Speech Panel Participation at the ASIC Annual Forum

Our first panel for the day, it’s the big picture panel, scene-setting panel on the state of the economy. With a heavy-hitting panel members can I welcome them to the stage and can you welcome to the stage first Joe Longo, second from the end up there if you could, Joe, chair of ASIC, Michele Bullock, again needs little introduction, Governor of the Reserve Bank of Australia, Raphael Arndt, CEO of the Future Fund and Vicki Brady CEO and managing director of Telstra. I’ll just make my way to the end of the stage as well. Please welcome them all to the stage. Welcome, Joe, Michele, Raph and Vicki. This is the big picture state of the economy scene-setting opening panel. We were going to start with, I think, the situation for the Australian economy, but given that the very big news that’s been referenced here we can’t really avoid the American political event that will surely dominate 2025, the return of Donald Trump to the White House. Mr Trump promises to shake up the US regulatory system, including through Elon Musk style inspired expectations of cryptocurrency, deregulation, he’s vowed to fire the SEC chair, Gary Gensler who no doubt, Joe, you know from day 1 even though his term doesn’t expire until 2026, there’ll surely be a more hands-off approach to mergers at the Federal Trade Commission than we’ve seen under Lina Khan. The President Elect has promised to cut US company tax rate from 21% to 15%, to suck capital away from economies such as Australia and disrupt the OECD global tax treaty. Mr Trump wants to drill baby drill and perhaps take the US out of the Paris Accord, he’s threatened to start an inflationary war with China and the rest of the world. Fed chairman, I’m sure you’d be interested in this, I’m sure, Fed chairman Jerome Powell suggested if the new President tries to sack him he won’t go, and in the past eight days the markets have responded to all this Wall Street, blue colour and tech bro mash up by pushing up the price of bitcoin, NVIDIA Tesla, government bond yields, the US stock market and even the Commonwealth Bank of Australia shares. So Joe, no doubt we’ll have to see how all this plays out, but you’re a Board member of the International Association of Security Organisations, so you no doubt follow some of these international trends. Would a more hands-off approach to corporate regulation in the US such as for cryptocurrency and AI inevitably affect the approach in Australia? Could it provide a hurry-up to Australia to move more quickly to nailing down the regulatory framework say for block chain based assets.

I think we’re all very interested in what’s going on in the US. We always have been. I think any first world economy is going to be interested in what’s going on in the US. At the moment it’s a particularly interesting time. I think just channelling Mark Twain, I don’t think the demise of regulators in the US should be anticipated too quickly. There’s a long way to go. The idea of deregulation - there’s a lot of extravagant statements being made at the moment. I think for our purposes, take AI regulation for example, which is one of the areas that have been getting a lot of publicity, our arrangements are so different, our legal framework and regulatory approach is so different, it’s well to remember that the fundamental cornerstone of SEC regulation in the US is still a 1946 US supreme court decision called Howie which defined the parameters of investment contracts. Now, there’s an example of simplicity. We created something called financial products and services over 20 years ago, so our whole approach to the regulation of this space is very different. Having said all that, of course we’re going to be very interested in what goes on in the US, particularly in the AI space because we are a net importer of so much technology in this space and so regulation in the US - by the way, I would include state-based regulation in that. California, for example, has just signed in a bill. So I think the short point is I think we are going to be very interested in what happens there and I know just from some conversations I’ve had in the last week hopes have been raised in Australia that there might be some changes here. I think the short point is of course we’re interested. What will actually happen, I don’t think I’ll be saying something terribly controversial by saying there’s a lot of let’s just see what actually happens, what plans actually emerge and - I mean, I was reading something someone sent me about digital asset regulation and a leading American law firm was saying, well, it’s going to take years. Even if a very pro crypto approach is taken by this administration, the complexity of the - of what we’re talking about and the complexity of US regulatory arrangements and political arrangements, it will take a while for that to be actually felt. So to be pro crypto just raises a lot of questions about where we land.

Raph Arndt as head of the Future Fund, you manage, of course, depending on what you include in the pot, up to $295 billion in the Future Fund on behalf of Australians and you’d have a certain amount of that, no doubt, in the US market of course, and the trump trade surely carries a lot of political and regulatory risk, but the US is already the fastest growing rich economy in the world. It’s actually been performing really well and Wall Street seems to like what’s the political result from last week. Do you think the Future Fund will be more or less inclined to invest in the US going forward from what you can see right now? 15% tax rate, corporate tax rate as well?

