NSW 2040 Economic Blueprint

52 Martin Place, Sydney NSW 2000 www.treasury.nsw.gov.au The NSW 2040 Economic Blueprint has been prepared by NSW Chief Economist, Stephen Walters. Cover image credit: Byron Bay Lighthouse This publication is protected by copyright. With the exception of (a) any coat of arms, logo, trade mark or other branding; (b) any third party intellectual property; and (c) personal information such as photographs of people, this publication is licensed under the Creative Commons Attribution 3.0 Australia Licence. The licence terms are available at the Creative Commons website at: creativecommons.org/licenses/by/3.0/au/legalcode NSW Treasury requires that it be attributed as creator of the licensed material in the following manner: © State of New South Wales (NSW Treasury), (2019). NSW 2040 Economic Blueprint Contents 01. FOREWORD BY THE TREASURER 8 EXECUTIVE SUMMARY AND 10 RECOMMENDATIONS INTRODUCTION14 The $2 trillion economy 10 The Premier State 16 Staying ‘lucky’ – capitalising on our strengths 17 Our 2040 aspirations 10 Assembling the 2040 Blueprint 18 Five global megatrends will shape 11 Leveraging other NSW strategies and reviews 19 our next 20 years Likely industries of the future 11 Seven levers will boost our performance 11 Recommendations12 02. TODAY’S NSW ECONOMY 20 AND INDUSTRY STRUCTURE An enviable standard of living 22 The best performing state economy 23 ... with the best state budget position 23 High level of productivity 25 World-leading infrastructure investment 25 Largest exporter of services in Australia 25 A highly educated workforce 26 A productive and growing manufacturing sector 26 Extensive trade and investment links with Asia 27 Abundant natural resources and food exports 27 Sydney, a finance hub of Asia... 27 ... and magnet for global workers 27 Expanding creative industries 27

4 NSW Economic Blueprint 03. ASPIRATIONS FOR 28 NEW SOUTH WALES IN 2040 The nation’s first trillion-dollar economy 30 Healthy, productive people 31 Liveable and connected cities 32 Productive, vibrant regions 33 Innovative, world-class businesses 34 Sustainable environment and resource management 35 Enhanced performance of government 37 04. MEGATRENDS AND CHALLENGES 38 MOVING TOWARDS 2040 Five global megatrends will help shape NSW 39 Domestic issues for attention 44 05. INDUSTRIES OF THE FUTURE 46 Eight criteria for future growth industries 46 Building on our strengths 49 Serving our domestic needs 52 Looking to a vibrant future 54 06. HOW WE GET THERE 60 Lever 1: Human capital 62 Lever 2: Institutions 64 Lever 3: Fiscal policy 67 Lever 4: Infrastructure 69 Lever 5: Innovation 70 Lever 6: Energy and natural resources policy 72 Lever 7: Industry development 74 APPENDIX 1 - References78 APPENDIX 2 - Stakeholders consulted 79 5 Investing in the future of NSW NSW TODAY Infrastructure boom with $93 BILLION PROJECT PIPELINE Strong and stable economy with AAA credit rating Abundant natural Home to more than resources including

8 MILLION PEOPLE coal and gas AUSTRALIA’S ONLY GLOBAL CITY AND GATEWAY TO THE WORLD Per capita income of Lowest unemployment around A$60,000 rate of any state Key sectors include financial services, tourism, education, technology and advanced manufacturing.

6 NSW Economic Blueprint The NSW Economic Blueprint is designed to help chart a course for the NSW economy and keep our state strong as we move towards 2040 and beyond. NSW TOWARDS 2040 Economic boost as Efficient government through Asian middle class innovation, reform and slashing passes three billion red tape Increased NATION’S FIRST productivity to TWO TRILLION-DOLLAR counter ageing ECONOMY AFTER 2040 population Five major urban centres connected by modern infrastructure Growing regions with improved transport links and resource security Reliable and affordable energy with lighter environmental impact Innovative industries focused on priority precincts 7 Foreword by the Treasurer The Honourable Dominic Perrottet MP is Treasurer of New South Wales and charged NSW Chief Economist Stephen Walters with producing this Blueprint. In a rapidly changing world, we can choose to innovate, challenge ourselves and take advantage of the many opportunities bestowed upon New South Wales. Or, we can sit back and leave our future to chance. This is not a government which New infrastructure is important, but gambles with the responsibility of we need to take the longer-term view ensuring a better life for the people and ensure we are not just building of New South Wales. physical bridges, but putting in place the planning, policy and framework which We have spent the best part of effectively form the building blocks to a decade re-building the state’s the future. capabilities. In the past year alone, we have opened the new Sydney The dual pressures of dealing with the Metro Northwest train line and the here and now and planning for the first section of the new WestConnex longer term could paralyse us if we let motorway, invested billions into them. But that is not an option. We need improving and building roads, bridges, to ensure that New South Wales stays schools and hospitals in every corner a leader and is not a follower. of the state. New South Wales will become We have a further $93 billion Australia’s first two trillion-dollar state, earmarked for infrastructure projects the clear first choice for business and across the next four years. Vision industry, the first port of call and clear fails without execution, but equally favourite for the majority of those who our vision for New South Wales must come to our shores. extend beyond simply finishing the While traditional industries such as next length of rail line or building the mining and finance will remain next school. important and continue to thrive, we must promote high-growth areas such as advanced manufacturing, tech-innovation, medicine, education and tourism, particularly from Asia.

8 NSW Economic Blueprint New South Wales is already training opportunities to ensure our skills internationally recognised as a match the jobs of the future. high-quality providore to the world We already are hard at work in and over the next two decades we important areas of reform that will will take this to the next level. Better shape the future. The NSW Review of regional and international transport Federal Financial Relations is looking at links will allow us to export more ways to improve the funding relationship of our world’s-best products and between Canberra and New South services to the rapidly growing Wales, with a final report due next year. markets of China and India, as well as The NSW Productivity Commissioner our well-established markets in Japan, Peter Achterstraat recently released the the US and Europe. first discussion paper focusing on the New technology and infrastructure need to make us more competitive. will allow regional New South Wales A final area of focus is to ensure the to have greater opportunities for state has a global outlook. This is much skilled jobs and workers in industries more than being the first stop for more often confined to traditional tourists or default choice for international city hubs. students. We must work diligently to bring As envisioned by the Greater the world to our doorstep and equally Sydney Commission, our capital hard opening our door to the world, city will evolve, with three distinct enhancing our trade and investment centres based around the existing opportunities at every opportunity. CBD, Parramatta and Western This Blueprint, prepared by NSW Chief Sydney Airport. Wollongong and Economist Stephen Walters, draws Newcastle will continue to grow with together many of the opportunities and improved transport infrastructure challenges we face and will help us chart and technological advances boosting a course for our future. I thank Stephen economic opportunities. for his important work and know that as We will have dedicated precincts of this generation builds for the next, the expertise across NSW which support Blueprint will help ensure we keep NSW emerging and growth industries and ahead of the pack and the very best encourage innovation and investment. state in the country. Our education and training sectors The Honourable Dominic Perrottet MP will need to adapt and change with a Treasurer focus on ensuring we have life-long November 2019 9 Our 2040 aspirations • We want a high standard of living for a population that is healthy, well-educated and skilled for high- income jobs of the future. • Our economy should be diversified in favour of fast-growing industries Executive summary and services and be expanding quickly enough to lift living standards. and recommendations • Our five major urban centres should be vibrant and well-connected, with modern infrastructure well-suited to our needs and a growing population. This 2040 Blueprint sets • Our regions should be productive the direction for New and growing, serviced by world-class infrastructure and transport links. South Wales’ continued • We desire innovative businesses economic success in a and industries of the future and a changing world, making government that leaves a lighter recommendations about footprint on private sector activity. where we should focus • Our environment and biodiversity should be preserved for future our efforts. generations and our energy sources reliable and affordable, with enhanced The $2 trillion economy water resilience across the State. New South Wales has among • Government should behave in a the highest average household way that encourages innovation, incomes in the nation and the lowest particularly via procurement. unemployment rate, a world leading service sector and negative net government debt. We should be able to become First $2 Australia’s first trillion-dollar state trillion state by 2030 and its first $2 trillion state after 2040 – and even sooner if we after 2040 find and implement measures to improve our productivity.

