Upfront a call for reform

John Brogden reflects on the recent findings from the Director Setiment Index and directors' appetite for significant policy reform. 

It is time for a serious national conversation about our important political processes and their abject failure to facilitate policy change in recent years. Governments need the power to implement their mandates and the nation needs policy certainty. This is evident in the findings of our Director Sentiment Index (DSI) for the first half of 2015.

The findings show an overwhelming appetite among directors for public policy reform that will position Australia for the future. Almost 80 per cent of directors, for example, support a change to the GST system, whether it includes broadening it, increasing it or both.

This is a telling result because the DSI reflects the views of a statistically valid sample of the Australian Institute of Company Directors’ (AICD’s) membership. More than 500 members completed the survey, including directors from not-for-profit organisations, private business and listed companies.

The bi-annual DSI canvasses directors’ views on economic and business conditions, as well as key regulatory, governance and public policy issues. It then weights responses to obtain an overall indication of director sentiment.

Overall sentiment in the first half of 2015 is down 2.4 points, continuing a downward trend since the second half of 2013. Almost 70 per cent of directors expect the domestic economy to be weak in the next 12 months and 65 per cent expect a rise in unemployment.

Almost 40 per cent are pessimistic about the general business outlook and 35 per cent are pessimistic about the outlook for their own sector.

The most interesting results are those which indicate directors’ failing confidence that any major policy reform is actually possible, given the environment in which our governments now operate.

A remarkable 85 per cent of the DSI respondents believe that public policy debate in Australia is “poor quality”. They also rank the balance of power in the Senate as the third biggest economic challenge in Australia, behind low productivity growth and consumer confidence. The latter finding is a significant shift from previous surveys and illustrates the impact which the make-up of the upper house has had on overall political outcomes. Indeed, the hostile Senate is a particular concern. We endured three years of a hung parliament in the lower house from 2010 to 2013 and now we have a hung Senate.

The current Senate is only 10 months old but already three senators who were elected as representatives of particular parties have opted to become independents, creating even more complexity. The ability to govern effectively has been repeatedly hamstrung in recent years. This can only have adverse consequences for Australia-at-large, particularly as we transition from the mining boom to a new economic scenario. The “poor quality” of public debate identified by our members likely reflects several factors. These include a 24-hour news cycle and social media that rely on sound bites rather than considered analysis. I would also argue that Australians need to encourage people who can lead public debate with informed analysis that can drive change. By fostering the development of these leaders, we can hopefully break away from the populist narratives which dominate important debate and give our elected representatives the latitude to make decisions that will take our country forward.

Our DSI findings showed there are many areas where directors are seeking reform. Over 70 per cent believe the government should pursue significant industrial relations reform and nominate workplace flexibility and penalty rates as key priorities for change. Infrastructure, on which 90 per cent of directors believe spend is too low, is seen as the key short and long-term issue to be addressed by the Federal Government, while taxation reform and issues related to the ageing population are the next most important.

There is clearly much to be done by government to address these concerns. However, the DSI just as clearly indicates diminishing confidence in important processes that were actually meant to support change. We need to address this. We need to be wise enough to accept that not every reform will be in our favour. If we can do that, we will be better able to imbue our leaders with the necessary wherewithal to make the brave calls that will benefit the nation as a whole.