Well, firstly, like all investors we’ve made a bit of money off the US election so far. The market there is up 5% in a week. Clearly the market likes what it hears. I think to understand our view you have to just take it a little bit back and say, well, we’ve had the fastest increasing interest rates almost in history and yet the US economy has powered through. Earnings are growing, companies are doing well, unemployment hasn’t really risen. So it is a remarkable situation and it is a very dynamic, powerful economy which makes it a very attractive place to invest, and that was happening irrespective of who is the President. I think the rest of the world is struggling with inflation, constrained government budgets. The US obviously has that, but less because it has the global reserve currency, and while bonds initially sold off on the election news they’ve come full circle. So the market doesn’t seem too concerned. So I think from our point of view then if you look at President Trump’s policies and his appointments in the last few days would show every indication he intends to carry through with those policies. Mostly quite pro growth. The way I think about it, what he’s saying is we’re going to protect American business to succeed and do well and we’re going to do that with the things you said, tax cuts, deregulation, but also we’re going to do it, if necessary, at the expense of other countries. Tariffs, more sanctions, supply chain reengineering, either with direct stimulus or just rules banning certain types of investments or exports, and if necessary will defend it with the military. So we expect military spending to go up too. So all those things are inflationary for sure. Many of them will accelerate growth in the US to the detriment of the world. Some it’s not so clear. But overall that’s actually a reasonably positive picture for investor from a friendly country, I would emphasise Australia is, into the US, and I think we already thought that, I’m not sure the election last week changes that very much.

So you see overall this is an inflationary - more of an inflationary position than you would have seen before the election though?

Definitely inflationary. I think both candidates had inflationary policies, President Trump more so. That probably means interest rates will stay higher in the US. If the growth policy is strong enough that assets don’t sell off as a result of that, and they certainly haven’t so far, then that actually increases nominal expected returns for investors in the US too.

Thanks, Raph. That’s obviously a very good segue to the Reserve Bank Governor. Michele, if I can ask, I know you’ve been asked a bit about this in the last few days, you’ve been peppered with questions on that and you’ve replied quite reasonably let’s wait and see. Let’s get through a lot of the bluster, but the market has given some signals in the week or so since all this has happened. I think the pricing in Australia of the next rate cut in Australia was when you appeared in your press conference post the Board meeting the day before the US election, in effect, it had pricing for the next rate cut sort of May/June-ish and you said then that you were quite comfort, I think, I’m not putting words in your mouth, but comfortable about the market pricing. Since then it seems to have blown out more to more like July/September, and the dollar’s sold off a little bit and there’s forecasts for the Australian dollar to fall more in the wake of it, even though the inference differential probably between Australia and other countries are probably narrowing. Are you still comfortable with the new market pricing post the election?

Before I specifically answer that, I want to say a couple of things. First, I want to reiterate what Joe said. We don’t actually know what will happen. We don’t actually know what he will implement and what the administration will implement. So I think that’s really important up front. We can’t be jumping at sort of shadows. We can’t be sort of setting our policy now on expectations of what we think he might do because we don’t know. So that’s the first point. The second point is that yes, we have seen the stock market rebound. I’d have to say the stock - the bond market, though, has been not - not much action, 15 basis points here or there. That’s not particularly volatile. And it’s certainly not a massive sell off in the bond market portending massive things for inflation in the US. It’s true that yield curves have become positive sloping in many countries in recent times. It always was positive sloping here and some of that might be a bit of a risk premium, but nevertheless I’d have to say they’re pretty well behaved. I also am not sure that the recent movements in the cash rate expectations for Australia are necessarily related to what’s going on in the United States and Trump. The fact that there’s lots of policies going on there which will be potentially inflationary, so tariffs, much spending, but I think as Raph alluded to already probably no matter who won there was going to be a bigger deficit, it was just a matter of whether it was reduced taxes or more spending that got you there. So I think there is going to be more government debt out there so I think that’s part of what’s being reflected in bond markets. What ultimately happens here and what ultimately happens for Australia is going to depend on the responses of other countries as well. We don’t know how other countries are going to respond to tariffs. We don’t know in the very extreme circumstance, a 60% tariff on Chinese goods, we don’t know how the Chinese will respond to that. Ultimately if it’s not good for the Chinese economy it isn’t good for us either. So I think there’s lots of things to think about here. I think most central banks at the moment are simply focused on what they know at the moment, which is that inflation is coming down, it’s coming down slowly, there is good reason to in some countries to be reducing the relative restrictiveness of policy a bit, and in our case we’ve made this point before - we’re not as restrictive as others, even as they are lowering their interest rates. We don’t think we’re as restrictive as others. We think we’re restrictive enough and we’re going to stay restrictive enough until we think we’ve definitely got that downward trajectory into the band.

And given probably the risk of notwithstanding all the uncertainty and everything that the risk of this probably inflationary are probably on the upside, would that tend to make you a little bit more cautious on where the RBA moves, and to go back to my original question, are you comfortable with the market - the new market pricing?