10 NSW Economic Blueprint Likely industries of the future Technology change and disruption will continue, but the experience of the past 20 years indicates that the economy and society will adapt and grow. While there are no perfect predictors of future success, indicators can tell us which industries are more likely to grow over the next two decades. Development of these industries should attract both global talent and global investment capital. Five global megatrends The industries singled out in this will shape our next 2040 Blueprint are: 20 years • Industries where New South Wales is already strong: finance and Global forces will play a big role in financial technology; mining; New South Wales’ next two decades education; tourism and events; and many of them will be positive. the arts. Five stand out: • Industries that serve our domestic • Asia will be a much richer consumer needs: cyber security; medical with new tastes to which we can technology; waste management. cater and new abilities as well. • Emerging industries: advanced • Our previous development efforts manufacturing; food production have placed the natural environment and agricultural technology; under stress and we will need to aerospace and defence; space; respond. hydrogen for fuel. • Digital technologies, including new tools like artificial intelligence, will keep changing our lives and our work. Seven levers will boost • Patterns of migration will help our performance determine how quickly the population State governments have seven main of the state ages. policy levers to improve economic • Rapid change risks bringing social performance – our human capital, problems that need to be addressed. institutions, fiscal policy, infrastructure, innovation, natural resource policy and industry development abilities. Each has limits. But compared to the powers of national government, they may be growing more effective over time. The full 2040 Blueprint recommendations are set out on the next page. 11 Recommendations Aspiration: A two-trillion- Aspiration: Innovative, dollar economy after 2040 world-class businesses IMMEDIATELY IMMEDIATELY • Support the Productivity Commissioner’s • Work with the NSW Productivity examination of the state taxation system. Commissioner on problems • Invest in the NSW Government’s related to planning, regulation and overseas presence to better promote vocational education. ‘Brand NSW’. • Support the review of the state’s research and development landscape. LONGER TERM • Establish an industry taskforce • Promote the state not just as a tourist to encourage high-growth destination but as a place to invest, future industries. do business and study. • Release a Space Industry Development Strategy. Aspiration: Healthy, • Commit to long-term funded productive people initiatives to encourage more IMMEDIATELY advanced manufacturing. • Improve the performance of the LONGER TERM vocational education and training • Establish research, development and system. commercialisation facilities in the LONGER TERM Innovation Precincts. • Develop a responsive skilled migration list • Help NSW Government bodies to that is integrated with the national list. pilot innovative solutions and share government data. • Undertake education reforms including those via the Gonski process, particularly • Use the Innovation Precincts and to reward high-performing teachers. industry strategies to concentrate research strengths, drive collaboration • Invest in training and capability between researchers and businesses building to cut construction industry and speed up innovation. skill shortages. • Adopt the eight criteria for future growth industries outlined in Chapter Aspiration: Vibrant, 5 to ensure that benefits of industry well-connected cities development activities are maximised. • Support the growth and success of IMMEDIATELY early stage innovative businesses by • Improve the ways the state plans developing programs to incentivise long-term infrastructure. businesses to invest, innovate and hire. • Set funding governance arrangements Aspiration: Productive, and selection guidelines for project vibrant regions specific assistance to ensure money is spent efficiently. IMMEDIATELY • Create a digital finance and fintech • Work with the Commonwealth industry development strategy. Government to examine ways for new • Develop a digital emerging migrants to move to the regions. technology industry strategy with LONGER TERM a focus on artificial intelligence, • Better commercialise research blockchain and quantum computing. in food, food technology and • Resource the implementation of agricultural technology. existing defence industry plans. • Help regional businesses diversify and • Establish medtech commercialisation capitalise on growth in tourism. and accelerator programs. • Improve freight networks in the regions. • Develop advocacy strategies for major upcoming defence procurements.

12 NSW Economic Blueprint Aspiration: Sustainable Aspiration: Better environmental and government performance resources management IMMEDIATELY IMMEDIATELY • Support the NSW Review of Federal • Work with the Commonwealth Financial Relations. Government and the states to LONGER TERM agree a national energy policy. • Examine NSW Government • Keep working with Commonwealth, procurement practices to ensure state and local government to that government purchasing better deal with waste. encourages innovation. LONGER TERM • Ensure that government decision- • Develop a policy on hydrogen making is underpinned by the best production and export. available information. • Adopt a longer-term policy on • Make better use of data and digital drought that emphasises water technology in delivering government security and better drought-proofing. services, especially health services. • Create an environmental goods and • Realise the ambitions of the NSW services development strategy to Cyber Security Industry Development capitalise on waste management Strategy by committing to ongoing and circular economy opportunities. support of the NSW Cyber Security Innovation Node. • Develop a state-wide policy to ensure adequate supplies of drinkable water. 13 01. Introduction The people of New South Wales are at the heart of this

2040 Economic Blueprint. Eight million people, all of us with dreams, hopes, wants and needs, all with a stake in the ongoing success and future of our great state.

14 NSW Economic Blueprint This 2040 Blueprint aims to inform These helped set up Australia for views on what the New South close to three decades of growth Wales economy can achieve over from the early 1990s. the next two decades. The 2040 Blueprint seeks to show From pre-federation times to how a new generation of reforms the ‘banana republic’ emergency can improve living standards in of 1986, Australians have often New South Wales – but without relied on the onset of crisis to requiring some great crisis. change our economic mindset. The recession of the early 1980s and the disruptions in its wake triggered a long era of national reform: we floated the dollar, curbed protectionism, ended unproductive regulation and government ownership in some industries and toughened competition policy. 15 The Premier State New South Wales faces After a period leading to significant budget deficits less than a decade the next two decades and ago, the NSW Budget is now in beyond with impressive surplus and will remain so right across advantages. the Budget projections. We have a resilient and flexible Net debt is negative and the state’s economy that has powered national AAA credit rating is secure. economic performance in recent years. We do face challenges: an ageing We have high levels of household population, climate change, high income and productivity1, the lowest energy costs, disruptive technology, unemployment rate and an enviable tax inefficiencies, trade tensions, standard of living. Add to that scarcity of water, threats to our abundant natural resources, a highly biodiversity and the unwelcome educated and skilled workforce, disruptions of technology. world-renowned tourist destinations, stable and reliable government and And old economic “rules” don’t associated institutions, highly sought- seem to be working as well as in after education facilities, a world the past. Low interest rates are leading service sector and highly not generating stronger economic competitive industries. growth, low unemployment has not sufficiently lifted wages and rapid changes in technology have not We have a resilient boosted productivity by as much as and flexible economy economists had predicted. that has powered Yet disruption also brings national economic opportunities. Most notable of all, the extraordinary growth in Asia’s performance in middle class has the potential to drive recent years exports and economic growth in New South Wales for decades. And the rise in Asian education seems likely to deliver a torrent of new ideas that can drive living standards even higher. That process has already begun. 1 Productivity is the ratio of outputs to inputs at a point in time. Productivity growth measures the change in productivity over a period of time.

16 NSW Economic Blueprint 6 The global middle class (billion people) 5 4 3 2 1 0 2015 2020 2025 2030 Asia Pacific North America Europe Central and South America Sub-Saharan Africa Middle East and North Africa Figure 1: Asia’s soaring middle class Projected size of middle class on five continents to 2030 (billions of people) Source: Brookings Institute and NSW Treasury Staying ‘lucky’ – capitalising on our strengths New South Wales writer Donald Horne We had more luck after the recession coined the phrase The Lucky Country2 of the early 1990s: the extended in 1964. He meant it ironically, yet economic expansion in China pushed that phrase came to define popular the prices we receive for our exports thinking about our rich nation. And to levels rarely seen. That boom is not New South Wales has had more than yet over. its fair share of this luck. Yet luck alone only takes us so far. Sydney (re)gained the title of As our state grows over the next two Australia’s most populous city in the decades, we need to keep building early 1900s and has held it ever since. connected and liveable communities, Its centrality and the rise of air travel prepare people for new jobs and have helped it to become Australia’s ensure access to services such as only true alpha3 city, the first stop affordable energy and plentiful water. for the majority of visitors to our We need to adapt existing industries shores and the global gateway for and attract new ones. local businesses. The resources of the Over the next 20 years, the many regions beyond the capital and the elements of the economy that will resourcefulness of our people, have drive up our living standards – from further fed the state’s prosperity. education, to high-value food, to energy – should be given the best possible chances for success. 2 The Lucky Country, Donald Horne, 1964. 3 Sydney is considered an ‘Alpha+’ world city, according to Loughborough University’s globalisation and world cities research network, which measures the connectivity of cities in terms of position and influence. According to its model, Sydney is ranked in the top 10 most connected cities, alongside New York, London, Tokyo, Paris and Hong Kong. Alpha cities in general have critical links with major economic regions and states that are linked to the world economy. 17 The Blueprint has been informed by: • Research on economic, jobs and productivity trends, including an extensive review of previous work by government (see Appendix 1). • External consultation with around 50 stakeholders across government, industry and academia (see Appendix 2). Assembling the It argues for two types of actions:

2040 Blueprint • First, we should continue to attack long-lived problems that slow our progress, shortcomings particularly in the state’s systems of tax, The Blueprint’s twenty-year planning and regulation. The NSW timeframe, out to 2040, meets two Government is already addressing goals. First, with this timeframe these issues and work by the NSW the Blueprint can look beyond the Productivity Commissioner and the near-term issues that grab today’s NSW Review of Federal Financial headlines. Second, it can look to a Relations will address them further time when long-term decisions made in 2020. today might conceivably have their • Second, the state should implement greatest impact. Just as 1999 was a the longer-term strategies detailed sensible time for nations and regions in the final section of this 2040 to consider the impact of issues like Blueprint. We should give the the internet and population ageing, greatest possible chances for now is the time to consider how we success to those industries – from want the New South Wales of 2040 tourism to advanced manufacturing to look. to water management – that have the greatest chance of fuelling the state’s prosperity.

