitability to decline than rise.
Third, a chronic shortage of both higher and lower-skilled labour continues to drag on business. More than 70 per cent of industry leaders expect workforce shortages to affect their operations, identifying negative impacts on their productivity, growth strategies and financial performance.
Many also said the increased inflexibility of the industrial relations system was a new factor that made workplace challenges harder to manage.
With expectations that the low growth, rising costs and workforce shortages of 2024 will persist into 2025, improving productivity has emerged as the central focus for the year ahead.
Basically, businesses need to try and do more with less.
Investment plans have a ‘back to basics’ flavour, with leaders saying they will focus on improving processes, lifting their current workforce skills and upgrading technology to improve productivity.
Business leaders are counting on technology to alleviate ongoing labour and skills shortages, which will impact employment and workforce skills needs in the years ahead.
Growth strategies are focused on the near-term rather than long-term. Most firms intend to introduce new or improve existing market offerings, rather than expand investment or employment. However, there are costs associated with this economic drive. One major victim is R&D spending, now ranked last of all investment priorities, with intentions at their lowest level in a decade.
Given uncertainties about the global environment, industry leaders report a preference for selling to Australian customers over international markets, which means opportunities from internationalisation have been placed on the back burner to focus on near-term pressures.
It is logical that short-term shoring up rather than longer-term growth dominates business strategy, but it has risks for our broader economy. If conditions of low growth, high inflation and workforce shortages become entrenched, industry will be unable to make the long-term investments needed to foster the growth and resilience we crave.
A genuine reform agenda targeted at productivity must form the bedrock of our approach. It is an indictment that five years on, our labour productivity still languishes at pre-pandemic levels.
Our prosperity relies on lifting our productivity. As long as we are held back by a restrictive workplace relations system, an uncompetitive tax framework, box ticking and unnecessary regulation, a poor investment climate and watching from the sidelines as massive technological change unfolds, we will continue drifting to mediocrity.
Our business leaders recognise all of this, but they can only labour under the policies set by federal and state governments. Resilience will get you only so far.
We are in a period of enormous change. This year is very different from 2020, and 2030 will be hugely different again. The message from industry is that it needs governments to deliver fundamental, productivity-enhancing reform to ensure our national success and prosperity.
Read Ai Group’s Australian Industry Outlook for 2025 survey here:
https://www.aigroup.com.au/resourcecentre/research-economics/australian-industry-outlook-2025/
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