Well, I think inflation at the moment has been affected by events that happened in the last year and two years. So any policies that are implemented are going to happen sort of into next year and the following year. That’s not going to affect inflation now. Again, our focus really is on what’s happening now, are we coming sustainably back into the band, and what’s going on in the US at the moment, the new administration hasn’t even taken up duties yet, I don’t think that’s really impacting what we’re thinking about inflation here at the moment.

At your press conference the other day, Michele, you said that you might - the RBA is aiming to get inflation - the rate of prices growth down - of inflation down, the rate of growth down back into the target, but this would not mean that supermarket prices and the like would go - would fall back to where they were before the pandemic. You made a point - you brought that up yourself, you made a point of it. Do you think the US election supports the idea that the public will continue to remain grumpy about cost of living, even when inflation’s come down and that some of them may have even preferred to have a bit of a higher unemployment rate on some other people rather than everybody to take a bit of inflation haircut?

It’s an interesting point. The unemployed don’t actually have a constituency, this is true. I think my point simply was that inflation - we can bring inflation back down, but to get prices back down to where they were pre-COVID would … deflation. We’re not going to have deflation. Someone expressed - one of my central bank colleagues just privately expressed the view that central banks are inflation targeters whereas the general public are concerned about price levels. Now, when inflation comes to the fore as it has in the last few years, it’s right in peoples faces all of a sudden. But actually I think you’re right to some extent and that’s the reason I brought it up at the press conference the other day, what most people are concerned about is price levels and how much they can buy with their wage. That’s what they’re concerned about. We need to keep inflation low and stable so that we - I like to describe it as keep it in the background and people aren’t concerned about it, but once it breaks out and once people see prices rising quickly then all of a sudden they’re very focused on that, and I think that is a reason why people are grumpy.

And so is that almost a little bit of a hawkish signal, not the stance of policy, but that the dangers of inflation, basically, of allowing - -

I think you’d be very surprised if I didn’t say the dangers of inflation, but yes, it is the reason why we want to target low and stable inflation because then it’s in the background, people are not worrying about it in thinking about their investment decisions, their consumption decisions, and if you think back prior to COVID, in fact inflation was too low, it was about 1.5%, but people weren’t talking about it. It wasn’t - there were other issues, as Danielle highlighted, there was - wages weren’t increasing very quickly either, unemployment wasn’t really good. We’ve actually got a unique circumstance now where we hope we can bring inflation back down to target and keep the unemployment rate at a level that, if you’d said pre-COVID you could have a 4 in front of it I wouldn’t have believed you.

Vicki Brady, as CEO of the dominant Australian telco, do you overall welcome any - would you welcome any overall Donald Trump deregulatory approach to corporate and particularly tech regulation such as AI that might drive more demand for data?

Well, it’s interesting because we obviously don’t know yet, and I was listening to Joe’s opening session and I think the one thing when it comes to regulation, particularly of new technology like AI - I mean it’s evolving so fast that sometimes by the time the regulation catches up it’s a little bit behind. So I think it is a moment in time more broadly as we look at regulation of technology needing to be very clear on the principles and outcomes we’re trying to drive, and, you know, AI is a good example of where regulation has gone more to principles around responsible use, and I think in a world where it’s so dynamic and changing, I think that’s a good approach that we’re seeing at the moment.

And as a CEO of a major blue chip Australian economy - company, sorry, are you a bit sort of unsettled by all this political change or relaxed? Are you concerned that the first five months of 2025 could bring like a double bang, bang, bang, political shock of the deliberately disruptive Trump agenda in the US and, quite likely, a minority government after an election in Australia?

I don’t think you’re ever relaxed when you’re the CEO of a ASX listed company, particularly Telstra. We take our - obviously the obligations, the way we serve Australians and the country, very seriously, so we’re obviously watching closely and interested to see how things play out. I think one of the things, before I get to Australia’s context, but one of the implications we’re thinking about and is very front of mind beyond all the economic pieces is with what’s going on, what it means for geopolitical tensions. That has lots of ramifications, obviously, around supply chains and various other things, but one of the areas we watch closely, as I’m sure any of the large organisations in the country, are any sort of geopolitical tensions spill over into the cyber environment. So what that means, that level of vigilance, certainly as a country how we work together I think those things are important. As we look forward, Stutchy mentioned the prospect of a minority government. I mean for me, and I think for us as a country, there are so many big pieces of infrastructure and decisions that are so important for setting us up for the decades to come, and any - when you land with a minority government, obviously it becomes a bit more short-term, it’s much more focused on day-to-day getting things through, and I think we’re at a period where we do really need to be thinking for the long term, whether it’s energy infrastructure, whether it’s transport infrastructure, whether, frankly, it’s the digital infrastructure to support taking the economy, productivity and lifting living standards in the long run. So that would be, I guess, the worry, if we land with a minority government things become a little bit more short-term focused.