18 NSW Economic Blueprint Leveraging other NSW strategies and reviews The 2040 Blueprint leverages the • The NSW Productivity White Paper, NSW Government’s future-focused due for release in 2020. plans and priorities that drive place- • The work of the NSW Productivity based developments and strong jobs Commissioner in identifying six growth across New South Wales. In priority areas which if addressed laying out our choices, the Blueprint could boost productivity – including presents an overarching framework the state’s systems of tax, planning upon which other strategies can build, and vocational education and such as: training (VET). • The NSW Trade and Investment • The examination of revenue in the Strategy, which will be released NSW Review of Federal Financial soon. Relations being led by David • The State Infrastructure Strategy, Thodey AO. the work of the Greater Sydney • The state’s research and Commission, the 20-year plan for development performance, Regional NSW, the Future Transport currently being examined by an Strategy, the state’s digital plan expert panel overseen by the Hon and others. Gabrielle Upton MP. • The next iteration of the NSW • The upcoming New South Wales Intergenerational Report (IGR), Social Compact outlining the path due to be published in 2021. forward for human services in the state. 19 02. New South Wales’ resilient economy has been a driver of Australia’s growth for decades. It is the largest state in the country, In manufacturing, we have with annual output of more than particular strengths, including $600 billion – a third of Australia’s in innovation and are a major entire economy. producer and exporter of agricultural products, food and Services dominate our economy, beverages and of coal, nickel, accounting for around three quarters copper and lithium. of activity, similar to economies such as Singapore and other advanced economies. Our biggest comparative strength lies in business services and particularly three knowledge- based fields: financial services; professional, scientific and technical services; and information, media and telecommunications.

20 NSW Economic Blueprint Today’s NSW economy and industry structure In examining the state’s economic 60 future, we should first find out 50 $US per capita, thousands where New South Wales already NSW was 5% higher than Australia (on an unadjusted basis) 40 excels. We should find out what current performance says our 30 state does better than other 20 states and territories and overseas competitors. Then we can work 10 out how best to leverage these 0 strengths and improve on our United States Luxembourg Australia Germany shortcomings. Figure 2: High household incomes in NSW With the help of stakeholders, a Household average gross disposable income per capita in four high- series of comparative advantages income nations, 2016-17.4 Figures in $US, adjusted for payments in kind. has been identified for New South Source: Organisation for Economic Co-operation and Development. Wales, starting with our current high standard of living. 4 Adjusted for payments in kind. 21 An enviable standard of living The people of New South Wales have a standard of living that is the envy of much of the world. Our average per capita disposable income (see Figure 2), is around US$40,000. Were New South Wales a country, the OECD would rank it behind only the US and Luxembourg5. Sydney is routinely voted among the world’s most liveable cities. Our environment is clean, our tertiary education system is world-standard and our society is amongst the world’s most diverse.

22 NSW Economic Blueprint The best performing state economy... For most of the last five years, the While average wages growth remains New South Wales economy has grown subdued, healthy employment growth at or above the national average (see is driving growth in household incomes. Figure 3, below) while the jobless rate has been below the national rate. NSW QoQ Figure 3: NSW and NSW YoY Australian domestic AUS YoY 7 final demand NSW and Australian growth 6 in final demand, year on year, and NSW growth quarter-on 5 -quarter. Figures by quarter, chain volume measure, seasonally adjusted (%). Per cent, through the year growth 4 Source: Australian Bureau of Statistics 3 2 1 0 -1 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 ...with the best state budget position By keeping spending growth consistently New South Wales is one of a handful of below revenue growth, New South state-level jurisdictions with a AAA Wales has achieved the nation’s lowest credit rating. The others include Victoria, government debt. Yet we are funding the two Canadian provinces and three nation’s largest infrastructure spending German states. program to add to our productive capacity.

30 Figure 4: NSW has negative net debt 28.4 25 26.7 General government net debt of Australian states 20 22.8 and territories, as at June 2019. Source: State and 15 territory government Budget papers. Note: $ billions

10 Queensland’s reported net debt is adjusted for its superannuation 5 6.2 asset treatment, making 0 2.2 2.9 comparisons consistent across all jurisdictions. -0.5 -5 -8.8 -10 NSW VIC QLD WA SA TAS ACT NT 5 From the OECD Better Life Index at www.oecdbetterlifeindex.org/topics/income/ 23 New South Wales is in the midst of an unprecedented infrastructure boom, with public infrastructure investment at record levels.

24 NSW Economic Blueprint High level of productivity New South Wales has a highly- Our productivity also reflects the productive economy by international state’s high output and employment standards. In 2017, New South Wales share of productive businesses produced US$54 per hour worked6, and information services. The 2018 above the national average. New establishment of the NSW Productivity South Wales’ productivity is assisted Commission was designed to further by the state’s scale – eight million boost the state’s performance. people centred around our capital city. World-leading infrastructure investment New South Wales is in the midst of an Public transport and roads received unprecedented infrastructure boom, $55.6 billion, including funding with public infrastructure investment for Sydney Metro West. Major at record levels. The 2019-20 Budget infrastructure projects now complete provided $93 billion over four years or nearing completion include Sydney to 2022-23 in infrastructure capital Northwest Metro, which commenced for hospitals, schools, TAFE and services in May 2019 as Australia’s first transport. The Government also is fully-automated metro rail system and contributing $1.6 billion to develop the largest urban rail infrastructure major cultural infrastructure and investment in Australian history. creative precincts. Largest exporter of services in Australia New South Wales is the largest Tourism already is a substantial source exporter of services in Australia. Driven of export revenue (ranked third by rising Asian demand, tourism and behind coal and education), but there education exports made up over half is potential for growth to accelerate. of the state’s services exports in 2018, Nature-based and eco-tourism have with their value up by around 30 per special potential given New South cent between 2015-16 and 2017-18. Wales’ pristine national parks and Education exports encourage local coastal environments. Excellent arts consumption and build a pathway to and cultural experiences and world- skilled migration. Exports class cultural, sporting, entertainment Exports of education of education alone were and conferencing venues and alone were worth worth $12 billion in 2018; it institutions are well known globally is now the state’s second and attracted 13.6 million cultural and $12 billion in 2018 largest export, behind heritage visitors to New South Wales coal. The University of Sydney and in 2018. the University of NSW are ranked inside the top 75 institutions globally7. 6 Figures in 2010 prices, on a Purchasing Power Parity basis. 7 Times Higher Education, 2019. 25 Figure 5: NSW tourism and education exports have grown rapidly Annual average growth in overseas enrolments and short-term visitors (%). Source: Australian Bureau of Statistics, NSW Treasury. Enrolments Visitors 25 20 Annual average growth, per cent 15 10 5 0 -5 -10 Jun-05 Jun-07 Jun-09 Jun-11 Jun-13 Jun-15 Jun-17 Jun-19 A highly educated workforce New South Wales’ workforce has NSW Innovation and Productivity particularly strong representation in Council8 data shows that if it healthcare, infrastructure, construction were a country, New South Wales and financial and professional would rank fourth in the world services. The state hosts Australia’s for percentage of workers with largest group of science, technology, tertiary qualifications: 48.6 per cent, engineering and mathematics 97 per cent of them employed. (STEM) graduates. A productive and growing manufacturing sector New South Wales is home to highly New South Wales manufacturers innovative, competitive and world produce almost a third of the leading manufacturers that are vital country’s total manufacturing output, to the diversity and strength of the generating around $33 billion in gross Australian economy. value added and directly employing 253,000 people, or a third of jobs in the sector countrywide. 8 NSW Innovation and Productivity Council Scorecard, September 2019.

