Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 445

Australia is at a crossroads and must support new ideas

Australia boasts one of the most stable and developed economies in the world. This prosperity has been built on a sometimes fortuitous blend of strong population growth, minerals, vast agricultural tracts and plentiful energy in the form of coal and gas.

These capital hungry sectors have been well-fed by a large financial services sector. Despite contributing just 0.3% of the global population, Australia is home to five of the 50 largest banks in the world by market capitalisation.

So it is not  surprising that Australia’s economy shows a material weighting to these ‘traditional’ industries, much more so than in the USA and Europe. In fact, the makeup of the stock market benchmark, the S&P/ASX 200, arguably resembles that of a developing nation, more so than our larger Western peers.

Evolution, not revolution

So, how do we continue not only growing our economy but ensure it evolves to remain competitive on the global stage? Our international peers have a more balanced economic structure with technology, communications services and biotechnology representing much larger parts of the business community than in Australia (while acknowledging CSL as a global leader).

We need to take the opportunity presented by this economic moment in time to innovate within our current driving industries, while fostering a business, policy and economic environment that supports the impactful industries of tomorrow

The spending floodgates are open, let’s channel this to the growth engines of the future

With the Federal and State Governments and the Reserve Bank of Australia on their respective spending sprees, there’s an opportunity to not only underpin progressing businesses, but to invest in the sectors that represent long-term economic growth opportunities, particularly health care and technology.

Technology could involve either software or ‘mechanical’ advancements that drive efficiency or better environmental and social outcomes for society.

In the last three years, the technology sector has grown strongly in Australia, led by companies such as the Afterpay, Xero, Canva, Airwallex and Culture Amp among many more being valued at over $1 billion. While these organisations are not be as big as their US counterparts (Facebook, Apple, Amazon, Netflix, Google etc), they demonstrate that Australia is home to some impressive tech talent. Moreover, they highlight the opportunity Australia has to support smaller-scale tech companies out of the gate, investing in the next wave of impactful business ahead of the curve.

Industries including renewables and technologies such as artificial intelligence will likely have application not only in a renewed domestic manufacturing sector, but it will support other areas of future growth, such as aged care, which is undergoing transformation and improvement.

Refreshing the commercial approach to the political hot button of climate and renewable energy would yield impactful medium-term productivity, more so than postulating over climate targets.

Supportive regulatory and taxation structure will be vital to drive growth

Investing in our growing sectors should ensure that companies continue their growth trajectory in Australia, while fostering a supportive growth environment will encourage other entrepreneurs to innovate here.

Some of the measures introduced in the May 2021 Federal Budget can help businesses to support innovation in specific sectors, including health and technology. For example, the ‘patent box’ will ring-fence earnings from patented medical and biotechnology innovation. These will be concessionally taxed at 17% and taxpayers will be able to calculate the decline in value of eligible intangible depreciating assets (for example copyrights, patents registered designs and in-house software).

This means taxpayers can better align tax outcomes with the life of intangible assets while encouraging research and development activities in growing sectors. Although not applicable until 1 July 2023 onwards, businesses still have the temporary full expensing regime in the meantime.

Furthermore, the Modern Manufacturing Initiative (MMI) announced in the October 2021 Federal Budget will start funding projects with a second round of grants worth $50 million set to roll out.

On a local scale, sectors are transitioning at an exciting rate, with the Geelong carbon fibre and composites manufacturing precinct setting an interesting example. A collective effort between policymakers, industry and higher education institutions, it aims to transform an automotive icon to a resource powerhouse following the closure of the Ford manufacturing plants in Geelong and Broadmeadows in late-2016.

Create the frameworks that foster innovation

With so much of the country’s economic prosperity hinged on commodity and property prices, it makes sense from a risk perspective to ensure other sectors are supported to diversify the nation’s economic growth.

If our past successes have hinged on factors with exposure to commodity prices or currencies, we need a hedging strategy for those times when prices aren’t so buoyant. The balancing act lies in creating policy to support emerging industries without disenfranchising staple industries that continue to provide employment and significantly contribute to the country’s GDP.

As a country with relatively stable economic, political, and financial environments, Australia can compete more on the global stage by fostering innovation in our biggest sectors, while supporting newer industries to mature. But such large-scale transformation can’t be done in silos.

It is imperative that we see collaboration between policymakers, higher education institutions and industry, on a renewed commitment to championing diversity in economic support and success. We sit at an economic inflection point that could allow Australia to shore up its economic standing in a new and exciting way.  Despite the turbulence of the last 18 months, Australia does have a bright future, but it’ll be brightest with innovation at its core.

 

Chris Gibson is a Principal Consultant at Pitcher Partners Melbourne, focussing on the integration of ESG and sustainability measurements in order to capitalise on the opportunities and challenges presented by the global business market. This article is general information not personal financial advice.