Yes, and Vicki, you raised the broader geopolitical risks, and perhaps I could ask you, Raph because you have such a global view about where you’re going to put all our money, the Future Fund’s money. What are you thinking about - we’ve got conflict in Europe, we’ve got it in Middle East and we’ve potentially got some in around China, South China Sea and so forth. How does that factor into you looking forward into 2025 as to where you put your money and how you health all that risk?

Well, the geopolitical divisions that are emerging are fundamental to the global economy and how it’s going to play out and we’ve written publicly on that. I think it’s not so much about the individual conflicts. I think if you look at the conflicts in the world today, while particularly in the Ukraine there were some short-term spikes in certain commodities and so forth, they’re not, I would say, macro economically important right now, but - because the world is capable of adjusting its supply chains, but the increasing deglobalisation of the world, not just in trade, but in the laws for investing and exporting in the cyber space that Vicki referred to are starting to bring the world apart and we’ve got - for the last several years actually the US administration has been increasing sanctions, export controls and so tariffs are just another step on that journey. So we’re seeing the US start to withdraw from its global hegemon role as the world’s sole policeman and that is making the world more multi-polar, and we think that means there will be more conflict in the world. There is more conflict in a world which is multi-polar. It always has been. The question for us is what does that mean as a long-term investor and I guess what does it mean for Australia, and that remains to be seen. I think it’s just a sad reality of where we are in the global cycle that an increase in defence spending is inevitable and probably a good thing to avoid future conflicts and that also will be inflationary in sub capital. There are opportunities that come out of that world, but we do have to be nimble and ready to change how we see things as it plays out. It’s hard to predict.

So are you seeing a new world order in a way post pandemic in which geopolitical conflict, increased defence spending, deglobalisation, disruption of supply chains and perhaps the costs of the energy transition are generally making this more of a supply side driven inflationary environment?

Very much so, and less free market and more interventionist by governments right around the world. I think if we come back to Danielle’s excellent presentation which really set the scene, the same drivers, wealth and income inequality, feeling that my life’s not going to be better than my parents, those sort of drivers drive support for populous politicians right around the world, more interventionist governments and it’s really good to see here in this country a good open, robust debate about what we can do to alleviate those pressures.

Yep. So just to everyone here, we will try and squeeze in one or two questions at the end, so I think use your app or there will be - I’ll try to get a few minutes at the end for people to put up their hands and get a microphone to them. Michele, that’s obviously a challenging environment for a central bank with a more inflationary environment because of supply side shocks. I think you agree that this is a supply side world. Do you think the public understands that these impulses that will tend to keep inflation up unless you have vigilance from, for example, the central bank?

Yes, so this is an extremely active debate, I think, amongst central banks and round the world, the volatility that’s being introduced from the supply side. The classic way that central banks would think about supply side shocks is to not respond necessarily with a strong monetary policy response to that because if it’s a supply side response and you have good reason to think it’s transitory, then you would just let it play out through the inflation system and then it will go back to where it was. That’s all very well if you’ve just got one sort of shock every now and again, but to your point and Raph’s point, there’s a risk with not only geopolitical, but also risks on the climate transition side that we’re going to get more supply side shocks to inflation and that presents an interesting question for central banks because if you just - if you have a series of them and it goes on for a number of years, at what point do you have to respond? Because it might feed into inflation expectations, and if it does that then you’ve lost the battle. So I think there is a challenge coming up here. We do need to be alert - we still need to be alert to when they are supply side, but I also think that one of the lessons coming out of the pandemic and the inflation that we’ve recently had is that sometimes it can be difficult in realtime to identify what’s supply and what’s demand, and I think the lesson coming out of the recent inflation was yes, supply was definitely there, but people hadn’t focused quite as well on the fact that there was a big demand element there as well. So I think that’s going to be the challenge for us.

And while we’re on big global sort of risks, can I ask you, how - from the Reserve Bank, how concerned is the RBA that Beijing’s stimulus measures don’t seem to be lifting China’s growth prospects and how that might rebound given its obviously Australia’s largest export market?

Well, well, it’s in our interests that China grow a bit quicker than it is at the moment. That’s true. We were quite happy to see that they had put in some stimulus measures, although I’d have to say that there’s been some doubts, as you mention, recently whether or not they’ll be quite as fiscally strong as we’d initially thought. I mean, it’s Chinese domestic politics, they’ve got to do what they’ve got to do, but ultimately it’s in our interests, they’re a major trading partner, it’s ultimately in our interests that their economy recovers. So whatever they can do to improve particularly consumption I think would be beneficial for us. The problem with China, of course, at the moment is irrespective of that the housing market is still a very big drag on activity over there and that’s a big thing that drives demand for our commodities.