26 NSW Economic Blueprint Extensive trade and Sydney, a finance hub of Asia... investment links with Asia Sydney is the financial capital of Australia Our shared time zones and supportive and ranks tenth on the Global Financial pattern of historical migration have Centres index10. Total superannuation assets reinforced strong cultural, economic in Australia totalled $2.9 trillion11, the fourth and political ties between New South largest retirement saving pool in the world. Wales and our major Asian trading Much of the sector’s activity and Australian partners. Japan remains the state’s arms of most major global financial service largest single export destination; China organisations are headquartered in Sydney is second and is the largest source of and it is an official trading hub for the Chinese both tourists and students entering the renminbi. The Australian Securities Exchange, state. The state’s open and transparent headquartered in Sydney, is the 16th largest business operating environment makes stock exchange in the world by market it an attractive destination for foreign capitalisation. It employs nearly 40 per cent investment. It is ranked first out of of the more than 445,000 financial services the states and territories for Chinese professionals working in Australia. foreign investment. ...and magnet for global workers Abundant natural Sydney is the second highest ranked city resources and food exports in the Asia Pacific region for innovation12. New South Wales is the start-up capital of Large and diverse mineral and gas Australia13, ranked fifth highest in the world for deposits, exploration projects and entrepreneurship14. Sydney is also the highest a burgeoning renewable energy ranked capital city in Australia for quality of sector make mining, resources and life15. Sydney is the only Australian city in the energy important parts of the NSW top 10 most attractive cities for the global economy. Asia’s quest for cleaner workforce16. Australia is ranked fourth in the air and growing global gas demand world for protection of intellectual property, will make renewables and gas larger ahead of the UK, Germany and France17. elements in that mix over the next two decades. New South Wales’ generally favourable climate for growing crops, Expanding creative industries world-class food safety regulation New South Wales is Australia’s leading state and transport and logistics systems for creative industries and they are a growing position us to meet demand from piece of the NSW economy. Many thousands emerging markets for premium, of creative businesses employ around 42 provenance-protected food goods9. per cent of the sector’s workers and have exports worth $2,963 million – 70 per cent of Australia’s total creative services exports18. The state’s open New South Wales is recognised as the leading and transparent state for screen production, with 56 per cent of the Australian screen industry employed business operating in New South Wales19 and a Disney-owned environment makes Industrial Light & Magic studio setting up it an attractive in Sydney, one of only three studios outside North America. destination for foreign investment 9 www.nswfarmers.org.au/NSWFA/Content/IndustryPolicy/R_and_D/Supply_chain_transformation_and_export_readiness.aspx. 10 www. longfinance.net/programmes/financial-centre-futures/global-financial-centres-index/ 11 The Association of Superannuation Funds of Australia, Ltd.12 NSW Department of Industry. 2019. Sydney Innovation and Technology Precinct The Future Made Here. 13 2018 Startup Muster Annual Report available at www.startupmuster.com/reports. 14 The Global Entrepreneurship and Development Institute. 2018.15 Mercer, Quality of Living Survey, 2019. 16 Global Talent Survey 2018.17 atr-ipri2017.s3.amazonaws.com/uploads/IPRI_2019_FullReport.pdf. 18 BYP Group estimates based on analysis of Australian Bureau of Statistics. (2017 & 2011). Labour Force, Detailed, Quarterly, May 2017 and Census 2011. Australian Bureau of Statistics: Canberra. 19 Screen Australia Drama Report, 2015-16. 27 Aspirations for New South Wales in 2040 03. We are operating in an era of rapid change and unprecedented uncertainty. We don’t, for example, know It would be unwise to try painting whether cars will be flying by a precise picture of New South 2040; indeed, we don’t even know Wales’ 2040 industry structure. how many will be driverless. The New industries could emerge that nature of our jobs is changing are beyond our imagination today. rapidly. A recent study by Deakin Existing industries that now seem University20 suggested “cyborg on solid ground may wither. psychologist” as a future job21 Nations not currently among the in Australia. state’s major trading partners may jump into view.

28 NSW Economic Blueprint In 2040, our economy will be 70 that New South Wales’ population per cent larger than it is today, will be around 30 per cent larger even if we grow at our potential by 2030, at around 9 million growth rate – around 2.5 per cent people and headed towards in real terms – from here. The 11 million by 2040. industrial structure delivering To avoid the risk of getting precise this growth will have changed. predictions wrong, we have Services will make up an even developed sensible aspirations larger share of our Gross State about the NSW economy and Product (GSP), particularly in society of 2040. This chapter healthcare, education and ’caring addresses these in the context industries’ such as aged care. of seven overarching economic Mining and manufacturing may and wellbeing categories: the both represent less of our economy, our people, cities, the annual output. regions, business, the environment and performance of government. We can more easily project the make-up of the state’s people: that depends on births, deaths and interstate and overseas migration. The government’s population projections assume 20

100 Jobs of the Future report, 2019: 100jobsofthefuture.com/report 21 Cyborg psychologists would help “people who have synthetic organs, robotic limbs and body implants” to come to terms with their new body parts. 29 HIGHER GROWTH INDUSTRIES • The NSW economy should move in the next two decades towards higher growth industries such as advanced manufacturing. That said, services will remain the dominant contributors to the state’s output – particularly education and healthcare, but also tourism and financial and The nation’s first other professional services. A MORE DIVERSIFIED EXPORT BASE trillion-dollar economy • Coal remains the state’s largest single overseas export commodity, but the state should aspire to grow a more diversified export base over The NSW economy will time. The changing climate means be the nation’s first the economy increasingly will move to non-fossil fuel exports, including $1 trillion state economy hydrogen. The state’s service by 2030 and the first exports also should become more $2 trillion economy after diverse, with a broader base of overseas education exports, 2040, even if it grows only in particular. at its long-run average DIVERSIFIED TRADING PARTNERS nominal rate from here. • Similarly, over time, the state’s We should aspire to pass these marks trading partner mix will change. more quickly, including by undertaking An ageing population means that the actions and strategies outlined in Japan, currently the state’s largest this 2040 Blueprint. single overseas destination for commodities, may take a smaller FASTER GROWTH IN PRODUCTIVITY share of total exports. Other • As Nobel prize-winning economist economies, including China and Paul Krugman has said, “productivity India, may take a higher share. There isn’t everything but, in the long run, it also is scope for higher exports to is almost everything”22. Putting aside previously untapped markets. changes in the working population, growth in productivity is what drives ATTRACTIVE TO FOREIGN New South Wales’ economic growth. INVESTORS Sustainable growth in potential GSP • New South Wales already attracts will ensure high living standards for more foreign investment than any a growing population. other state, but we can aspire to be even better. Development of WE SHOULD ASPIRE TO HAVE THE innovative, fast-growing industries NATION’S FASTEST GROWING of the future will attract investment ECONOMY ON AVERAGE OVER capital from overseas, as will growth THE CYCLE in GSP above the national average. • There will be periods when other Moves to address complicated states grow more quickly than planning and regulatory systems will New South Wales – particularly the keep New South Wales number one resource states of Queensland and for foreign investment inflows. Western Australia – but sustained growth in GSP above the national average will ensure that employment keeps growing and that living standards are rising.