 

4 Comments
John
February 16, 2022

Your article is not a new model but the old model writ large. And there are so many indicators that a finite planet Earth is not able to sustain this environmentally unsustainable model. New thinking, which is sustainable will include limiting population growth and considerably reducing per capita environmental demand, i.e. reducing, not growing per capita GDP, a measure which incidentally has little to do with improving human welfare.

Graham
February 15, 2022

Where does population growth fit into what you have described? Like so many economists, you have made casual allusions to sustainability. But no economic model will provide us with a environmentally sustainable future if predicated on population growth: i.e. ever more consumers consuming ever more. If you are ready, as we must be, to argue a economic model that assumes a stable population and a finite body of consumers, you might just be entitled to reference 'sustainability'. If not, you have nothing to offer that will make the difference needed.

Foz
February 09, 2022

Thanks Chris, interesting article. Timely too with the Sydney Airport takeover. How does our industry weighting compare to Canada, which is probably the closest equivalent I can think of in terms of being a developed nation which has the export of natural resources as a chunk of GDP?

Regardless I think it's always a smart decision to diversify. Maybe the sun setting on thermal coal (quickly), natural gas, and eventually coking coal will be the catalyst to have a broader discussion about where and what we want the economy to be in the coming decades. Is tech the answer? We seem to have the talent, but we also seem to have an uphill battle in getting them to list here (ie. Atlassian... watch this space with Canva).

michael
February 09, 2022

Just because Australia is different, doesn't mean it is wrong.

 

Leave a Comment:

     

RELATED ARTICLES

Embracing the bright side of population decline

The three prices that everyone should worry about

Stop the tinkering and bring on the ideas

banner

Most viewed in recent weeks

16 ASX stocks to buy and hold forever

In his recent shareholder letter, Warren Buffett mentions several stocks he expects Berkshire Hathaway will own indefinitely, including Occidental Petroleum. We look at ASX stocks that investors could buy and hold forever.

The best strategy to build income for life

Owning quality, dividend-producing industrial shares is key to building a decent income stream. Here is an update on the long-term performance of industrial stocks against indices, listed property, and term deposits.

Are more taxes on super on the cards?

The Government's broken promise on tax cuts has prompted speculation about other promises that it may consider breaking. It's widely believed that super is lightly taxed and a prime candidate for special attention.

Lessons from the battery metals bust

The crash in lithium and nickel prices has left companies scrambling to cut production, billionaires red-faced, and investors wondering how a ‘sure thing’ went so wrong. There are plenty of lessons for everyone.

Welcome to Firstlinks Edition 545 with weekend update

It’s troubling that practical skills like investing aren’t taught at schools as it leaves our children ill-equipped to build wealth, and more vulnerable to bad advice. Here are some suggestions to address the issue.

  • 1 February 2024

For the younger generation, we need to get real on tax

The distortions in our tax system have been ignored for too long, and we're now paying the price. It's time Australia got real and addressed the problems to prevent an even greater intergenerational tragedy.

Latest Updates

Shares

16 ASX stocks to buy and hold forever

In his recent shareholder letter, Warren Buffett mentions several stocks he expects Berkshire Hathaway will own indefinitely, including Occidental Petroleum. We look at ASX stocks that investors could buy and hold forever.

Investment strategies

Clime time: 10 charts on the outlook for major asset classes

The charts reveal that interest rates can't rise much further as Australian mortgage holders are under stress, bank dividends look solid, and the bond market is in flux because yields are being manipulated.

Strategy

Phasing out cheques, and what will happen to cash?

Cheques and bank service, or the lack of, were major topics when I addressed a seniors’ group recently. The word had got out that the government was phasing out cheques, and many in the audience were feeling abandoned.

Retirement

What financial risks do retirees face?

Treasury's consultation into the retirement phase of superannuation is generating a lot of interest. This submission to the consultation outlines the key financial risks to an individual’s standard of living in retirement.

Shares

Recession surprise may be in store for the US stock market

Markets are partying like it's 1999, but history suggests that US earnings and economic growth are vulnerable following an interest rate tightening cycle. Investors should prepare their portfolios accordingly.

Investment strategies

3 under the radar investment opportunities

The Magnificent Seven are hogging the headlines, yet there are plenty of growth opportunities elsewhere, at a fraction of the cost. Here are three stock ideas riding key areas of structural and cyclical change.

Shares

Why a quant approach can thrive in the age of passive investing

The rise of passive investing is unlikely to derail the value of quantitative strategies. Passive investing hasn’t eradicated the irrationality of crowds, leaving pockets of opportunity to outperform indices.

Sponsors

Alliances

© 2024 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.