Okay. We’ll get to the domestic - Australian business cycle, Michele one last one for you. GDP growth in Australia is weak, but the job market has been really surprisingly strong, just keeps on going. I have in my mind a feeling of a proper explanation about why the job market is so strong, why the demand for labour is so strong, why there’s so many parts of the economy are still in need of - have got labour shortages in effect for key skills.

Well, it is a little bit of a puzzle. I think the way I’ve tried to explain it before is that GDP itself isn’t growing, but the level of demand in the economy, the level, is still quite elevated, and at the press conference I tried to explain it by using a couple of examples, and I think the construction - housing construction industry is a really good one. Demand for building isn’t growing so commencement and commitments aren’t particularly growing particularly strongly, but we’ve got this big backlog of work that needs to be done, there’s shortages of trades, inflation in housing construction is still running at about 5% per annum. So this is a demonstration that you’ve got - even though demand isn’t growing very much you’ve got a level of demand which still can’t be met by the ability of the construction to supply it. That’s large in the Australian economy. So what you have is still demand for workers, our vacancy rates are still quite elevated relative to pre-pandemic. We still see in our surveys, in our liaison that businesses are still saying labour market tightness has eased but it’s still not easy to get staff. So it’s reflecting, I think, the strength in the job market is still reflecting - or it’s reflecting two things, I think. It’s still reflecting the strength that we’ve seen in demand and the inability of supply to meet it from the past, and population growth as being the other thing that’s been driving it.

Thanks. Joe if I could ask you, weak economy overall, slow growth, business bankruptcies seem to be rising sharply, even though mortgage delinquency is the main reason … there might have been a little tick-up in some of the banks’ latest reporting, but is this - what’s your take on, fro the corporate regulator, about the increase in business bankruptcies? Is this the decline finally of zombie firms who were kept alive during the pandemic by cheap credit or what’s going on there do you think?

A number of factors. I think going from a very low base. That’s the first - there’s definitely an increase in insolvencies and in particular in some sectors. I think housing and construction is one, hospitality is another, but overall it’s from a lower base, and it’s also a bit of a story of two economies. I’ll sort of defer to the experts on my left. A lot of people are doing well. There’s full employment, businesses are still doing reasonably well, but the number of insolvencies is growing and I think the other factor here, not represented on the panel, is the tax office. So over the last year or so - I haven’t got the details to hand, but there was a bit of a moratorium on recovery of outstanding tax liabilities which the tax office has now said, well, you know, it’s time to pay. That change of approach affects a lot of smaller businesses and that’s a story that’s been playing out. So I think the key point is it’s from a lower base and we’re monitoring it very carefully.

And Vicki, Telstra has a particular lens on the domestic economy and the cycle with consumer demand, with a cost of living squeeze. How is Telstra seeing consumer demand for your services, including for data? What are your forecasts for data growth, data centre investment, and what does this mean - Michele might be interested in this - for telco data pricing?

Yeah, look - and it’s interesting, isn’t it, because there’s no doubt so many of the stats show, and we know it, Australians are feeling it, you know? What we’re seeing - we’ve been seeing for some time absolutely people are value conscious. They’re looking at getting good deals, they’re definitely shopping around, but what is very, very clear in what we’re seeing is being connected, so your broadband service at home, your mobile phone service, it’s become so critical today, so in your day-to-day life, getting access to services, whether it be education of your kids, access to skills, health. So what we’re seeing, which is interesting relative what other, I think, large consumer brands are maybe seeing in the country, we sit - telecommunications sits pretty high in the budget. So people are absolutely adjusting their budget but staying connected. So we’re not seeing things like people being challenged to pay their bills. They are prioritising that so they stay connected. Having said that, we’re also taking steps to support customers, so we supported over 1.4 million customers to stay connected last year who were in vulnerable circumstances. But to your point on data, data demand is only going one way. So we saw data growth on our network at over 20% last year. It’s been running at 20 to 30% now for well over five years. A lot of people say to me how is that possible? Surely people can’t be spending more time online. It’s already enormous. What we see is as technology gets better and better people demand more. You think of pre-COVID, post-COVID how much time we spend on video-based calls and sessions versus pre, that all drives data. AI today and what we’re facing into, it’s just - it’s a new era ahead of us, and on data centres, I mean it’s been such a hot topic here in the country, the forecasts I’m seeing are a compound annual growth rate in data centre capacity looking out to 2030 of at least 18%. We think our data demand keeps growing at 20% plus. It’s interesting because we all think about the last mile, your mobile phone or your connection to the home. It’s a little bit like a power network. You need big transmission pipes to get the data around the country. These data centres are not islands. You don’t live right next to the data centre, and as everything is in the cloud and AI-powered you’ve got to have the capacity, and that’s one of the things when I talk about digital infrastructure to support the country to be able to actually get the benefits from this technology, you know, that’s one area we’ve made the decision a couple of years ago to invest in. We’re putting 1.6 billion into those big intercity fibre connections that are rolling out now, 14,000 kilometres going in the ground, and that’s essential to - the demand is there. People want to use this technology, they are using it, and I think it’s a key part of, you know, helping us be a more prosperous nation as we look forward.