30 NSW Economic Blueprint Healthy, productive people The main aspirations here are that HIGH STANDARD OF LIVING the citizens of New South Wales can • The state enjoys a standard of living improve their current high standard above the Australian average and of living, that they be well-educated adaptation to the demands of the and skilled for the higher-income jobs of the future should allow this jobs of the future, that they be to continue. Cost of living pressures flexible enough to adapt to changing from areas like housing and energy workforce needs. will have to be addressed. SUSTAINABLE POPULATION HIGH INCOME AND OF NSW AND SYDNEY SUSTAINABLE JOBS • This means having the transport, • The emerging industrial structure education, health, housing and other of the state should deliver high- infrastructure and public services value-added jobs for an educated necessary to support the growing workforce. That in turn should population and particularly the keep workers in high-paying jobs. increased population in the major Increasingly, these jobs will be in the cities, including Sydney. services sector, but industries like A WORLD-CLASS EDUCATION advanced manufacturing, defence and SYSTEM aerospace will also provide them. • We should aspire to provide world- SUPPORT FOR THE VULNERABLE class education from pre-primary • Not everyone in our society is able right through post-graduate and to work or study as productively as vocational studies, as well as they wish. As a high-income society opportunities for life-long learning with an egalitarian ethic, we should as workforce needs change. This aspire to support the vulnerable aspiration means having even more and disadvantaged. talented and dedicated teachers. FIRST NATIONS WELLBEING NIMBLE AND AGILE WORKFORCE AND INCLUSION • The state has a well-educated and • First Peoples make up 2.9 per skilled workforce, but we face rapid cent of the NSW population. The change in skills demand as the aspiration here is that the state’s state’s industrial base changes and First Peoples have opportunities to technology and increased automation self-determine and have access to disrupt workplaces. Skills shortages the same level of services as all New are already making construction South Wales citizens, particularly in projects more difficult to execute. education and healthcare. 22 Paul Krugman, Professor of Economics and International Affairs Emeritus at Princeton University and a columnist for The New York Times. 31 Liveable and connected cities The state’s infrastructure planning agile and agnostic in its technology assumes that New South Wales will choices. The world’s most liveable have five major urban centres, the and connected cities rely on good three cities of Sydney (Eastern, Central communications, so the state should and Western Sydney), Newcastle not lock itself into technology that and Wollongong. The following risks becoming obsolete quickly. characteristics form the underlying The efficiency of connectivity also aspirations for the five major cities is dependent on fast and reliable of the state in 2040. transport networks. ENHANCED LIVEABILITY INFRASTRUCTURE TO MEET • Sydney has been voted one of OUR NEEDS the world’s most liveable cities • The recent national audit of (Figure 6). We should maintain Australia’s infrastructure23 needs this standing with careful planning found that even with the current that includes joined-up leadership record level of spending there would across government and extensive still be infrastructure shortages into infrastructure provision. Increasingly, the future. citizens of New South Wales may SYDNEY AS A GLOBAL CITY choose to live outside the Sydney area to enhance their lifestyles, • Sydney’s reputation as a great with better housing affordability global city already draws millions and access to jobs. A focus on the of tourists. We should aspire for arts enhances liveability and makes Sydney also to be known as a hub places more desirable. for education and innovation and for financial services in Asia. SUSTAINABLE LAND USE PATTERNS DISTINCT CULTURAL IDENTITY • We should use our infrastructure more efficiently and sustainably and • Research24 shows that leading with lower disruption by locating global metropolitan regions are more housing around existing built capitalising on the ‘experience up areas. economy’, fostering engagement and emotional connections RELIABLE AND FAST CONNECTIVITY with public space, tourist sites, • Technology is changing so quickly commercial areas and places of that the state needs to remain cultural and historic significance. Economist Rank Monocle Mercer Intelligence Unit

1 Vienna, Austria Zurich, Switzerland Vienna, Austria

2 Melbourne, Australia Tokyo, Japan Zürich, Switzerland

3 Sydney, Australia Munich, Germany Vancouver, Canada (=3rd)

4 Osaka, Japan Copenhagen, Denmark Munich, Germany (=3rd)

5 Calgary, Canada Vienna, Austria Auckland, New Zealand (=3rd)

6 Vancouver, Canada Helsinki, Finland Düsseldorf, Germany

7 Toronto, Canada Hamburg, Germany Frankfurt, Germany

8 Tokyo, Japan Madrid, Spain Copenhagen, Denmark

9 Copenhagen, Denmark Berlin, Germany Geneva, Switzerland

10 Adelaide, Australia Lisbon, Portugal Basel, Switzerland Sydney, Australia (13th) Sydney, Australia (11th) Figure 6: Liveability rankings by city Source: Economist Intelligence Unit, Monocle, Mercer. An Assessment of Australia’s Future Infrastructure Needs, Infrastructure Australia, August 2019. 24 Culture, Value and Place Vol 2: Greater 23 Sydney Case Study. By Dr Tim Moonen, Professor Greg Clark, Caitlin Morrisey and Jake Nunley. The Business of Cities Ltd. August 2018.

32 NSW Economic Blueprint Productive, vibrant regions Around 40 per cent Populations of some smaller REGIONAL TRANSPORT regional towns have, however, INFRASTRUCTURE of the residents been shrinking recently, partly • By 2040, a more efficient state of New South because large cities provide transport infrastructure should Wales live outside more long-term employment allow more agricultural products, opportunities. The state should in particular, to reach more greater Sydney aspire to have sustainable overseas markets more quickly. The regional communities underpinned Western Sydney Airport will help by productive employment and high communities and businesses at class public services, connectivity either end of air links; more distant and infrastructure. producers need closer transport VIBRANT REGIONAL ECONOMIES and logistics hubs. • We should aspire to have growing WORLD-CLASS TRANSPORT LINKS populations within our communities. • The state covers 800,000 square That will require sufficient employment kilometres, more than 10 per cent and educational opportunities of Australian territory. That leaves for people to remain in these us with obvious challenges in communities, with people moving maintaining high-standard regional to the regions as well as away from infrastructure. By 2040, however, we them. This is particularly so for should aspire to have our regional migrants, who tend to congregate areas as liveable as the major in the major urban areas. urban areas. AN AGRICULTURAL INDUSTRY ENHANCED CONNECTIVITY SUPPLYING THE GROWING • The tyranny of distance will continue MIDDLE CLASS IN ASIA to present a challenge to regional • The pool of middle class citizens in transport and communication service Asia will continue to expand (see levels – but, by 2040, the current chapter 4). Aiming to be Asia’s ‘food wide gap in standards should be bowl’ is unrealistic given the giant narrowed. We should aspire to continent’s huge food needs25. But make the regions better connected New South Wales can and should with the major urban centres, both aspire to be ‘Asia’s delicatessen’ electronically and physically. – a trusted source of high-quality, high-value products. 25 Estimates suggest that all of Australia currently feeds about 60 million people; Asia contains around 4,600 million people. 33 Innovative, world-class businesses New South Wales has a productive manufacturing sector that employs hundreds of thousands of people. As in most regions of the developed world, manufacturing has maintained output growth but fallen as a share of total production. It now represents just 5.4 per cent of state output, down from almost 11 per cent in 1990. Like all of Australia, the state faces EXTENSIVE SERVICE EXPORTER significant cost disadvantages, • We should aspire to be a significant particularly in production phases exporter not just of education and exposed to global supply chains. tourism, but of other high-value The aspiration is for more of the activities like financial services and state’s industrial activities to be in professional services such as high-value added activities like architecture and business design, where the state has administration. There also is huge comparative advantages. upside for exporting health services, particularly to the growing Asian INNOVATIVE INDUSTRIAL BASE middle class. • Rapidly changing technologies, including automation, robotics and ATTRACTIVE DESTINATION artificial intelligence, mean our FOR BUSINESS industries must be flexible to keep • We should be recognised as a up with change. Innovation is the standout destination for cultural key: in the years to 2040, the level tourism, major events and creative of spending on research and industries, being a showcase in development needs to lift significantly. global content ranging from screen We should aspire to export new, production to major cultural events. high-value technologies to the world. WORLD-CLASS CENTRES OF GROWTH INDUSTRIES ARTS AND TECHNOLOGY • By 2040, the state’s industrial base • Deliberate and strategic co-location should have transitioned towards of culture and creative practices higher-growth industries with within the state’s emerging centres elevated research and development of technology and innovation will inputs, highly-skilled workers and create vibrant ‘live-work-play’ extensive domestic supply chains. environments that attract and retain skilled talent.

34 NSW Economic Blueprint Sustainable environment and resource management Without a sustainable environment, there are no liveable cities, productive jobs and high living standards, nor an innovative industrial base. Rising temperatures will require determined action in NSW to mitigate potential threats, particularly around our energy and water supplies. RELIABLE AND AFFORDABLE ENERGY • New South Wales is a major exporter of coal, much of it for power generation in China and Japan. By 2040, the state will likely have to diversify its energy sources to a more sustainable mix that includes renewables (wind, solar and wave) and alternatives in a technology- agnostic fashion. Alternative export industries should emerge by this date, such as hydrogen. SECURE WATER SUPPLIES • Climate change means the state will confront more frequent and more severe droughts26. Well before 2040, the state should aim to transition to more secure water storage options and expand desalination capacity and other alternative sources of supply. We also should look at more efficient uses of water by households and industry. FLEXIBILITY TO DEAL WITH CHANGING CLIMATE • By 2040, the aspiration is that the state will take the steps necessary to mitigate emerging risks from climate change. The actions of the Commonwealth Government and other jurisdictions will play critical roles here. 26 Commonwealth Government (2019) Drought in Australia: Australian Government Drought Response, Resiliance and Preparation Plan. 35 The NSW Government is the largest single customer in Australia and probably still will be in 2040.

