Among a bunch of debt-heavy east coast states, Mookhey’s has the best balance sheet by far. Coming out of Covid-19, the new Minns government was smart enough to move early on budget discipline and commit to rein in borrowing.
While the state’s debt is still rising as it keeps filling out infrastructure, much less of this spending is being funded by borrowing.
NSW’s government debt burden will peak at about 20 per cent of gross state product and sit there over the next four years. Victoria’s debt is about to hit 25 per cent and then also holds steady. Queensland is on the way to 23 per cent – and on the current path, according to its budget papers, this will keep growing through to the end of the decade.
In the order of things, NSW is getting on top of its borrowing habit, Victoria has finally admitted the problem and has started its five-step debt program, and Queensland is preparing to spend big on the Olympics.
NSW has the added advantage that its economy is diverse enough that it can handle swings in coal and commodity prices. Queensland is over-indexed on coal and gas royalties, and this means it wears energy market downturns.
State governments are still hooked on infrastructure spending, but the sugar hit is wearing off.
In the coming financial year NSW will spend an astonishing $31bn on infrastructure such as hospitals, housing and roads. Mookhey, at least, has “reset” the infrastructure spending targets to a sustainable 2 per cent of GSP, compared with about 3 per cent of the years coming out of Covid-19. This will be another pressure taken off inflation.
Federal Treasurer Jim Chalmers (who has his own debt problem), put productivity on his second term agenda to reverse Australia’s woeful performance. To do this, he needs to bring the states along with him. They are at the frontline of productivity reform, given their role in planning and keeping the machinery of the economy running.
NSW is taking the challenge seriously. Mookhey’s budget spends billions of dollars aiming to improve the supply side hurdles across housing. Attracting less attention, however, is the new Investment Delivery Authority, which is designed to be a front door for business, and work through and remove barriers to $1bn-plus private sector investments.
The new body will act as the state’s own productivity adviser, and one of its mandates is to identify “system-wide reforms to remove barriers to investment, competition and productivity”.
It’s a small step but will be warmly welcomed by businesses, as CEOs consistently argue that the rising level of regulation and planning is putting friction on investment.
Victoria is taking a more introspective line on productivity. The Silver review, led by former public service boss Helen Silver, is running through the state’s public sector and looking at ways to cut the workforce back to its pre-pandemic size. It’s also looking at government bodies which have outlived their usefulness and, critically, is tackling areas of regulation overlap between the Commonwealth and councils.
Queensland has kickstarted its own productivity quest, although this was an election promise of the new Crisafulli government. Last month, it restarted the Queensland Productivity Commission.
Its first assignment is to run an inquiry into the troubled construction sector, and its final report is due in October.
Queensland Treasurer David Janetzki has drawn a line between productivity and state growth.
He’s added a new fiscal principle to the state’s budget framework: productivity improvements are needed to drive a better outcome for the economy and living standards. It’s also be good for the Olympics.
Digital war
Banking’s digital talent war just moved up another notch as National Australia Bank tapped a one-time Commonwealth Bank digital native to help deliver it an edge on data and analytics.
Peter Steel’s career includes more than a decade and a half at CBA, including overseeing the bank’s vast digital operations while oversaw the early days of AI development there.
He left in 2020 to become a banking disrupter through his start-up Expertli. At the time, his fintech promised to smash the “loyalty tax” on the pricing of back book mortgages by the big banks. However, after two years Expertli ran out of funding runway and Steel soon joined Lloyds in London in a top tech and customer role. Now NAB’s chief executive Andrew Irvine wants him back in Australia to oversee digital data and AI.
CBA is by far the leader on digital and AI among Australia’s big banks, and indeed one of a handful of leading the world in the adoption of the tech. Others are scrambling to get a slice of the magic, and in recent weeks Westpac poached CBA’s head of data and analytics Andrew McMullan to help push it down the AI path. The battle for talent even prompted CBA boss Matt Comyn to publicly bemoan his tech staff were regularly being approached to join rivals.
For NAB, Steel steps into a newly created role reporting directly to CEO Irvine. Being a member of the executive committee underscores the importance of how NAB is now approaching digital and data.
His brief is to lead the bank’s data teams to lift customer experience with business customers that have complex and therefore time-consuming needs, expected to be a big focus.
He also is responsible for the back end tech of NAB’s online brand ubank and will oversee 2,500 software engineers already GenAI- tools for coding inside the bank.
Irvine was among a clutch of Australian CEOs – including CBA’s Comyn – who recently attended Microsoft’s annual AI bootcamp in Seattle, hosted by the tech boss Satya Nadella. There, Nadella gave an overview into what’s coming down the line from Microsoft’s AI applications that are underpinned by OpenAI.
NAB’s Irvine has previously said one of his “must win” battles is around improving customer experience at the bank, and he’s eyeing digital tools as means to make big inroads into this.
NAB isn’t coming to this from a standing start on analytics and AI.
Former CEO Ross McEwan launched a project to build what NAB calls a “Customer Brain”, essentially an AI model that analyses billions of interactions with customers. This is aimed at refining interactions to deliver more personalised experiences for customers, as well as speeding up onboarding and product matching. McEwan has also been trying to convince Steel to join NAB for some years.
The project is powered by 200 machine-learning models and has taken in more than 36 billion data points covering everything from transactions to the way customers use the NAB banking app.
It’s still early days for NAB, but by rolling out the Customer Brain has saved an estimated $100m in retained deposits, while home leading leads are driving a noticeable jump in mortgage applications from existing customers.
Over at CBA, more than 60 AI use cases have been identified to streamline operations and do work otherwise done by staffers. As a bigger bank, its machine learning models have processed over 3 trillion data points. It is using AI across daily transactions to alert for scams and frauds, triggering nearly 20,000 alerts to customers a day. There’s been an 85 per cent cut in the time it takes to do an annual review for business customers.
The next challenge for banks will be how to use AI tools to make deep inroads into their high cost base, deploying the tech for roles that are now labour-intensive. This might be across areas from coding and right through to quasi-legal or streamlining back office roles and products. Banks have embraced AI at scale at the customer front line, and now they are preparing to make the leap to rely on the tech to deliver a big change to the way they do business.
eric.johnston@news.com.au
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