So we’ve got to build more data supply, we’ve also got to build more houses and we’re falling behind on, there’s these massive infrastructure transport projects that are going on and we’ve got a massive energy transition, obviously got to build a whole lot of new renewable energy assets. Is this an area of data where - will be the story where demand will run ahead of supply and that means prices will go up?

Look, I mean as demand goes up technology also gets better. So if I think about, you know - if you think about when you’re running a business like Telstra you’re thinking about what are the costs, what are the revenue, how do you balance it so you can invest on a sustainable basis to deliver what customers are demanding at the quality. So as an example, as we upgrade technology, you know, we’ve just shut off 3G, we’re now on 4G and 5G, those technologies are more efficient. So even with data growing at 20% per annum we drove down our energy use in absolute terms last year and have year over year. But having said that, we’re also in a super cycle of investment in the industry. We put $5 billion invested last year in cap ex and spectrum. We’ve invested 42 billion over the last 10 years and we need to deliver a sustainable return to all of our shareholders who are largely, you know, Australians, either directly or through their superannuation. So that’s the constant balance. How do you drive efficiency to make sure you’re cost effective, but equally you’ve got to also price at a level that is sustainable to be able to keep investing to deliver what people are demanding.

Okay. So we’re charging along. I’ll now get into - before we try and grab a question or two from the floor - what’s going to flow all this up in 2025? What are the big risks we have to look out for, at least be aware of so we can at least say we saw it coming and weren’t surprised by it. Joe, private markets and private credit and anything to do with private has been a really hot area and we’ve got a session in this conference, in the forum later, with both public markets have been in retreat with the share markets and private markets have been booming. Is this just the classic risks where there’s a lot of regulatory burden on the public side of it, as a result the risky stuff moves to the private market which is less regulated and we’ve seen that before and that all blows up.

That’s a theory we have to test, though, Mark, whether the regulatory aspects are driving people from public to private. We remain a bit unconvinced by that at the moment, but we’ll be publishing a discussion paper over the next few months and we’ll see whether we can throw some light there. But I think the fundamental thing between private and public, we all feel more comfortable in the public markets because we can see it and it’s transparent, there’s lots of data, there’s realtime trading, we can get valuations, it tends, as you say, to be more regulated. What we’re seeing is a growth in the private markets, but again from a lower base. So you mentioned private credit, so in 2014 there was around 3 billion - these are Reserve Bank numbers. In the last financial year of that that was 40 billion in private credit in our economy, it’s about 2.5% of total business debt. I think the question we’re asking ourselves is essentially what’s going on here. Now, these markets are much larger in the US and the question is because we don’t really have a lot of data and as much transparency as we would like, regulators like us and Prudential regulators worry that something goes wrong in the private credit sphere we won’t see it coming and it will have contagion effect. There’s a bit of an assumption that in the private credit market there’s - disclosure standards aren’t as great, people take on more risk. It’s a different operating environment. So that’s a work in progress, I think. Whether I would point to that as sort of a No. 1 risk for next year, I’m not convinced of that. I think - I’d like to think things are a bit more benign than that. We need to know what’s going on from a capital raising and efficiency point of view, and I’m certainly interested in any regulatory impediments that are within ASIC’s power to change the levers to encourage more efficient capital raising, but I’d like to think that won’t be the primary source. I think we’ve already touched a little bit on geopolitical risk. I think that’s - I think in more recent times that’s sort of become top of mind for a lot of us, but even as recently as five or 10 years ago I think there was a lot of complacency around that. So I think that’s the area to be watching out for, particularly bad state actors trying to fiddle with our infrastructure and muck up our banks and telcos. I think that’s worth worrying about.

Raph, can I ask you as a possible risk that could blow up the whole thing next year or shortly after on - the thing that struck me in the States a couple of weeks before the election was how there was, firstly, no debate in the election about the US budget deficit, $1.8 trillion deficit, 6% of GDP, US federal debt is heading way above 100% of GDP, it’s a record, and compared to say the Clinton years there was no discussion of that. Is that a potential risk for you as an investor that the bond market at some stage the bond market vigilantes wake up and say wait a minute we’re going to want a bit more of a risk premium for this spending.

Definitely eventually, yes, definitely, but over the next year or two I don’t think so. There’s no sign that anyone is concerned about it. The US is still the global reserve currency and is not having a problem funding itself, and there’s just no signs that anyone cares. So I think that’s why we can have all the stimulatory policy that we can. US is quite unique in that respect, though, because almost every other government in the world, including Australia’s, is constrained by inflation, floating currency and the appetite of investors to fund their deficit. So I think it’s something to watch. We’re certainly concerned about it, but I don’t think in the short term. Obviously geopolitics, we’ve got live wars in the world that could go anywhere, but I think we should watch for a return of inflation.