36 NSW Economic Blueprint Enhanced performance of government The NSW Government is the largest AN ENVIRONMENT CONDUCIVE single customer in Australia and TO INVESTMENT probably still will be in 2040. Its • Regardless of financial assistance, enormous purchasing power can we should aspire to create an drive innovation and create extensive environment that makes businesses production chains in New South Wales. want to invest and create jobs here The state also has significant power to rather than interstate or overseas. control public sector employment. EFFICIENT DELIVERY OF A MORE EFFICIENT TAX SYSTEM GOVERNMENT SERVICES • By 2040, the state’s tax system • New South Wales should always should be much more efficient. aspire to deliver public services to PROCUREMENT TO DRIVE an acceptable standard in a cost- INNOVATION effective and sustainable manner. This basic imperative will become • The Government should by 2040 even more important over the be using the power of government next twenty years as demands on as a customer to drive innovation public services grow – particularly, and value chains by making as the population grows and ages, procurement decisions strategically, in healthcare. rather than simply on the basis of cost. POSITIVE EMPLOYMENT IMPACTS LIGHTER-TOUCH REGULATION • The NSW Government is the largest single employer in the country. The • By 2040, approvals for key areas Government should use this power of activity should be expedited. to promote a diverse public sector More of the state’s underused workforce, particularly for people natural resources should be living with a disability and for unlocked. We want Sydney in First Peoples. particular to be known as the place to come for jobs of the future. INNOVATION AND AGILITY IN PLANNING • The planning system cuts across all aspects of economic activity and can either enhance or curb creativity and innovation. We should aspire to world-class standards and governance arrangements as well as joined-up leadership across government. 37 Megatrends and challenges moving towards 2040 04. The global changes now underway – in technology, automation, the climate, skills, jobs of the future, demographics, cities, urbanisation, social cohesion and geopolitical risks, among others – will inevitably change New South Wales too. We also face challenges and opportunities in areas that we control: a complex planning system, complicated regulations on business, an inefficient tax system and a high cost of living. These challenges will need to be addressed if the state is to prosper to 2040 and beyond.

38 NSW Economic Blueprint Five global megatrends will help shape NSW Five global megatrends have helped shape this 2040 Blueprint. Each appears likely to continue for some years though the speed of the changes will vary. Dealt with well, these trends will throw up challenges but also opportunities for New South Wales. The rapid growth of the middle class in Asia, for instance, can be a bonanza for our food and service exports. 39 Asian customers are spending more The world’s middle class – people with More broadly, the recent turn towards incomes between US$11 and US$110 greater trade restrictions and tariffs, per day27 – is growing quickly. These particularly in China and the US, is people, mostly in China and India, troubling. Figure 7 shows that the have the income to make purchases measured value of world trade has beyond basic needs. As such people’s begun to fall in the past 18 months. incomes grow, they typically begin Some parts of the NSW economy buying high-protein foods, which could benefit from US-China trade New South Wales can supply. Higher skirmishing for now, as China incomes also prompt rising demand demands more raw materials, but this for sophisticated services like tourism, will not always be the case. education and professional activities. The OECD estimates that around two- thirds of the global middle class will reside in Asia by 203028. 6 Global trade

5 Global industrial production Per cent, through the year growth 4 3 2 1 0 -1 -2 Jun-14 Jun-15 Jun-15 Jun-16 Jun-17 Jun-18 Jun-19 Figure 7: Growth in world trade and production has slowed Growth in global trade and industrial production, through the year (%) Source: CPB Netherlands Bureau for Economic Policy Analysis.

40 NSW Economic Blueprint The natural environment is under stress The primary driver here is climate Digital technology will change and humanity’s collective contribution. These drive temperatures keep changing our lives higher and make droughts more Technology has been changing our frequent and severe. The working lives more often and more Intergovernmental Panel on Climate quickly in recent decades. It is behind Change29 predicts that, without a new flood of data in workplaces, new coordinated global action to reduce automation of not just industrial but greenhouse gas emissions, there could office work and an increase in freelance be a 4 degree rise in temperatures by and casual work arrangements. 2100 relative to pre-industrial norms. Many people conclude that these Much of the east coast of Australia changes will raise unemployment. remains gripped in the worst Yet such an effect is not showing up in drought in a decade, with water New South Wales’ unemployment rate. supplies dwindling. Such droughts Adoption of digital technology could will probably happen more often in reduce travel times and the need for the years to 2040. investment in new infrastructure, as Our response to drought and higher well as the physical space needed for temperatures will help to determine such investment. how much food – and the types of And changes in technology are nothing food – we can produce for export from new. They’ve taken place for centuries, New South Wales. We will need to albeit at different rates and affecting secure water and energy supplies at disparate sectors of the economy. The the lowest possible cost that still allow most profound technological changes us to retain a healthy environment. of the past have lowered prices, raised Policy indecision around energy living standards and generated more by the Commonwealth and state jobs than they have destroyed; the latest governments has left Australia with an changes may have just the same effect. unreliable and expensive power supply. With a predominantly serviced-based Climate change will probably also economy and a highly-educated raise the frequency and intensity workforce, New South Wales is well- of floods and storms.30 And rising placed to benefit from the next wave temperatures, drought, sea level rises of technological change. Oxford and changes in ocean chemistry also Economics32 found that “New South threaten native plant and animal life31. Wales looks rather less vulnerable than either Victoria or South Australia. In this state, the labour market has become less dependent on manufacturing jobs in recent years, while manufacturing productivity has improved”. 27 $US in 2011 purchasing power parity. See www.brookings.edu/blog/future-development/2018/09/27/a-global-tipping-point-half-the- world-is-now-middle-class-or-wealthier 28 oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html 29 climatenexus. org/international/ipcc/comparing-climate-impacts-at-1-5c-2c-3c-and-4c 30 Climate Council of Australia (2019) Weather Gone Wild: Climate Change-Fuelled Extreme Weather In 2018. 31 Commonwealth Government (2019), Drought in Australia: Australian Government Drought Response, Resilience and Preparedness Plan. 32 cdn2.hubspot.net/hubfs/2240363/Report%20-%20How%20Robots%20Change%20the%20 World.pdf 41 NSW will age faster without migrants The state’s population is already older than the national average and it is ageing. We’re not attracting enough migrants to offset the effect on ageing of slowing in the aggregate fertility rate. Sydney, with its high cost of living, is currently losing around 20,000 people each year to other states. Ageing is a nationwide problem. By Change can create new 206033, just 60 per cent of Australians may be of working age, down from social problems 66 per cent in 2018. That will leave us While we embrace change, we must with fewer people working and paying deal with its social effects. Australians taxes to fund schools, roads, hospitals keep moving to cities, weakening and other government services. social vitality in some regions. Social change and new technologies have However, Australia’s challenge will helped to erode trust in traditional be far smaller than that of some institutions too. Economic change European and Asian nations. And has hit hard some of the more skilled migration can help minimise disadvantaged in society.34 First this effect. On average, our new Peoples’ welfare and rights continue migrants are both younger and to demand attention. more productive than the existing inhabitants. So they slow the ageing of our population while lifting our economic output. To succeed, however, we need to make sure that New South Wales remains attractive and affordable to prospective skilled migrants. 12 10 Population (millions) 8 6 4 2 0 2005-06 2009-10 2019-20 2023-24 2033-34 2043-44 2053-54 2011-12 2021-22 2007-08 2013-14 2015-16 2017-18 2025-26 2027-28 2029-30 2031-32 2035-36 2037-38 2039-40 2041-42 2045-46 2047-48 2049-50 2051-52 2055-56 0-14 15-64 65 & over Figure 8: NSW will age, but slowly Projected population and age profile for New South Wales, as at 2019-20 NSW Budget. Figures are for 31 December of each year. Source: ABS, NSW Treasury 33 This is a net figure. It comes from the CSIRO’s Australian National Outlook 2019, which cites projections by the Productivity Commission in its 2013 research paper, An Ageing Australia: Preparing for the Future. 34 CSIRO (2019), Australian National Outlook 2019.