Well, either that, either the bond market sell-off or the return of inflation, Governor can I ask you in terms of potential risk, you get a return of inflation, you get some kind of bond market sell-off, interest rates go off and I think in the financial stability report you’ve started to point to these risks in terms of rising interest rates could affect, could hit, for example, as we saw in the UK in September of 2022 with Prime Minister Liz Truss that rebounding on perhaps some of our assets in our superannuation markets, you get a sell off there. We know the superannuation funds here have pumped up bank shares with CBA, what, at $150 or something, they’re a bit co-dependent, all that can unfold. Is that a risk that the RBA would look at?

We have - we are focusing a little bit on super, mainly because it’s just so big now and only getting bigger. But there is a big difference between financial stability risks from that and banks. I mean, super funds in Australia, unlike the US - unlike the UK, they’re not leveraged and they’re typically defined contribution. So they’re not going to find themselves in the situation, I don’t think, that the super funds found themselves having to rapidly liquidate assets as they did in the UK. Having said that it’s not impossible and I think we’ve highlighted in our financial stability report if there are changes to the super fund - so we saw, for example, in COVID that people were allowed to take out some of their super. This did cause a little bit of angst, because did they have the liquidity to allow that. There’s a risk, I suppose, if there’s changes in the super laws that allow a bit more withdrawal of funds that that might cause some liquidity issues. There’s issues to do with hedging of their foreign investments. If there’s exchange rate reactions and they have to meet margin calls, what do they do about their liquidity. Now, we haven’t got APRA on this panel but I now APRA are alert to this sort of thing. But I don’t see it as a clear and present danger at the moment, the super funds, but it’s something that’s worth watching.

Yes, and although we’ve talked darkly about all the risks and so forth, looking on the bright side, and perhaps I could ask Vicki Brady about this, and you’ve mentioned - there’s been a couple of references to AI. What do you think is the potential for AI to fundamentally transform the weak productivity - shockingly weak productivity performance we’ve had in Australia, for example, over the past decade? What are you seeing in your own area and what’s your take on it?

Yeah, it’s interesting, isn’t it. I was just looking the last few days at some analysis McKinsey had done. They looked at the last 30 years in Australia of productivity growth and there was oath one sector that has had healthy productivity growth across those 30 years, and it happened to be the telco media and tech sector. When you dig into that, why is it? It’s because of technology. So, you know, in the past technology has been a huge driver of us being more competitive, of being more productive. And as I look forward and I look at where we’re at with AI, there is a massive opportunity ahead and it’s the thing I probably get asked about the most when I meet with other business leaders because we’re at this point where it’s moving fast, it’s changed so much with generative AI, there isn’t a playbook and everyone is worried are they going too fast/too slow. I think from me and inside Telstra there’s probably three big learnings. You’ve got to have foundations right. It’s not as sexy, but you absolutely need to simplify, modernise and digitise, and that makes a massive difference in being able to scale quickly. If I look at even our own example, data platforms, not that exciting, we had 90 of them just a few years ago, our target is to get to three. We’re halfway there. Even that is driving the ability to scale faster and, you know, applying AI yes in how we support our teams to serve customers, we’ve now got 8,000 people using a generative AI tool rather than having to navigate more than 2,000 knowledge articles. But frankly, right in the core of our business, you know that data demand you spoke about, we have on a daily basis more than a billion bits of data that we can analyse and use in our network. As I look at how we’re deploying AI today, and it goes for all organisations, that can fundamentally change. Our networks become more autonomous, what does that mean? They’re nor resilient, they’re more energy efficient. That’s right in the core of our business it can change things. As part of that people are involved, so trust, I think, is so important, from responsible AI to really developing skills and understanding and we’re taking the approach of actually for every member of our team you’ve got to engage in it and know about it and understand how to apply it because in five years’ time none of us can predict, but one thing is for sure in my mind, everyone is going to need to know and have better skills in this technology, and so that’s what we’re engaged in. I think it’s a huge opportunity and my worry is, as we look to next year as people maybe become a little bit more hesitant, people pull back on investment and innovation and I think this is the time we need to be leaning into it and that’s the bit, I think, will make us more competitive, will lift overall growth and obviously bring with it a lift in living standards.

And so would labour shortages be a constrain on this do you think at your end?

Access to talent is absolutely critical, and we’re maybe a little different to many other organisations in the country. For us one of our ways to get access to talent is all about flexible working. So we really embrace hybrid because for us to access talent in Australia and other parts of the world and get the best from talent and retain them, that’s been a big approach for us. So absolutely access to talent is key and you’ve got to have obviously an employee value proposition and for us those hybrid flexible working is a key part for us.