42 NSW Economic Blueprint To succeed, however, we need to make sure that New South Wales remains attractive and affordable to prospective skilled migrants. 43 Domestic issues for attention Along with its many advantages, DETERIORATING EDUCATION New South Wales has challenges. OUTCOMES Stakeholders raised many of them as In key respects, the NSW education we consulted on this 2040 Blueprint. system is not immune from Many of these challenges are being deteriorating national education addressed – a critical task if New South standards. We can boost students’ Wales is to prosper. Many need more learning by improving teacher work if we’re to build the economy of effectiveness, giving better teacher 2040 and beyond. feedback and boosting appraisal systems36. International Monetary The state’s main domestic challenges Fund research37 suggests that include not only the trade, environmental, developing our students’ curiosity, ageing, technology and social pressures critical thinking and complex problem- outlined above, but also: solving will boost productivity. SLOW GROWTH IN PRODUCTIVITY SKILL MISMATCHES New South Wales’ level of productivity is In parts of the New South Wales high. Growth in productivity, however, has workforce, too many jobseekers lack slowed, as in other advanced economies35. the skills that employers need. One It averaged 2.1 per cent per year in NSW problem is overqualification: around from 1993-94 to 1998-99, but slowed to 20 per cent of workers in Australia just 0.8 per cent per year between 2003- are reportedly over-qualified38, while 04 and 2011-12 and has averaged only 0.9 industries such as construction per cent since 2011-12. sometimes can’t find the skilled COST OF LIVING PRESSURES people they need. Sydney is Australia’s only global city and AN INEFFICIENT AND VOLATILE therefore has cost of living challenges. TAX SYSTEM This stems partly from the attractiveness As Figure 9 shows, the states’ activity- of New South Wales and particularly, based taxes tend to be among Sydney, as a global destination for both the most volatile and the most migrants. Infrastructure and housing have economically damaging. Transfer duty failed to keep up with rising demand is notably inefficient: among other owing to this rapid population growth. things, it deters workers from moving This has not only placed pressure on to places where the work is, while resources, compromising liveability, but its revenue to government jumps up pushed up prices for houses, energy, and down with the property market. water and other privately-delivered Insurance taxes often encourage essential services like child care. under-insurance and non-insurance, increasing risks for those affected. Payroll tax has the potential to be an efficient tax, but differential rates between states and territories and between larger and smaller businesses reduce its efficiency. 35 “[S]ince 2004, productivity growth slowed across nearly all advanced economies.” Danny Bahar, ‘Productivity Is Key to Economic Growth: Why Is It Slowing down in Advanced Economies?’, Brookings Institution Blog, 2017 <www.brookings. edu/blog/up-front/2017/09/25/productivity-is-key-to-economic-growth-why-is-it-slowing-down-in-advanced-economies/> [accessed 27 October 2019]. 36OECD (2017), Getting Skills Right: The OECD Skills for Jobs Indicators, OECD Publishing, Paris. 37 IMF, Technology and the Future of Work, www.imf.org/external/np/g20/pdf/2018/041118.pdf 38OECD (2017), Getting Skills Right: The OECD Skills for Jobs Indicators, OECD Publishing, Paris.

44 NSW Economic Blueprint CONGESTED URBAN ROADS HIGH ENERGY PRICES AND PUBLIC TRANSPORT Wholesale electricity prices rose across Sydney’s roads and railways are the National Electricity Market (NEM) straining from rapid population growth. by 130 per cent between 2015 and 2017. On one estimate39, congestion cost The price paid for electricity traded Sydney $6.1 billion in 2015 and will in the NEM also more than doubled, cost it an annual $12.6 billion by 2030. from about $8 billion to $18 billion and household bills increased by up to 20 POOR REGIONAL CONNECTIVITY per cent in 2017 alone. Reasons for Stakeholder feedback indicated some price increases include coal-fired power of the state’s regions are poorly station closures, rising input prices and served by infrastructure, particularly generators’ market concentration. digital telecommunications. PATCHY COLLABORATION BETWEEN AN ‘INFLEXIBLE’ PLANNING UNIVERSITIES AND BUSINESS REGIME Australia performs poorly in university- Stakeholders consistently nominated business collaboration and in the planning system as “inflexible” commercialising research and innovation. and an impediment. Good planning In the CSIRO’s Australian National systems help determine the fate of Outlook 2019 report41, Australia’s best fast-growing cities such as Sydney. global ranking was for collaboration Sydney ranks high on global liveability between small businesses, in which we measures, but it is behind its peers were 21st of 29 countries. We ranked on measures such as the time it takes 27th of 27 on collaboration between to subdivide land40. large business and higher education. OUT OF STEP REGULATION LOW DIGITAL AND CYBER Stakeholders agreed that regulations CAPABILITY based on particular technologies or Cybercrime remains a pervasive threat business models are bound, eventually, to Australia’s national and economic to needlessly block change, requiring prosperity. A single, successful costly regulatory catch-up. cyber-attack can have devastating repercussions ranging from theft of intellectual property to a loss of consumer confidence and trust. Marginal excess burden, cents per $ of tax revenue Residential 240 200 160 Life Used card duty 120 insurance Health New insurance cars 80 Commercial Rate Dwellings Life only insurance Rego / weight Threshold Fire 40 reduction services levy 0 Transfer duty Payroll tax Land tax Insurance Motor vehicles Figure 9: Taxes can be costly Economic cost of selected NSW state taxes (%). Source: CoPS, 2018. 39 IMF, Australia Country Report No. 18/44, www.imf.org/en/Publications/CR/Issues/2018/02/20/Australia-2017-Article-IV- Consultation-Press-Release-Staff-Report-and-Statement-by-the-45631 40 Productivity Commission, as above. 41Australian National Outlook 2019, CSIRO. 45 05. Eight criteria for future growth industries This chapter identifies With limited policy levers, state governments routinely offer industry assistance in various the likely New South forms, as outlined later in chapter 6. Such Wales industries of engagement, however, often is done in an ad-hoc manner. The efficacy of such the future. engagement can be improved by enhanced governance arrangements. Predicting the future is a near- The Office of the NSW Chief Scientist and impossible task. But we can consider Engineer and the Industry Development team how the structure of the economy have developed criteria for industries to be might change over the next twenty considered those of the future and suitable years. For example, we know that for support. existing New South Wales public infrastructure such as technology These criteria have not been adopted as hubs and precincts will support government policy, but they are a guide, or innovative growth industries. And filter, to the suitability of particular activities some well-established industries are and are not intended to be prescriptive. positioned to experience rapid growth. The criteria are:

46 NSW Economic Blueprint Industries of the future • High spending on research and development (R&D), an above regulatory model and ease of access average rate of implementation to necessary transport links and of new technologies and processes logistics to major export markets. and key measures of R&D spending that are in the top 20 per cent of • Potential industry strength. For industries or higher. example, associated R&D capabilities for that industry must be highly • Disruption of existing industries ranked by NSW universities. according to the Accenture Disruptability Index42 – for instance, • High growth. Forecast international where new entrants to a sector are growth of the industry is well above triggering innovation and fairer pricing. the international average. • Highly skilled workers, such that • Export orientation. The international the share of workers in an industry market size is more than 50 per cent whose occupations require a high bigger than the size of the Australian degree of technical knowledge and market, or more than 50 per cent of the share of workers with post-high local production is exported. school education, are both above • Extensive supply chains. The the national average, as well as complexity of core products or creative and critical thinking. services produced by the industry • Existing investment in place to is high and, where economic and support growth in physical or feasible, the activity supports local intangible assets, systems and production, employment, investment regulatory frameworks to support and service provision. the industry, like a robust and credible 42 Disruption Need Not Be an Enigma, Accenture, 2018. 47 With this framework in mind, probably the most important driver of trends in the NSW economy will be a shift towards more technology and even more so for services Activities associated with coal are There are risks of more adverse likely to decline in importance. outcomes, obviously, but the state’s Agriculture should be a growth resilience and flexibility over the last opportunity, particularly in high- two decades augurs well. It also is quality produce, driven by technology clear that there will be significant and developments in biotechnology. opportunities for growth and new The growth in services will be driven industries and jobs, particularly for both by the availability of technology improving productivity and and emergence of new products, but efficiency in mature sectors via also by an ageing society. digital technologies. While technology change and There will also be opportunities in disruption will continue, the potentially new technologies and experience of the past 20 years industries as modern methods suggests that the economy and decentralise production to the society will adapt to these changes customer. There will be opportunities with relative ease. in bioengineering and synthetic biology, driven by demand for food and agribusiness. Defence and space technologies are also preferred industries of the future, driven partly by growing federal defence budgets. We have the chance to rethink opportunities around resources – mining, agriculture, energy and water – which should lead to more informed thinking about the circular economy. The following discussion is framed across three broad categories: 1. Building on our strengths 2. Serving our domestic needs 3. Looking to a vibrant future