Okay, so I’ll scour quickly the floor, if anyone wants to put up their hand.

There’s a question here.

I’ll have a question there. If not we’ll go to the screen. This is from Rhys Bollen from ASIC for Ralph and Michele. What do you think about the US proposal for a strategic bitcoin - -

I’ll hand it to the investment guru.

Well, if you want to give us a lecture on central bank digital currencies we can go there. I think if I was the controller of the world’s reserve currency and I could print as much of it as I wanted and I had a budget deficit as far as I could say, I’m not sure why I’d want a strategic reserve I any currency let alone one I didn’t control or understand.

Not sure of the purpose of it, but yeah, it’s not - -

Michele, given that you’ve got responsibility for the Fiat currency of Australia and we do have bitcoin, an alternative currency, perhaps, or at least a store of value.

Don’t call it an alternative currency, please, Michael. It’s not.

Yeah, Michael, don’t call it an alternative.

Sorry.

It’s something out of nothing.

What do you make of what’s happening with the surge in the price of whatever it is?

Who cares?

More buyers than sellers.

That’s right.

- - is the answer.

The bigger fool theory.

Look, it’s not a currency, it’s not money, it’s being used as some sort of asset class. I don’t understand it, but I don’t really see a role for it in - certainly in the Australian economy or the payment system.

Right, Joe, you’re butting to have a - -

No, I agree. I agree. The environmental impact of producing that - I was about to say nonsense - but the environmental impact - -

Vicki in the data centres - -

I’m talking about bitcoin, to create that stuff they’ve used the whole power of small European countries, so I think - I agree with everything Michele said.

Okay. We’ve got another one here Joe and Michele will being to Vicki talk about the huge uptick in the demand for labour, assuming more activity is being conducted - demand for data, do your agencies - what does it say - how do you see your agencies adapting to the need to be able to access and understand and act on this data? That’s for Joe and Michele.

Well, it’s a good question and it’s something I think that we’re thinking about because, as you know, we’ve got traditional data, but it all tends to be rather back ward looking and there’s an opportunity with some of these datasets to get a much more realtime read on what’s going on with certain things. We have some data, and I think increasingly, for example, just as a concrete example, we get a lot more information from the banks now which give us a bit more of a read on consumer spending. So that’s just one example. But there are many other datasets out there that potentially give us opportunities. The thing is, though, that everyone wants to monetise their datasets and you don’t get it for free. So I think we need to be judicious, we need to think about areas in which we might be interested in a bit more realtime data, and individual data. What it gives you a lot of the time is - it doesn’t give you aggregates, it gives you all these individual data points which you can manipulate and add up as you choose. So I think there’s benefits to that, but also they’re not easy to come by, they’re often private datasets and you have to pay for them.

So given - you’re no doubt taking a read every day on what we’re all spending coming through the banks and all the things we’re spending on. Do you have a favourite data, a new, usual data series source?

No, not a new favourite. I think the - I do think that the information we’re getting now from the banks has been helpful. I do like looking at that because it does give you some good disaggregated reads on cohorts and, you know, ages, asset status, do they have mortgages, these sorts of things. So I think - I find those sorts of information quite helpful, but not a particular favourite.

And Joe, how is ASIC dealing with this - -

I’ve made it very clear repeatedly the future of ASIC is data. We need to invest more and more in being data enabled. So bringing that back to earth, we get lots of data from - not always in very digestible form - from reportable situations regimes, EDR regimes, IDR, reports of misconduct. We get data from our fellow regulators. So I think that’s the first point. We’ve got to - the future of regulation, I think, has got to be data-driven otherwise we’re just going to become irrelevant. Secondly, we will be publishing in April how we use AI at ASIC. That’s a whole of government requirement, so you should see it on our website some time in April what we’re doing about data. The other thing - the data story for ASIC just in the short time we’ve got, data collection can be a real burden on business and so I think one of the challenges for us and society is to try to standardise our data collection requirements so that when the Reserve Bank asks for data or APRA asks for data and we want the same data we’re all getting it in the same form. So I think the idea of recurrent data is something that we’ve been talking to government about. Finally, not any kind of data. It’s got to be good stuff, and the fact of the matter is a lot of data is not so good. It comes in a corrupted form, it’s not in a form you can use, it may not be accurate.

….

We know in AI there’s data poisoning, hallucinations. So I think the - we are in a world of data, but we want the good stuff, stuff that’s actionable and we can make good decisions on.

Thanks for that, Joe, and thanks very much to the panel. Our time is up and I think it’s been a blockbuster start to the ASIC forum with our speeches and our panel here, so can you please join me in thanking Joe Longo, Michele Bullock, Raphael Arndt and Vicki Brady.

Thanks, Michael.