48 NSW Economic Blueprint Building on our strengths Finance and fintech Mining Sydney’s role as Mining and resources are important parts of the NSW economy. We have Australia’s financial hub large and diverse mineral and gas ranks among our state’s deposits, many exploration projects greatest assets. and a burgeoning renewable energy sector. Asia’s quest for cleaner air New South Wales plays home to should drive up global gas demand in 45 per cent of Australia’s financial the next two decades – though it also services output. That makes finance threatens demand for thermal coal. the single biggest contributor to the state’s economy, with 13 per cent of The CSIRO43 said that most of our economic output – and it directly Australia’s near-surface resource employs 183,000 people. assets have already been discovered and exploited. Opportunities to Technology, one of our five extract minerals from deeper megatrends, is already rapidly reserves can be exploited with new changing the finance sector, creating technologies and skills. Regional risks and challenging the ways New South Wales has long been businesses operate. Transactions now a significant source of resources increasingly happen online rather than such as coal, gold, lead and copper; in-person and banks are moving to now lithium and rare earths loom instant funds transfers. as lucrative industries. That same technology is creating While community, agricultural new opportunities that we must and environmental opposition still encourage. Some businesses are surrounds onshore coal seam gas experimenting with cryptocurrencies (CSG) activity, in 2014 the NSW Chief and blockchain technology. The Scientist and Engineer found many Sydney-based Reserve Bank of of the risks associated with CSG Australia, already a pioneer of polymer extraction could be addressed using banknotes, now talks of developing an quality controls, regulation, training e-dollar. Artificial intelligence and data and the latest technologies. analytics are changing the way that institutions deal with customers and information. And quantum computing 300 may begin transforming financial services again well before 2040. 250 This rapid change underlines 200 $millions the need for New South Wales’ 150 financial services businesses to keep adapting and innovating. Sydney 100 is home to around 60 per cent of 50 Australia’s financial technology (fintech) companies and has also 0 developed into a centre for regulatory 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 technology (regtech) and insurance Copper Coal technology (insurtech). As other Other base metals Other Gold cities push for prominence in financial services, Sydney needs to outperform to maintain and improve its position Figure 10: NSW mineral exploration among the world’s financial hubs. Source: Australian Bureau of Statistics, NSW Treasury. 43 Australian National Outlook 2019, CSIRO, 2019. 49 Education Our education system needs to focus the workforce: some studies predict that on producing graduates who are 40 per cent of today’s jobs will have workforce-ready – not just academically disappeared in 10 to 15 years’ time, due and technically strong, but ready to to automation and technology45. transition straight into productive jobs. A study by the Commonwealth That readiness will demand not just Government’s Productivity Commission46 technical excellence but also the so- has found that an increase in literacy called softer skills, such as creativity, and numeracy scores of one skill level communication, resilience and (out of 5) is associated with an increased particularly the ability to learn further likelihood of employment of 2-4 skills throughout life. Happily, such skills percentage points and 10 per cent higher will serve them through working lives wages. Additionally, an improvement in that may span more years than the jobs PISA scores of one-half of a standard of their parents, across a wide range of deviation in maths and science is shown jobs and industries. to increase GDP per capita by 0.87 per NSW students cent a year on average. We must aspire to improve our If we can move such indicators up, this performance on multiple education work suggests, we will help to ensure indicators: that future workers can move with • Global test scores such as PISA greater agility between roles, are not • Collaboration between levels battered so harshly as technologies of education, from schools to change and industries rise and fall, vocational training to universities and enjoy more prosperous lives. • Engagement with business International education • Focus on life-long learning and Australia has the third-largest reskilling of older workers international student population of • Skilling the young. any nation in the world. Some of the world’s brightest minds are drawn by Modular learning will equip students the country’s dynamic and multicultural more quickly for available jobs, without education sector, world-class teaching, requiring commitment to multiple infrastructure and research facilities years of learning. The so-called STEM and global connections. International (science, technology, engineering students enter a safe, supportive and and maths) disciplines need to be inclusive environment where course prominent if we are to produce standards are guaranteed through candidates able to move smoothly national quality assurance frameworks from education into advanced and government regulation. technology-using and technology- producing jobs of the future. Proof of this quality is seen in Australia’s rank in the 2018 Global Talent NSW schools have identified that they Competitiveness Index – 11th out of also need to find effective ways to 119 countries. The index assesses the integrate creativity in learning across policies and practices that enable a the curriculum to prepare young country to attract, develop and retain people for future jobs44. Young people the technical and vocational abilities and are learning and developing skills in a the global knowledge skills associated changing economy which increasingly with innovation, entrepreneurship values creativity, innovation and and leadership. critical thinking. The NSW Government has already Characteristics such as confidence, established StudyNSW to increase the risk-taking, discipline, collaboration, number of international students persistence, communication and studying with New South Wales critical and creative thinking are all education providers, both public strengthened by creativity in learning. and private. It aims to improve the Business leaders and employers quality of their experience and regularly cite these skills as vital to recognise their contributions to the succeeding in jobs of the future across community. Alongside Technical and

50 NSW Economic Blueprint Further Education (TAFE) institutions, sporting events and exhibitions and New South Wales has almost 1,200 international and national conferences, community-based and private registered conventions and business events at its training organisations and is the world-class conference venues. Beyond the largest public provider in Australia. immediate tourism and visitation benefits, These institutions are internationally business events provide a platform for recognised for the qualifications they knowledge-sharing, inter-jurisdictional provide and their pathways into local collaboration and networking. industry and higher education. We also have a significant opportunity Arts, culture and creative to grow our edtech industry (the use industries of technology to deliver and improve educational outcomes). More than 1,000 In 2016-17 New South Wales creative online education providers in Australia industries contributed $16.4 billion to already generate $3.3 billion in revenue state production and employed and as online learning grows, they approximately 120,000 full time workers47. represent an economic opportunity to Demand for arts and cultural product is export edtech software and services. increasing, evidenced by the significant growth in cultural and heritage tourism: 13.6 million cultural and heritage visitors Tourism, major events to New South Wales in 2018 spent $14 and business events billion48 between them. Overseas travellers are already attracted The prosperity of New South Wales will to the significant tourism assets of New increasingly rely on investments and South Wales: pristine national parks and innovations across disciplines, many of coastal environments, vibrant arts and them combining creative activity with cultural experiences and world-class technology and engineering know-how. cultural, sporting, entertainment and Some examples of value adding include: conferencing venues and institutions. • Industrial design in advanced The Sydney Harbour Bridge and the manufacturing Opera House act as cornerstones and • User experiences techniques such icons of this tourism package. The result as data visualisation and gamification is that more people visit NSW than in medical technology any other state or territory in Australia. • Arts and cultural activities to support China is the largest source of tourists, positive ageing followed by the United States, but there • Augmented reality to assist in crop is potential for rapid growth in other disease identification markets, including Europe and India. • Visitor and event experience design Tourism’s export growth should to improve tourism experiences. accelerate even as new overseas destinations provide competition. In the virtual reality, augmented reality and games development industries, As demand for nature-based tourism rises, industry stakeholders observed a market we need to maintain our wonderful natural opportunity in so-called ‘serious games’ assets. We also need to promote the state in fields such as defence and aerospace, better, particularly to heritage and cultural health, disability, education, e-safety and tourists. For example, New South Wales creative ageing49. has the largest number of First Nations people and Sydney is a globally unique Strategies that showcase and grow the centre of First Nations’ artistic excellence. state’s arts and cultural offering will directly service this growing demand. People visiting and living in Sydney are By building its profile as a global cultural highly engaged in the arts and there is a destination, New South Wales stands strong appetite for cultural programming, to gain jobs, investment and exports, events and celebrations. Sydney and all while growing productive cultural New South Wales play host to numerous exchange and long-term international relationships in many different industries. 44 Future Frontiers – Education for an AI world, Department of Education and Melbourne University Press 2017. 45 Mark Scott, Secretary for the Department of Education, Create NSW Arts 2025 Summit. 46 Productivity Commission, Literacy and Numeracy Skills and Labour Market Outcomes in Australia, 2014: www.pc.gov.au/research/supporting/literacy-numeracy-skills/literacy-numeracy-skills.pdf 47 The Economic Value of Arts, Screen and Culture report by KPMG, commissioned by Create NSW 2018. 48 Cultural and Heritage visitors to NSW, Destination NSW, year ending December 2018. 49 For example NSW-based games company, Bohemia Interactive includes the US Marine Corps, US Army and UK Ministry of Defence as its customers. 51 Serving our domestic needs Digital and cyber security Medtech, health and Digital technology is one of the fastest biomedical sciences growing global sectors50. It is one of Medtech, health and biomedical the global economy’s most powerful services produce a diverse range of enablers, driving productivity products, innovation and technology growth in industries from health ranging from common medicinal to agriculture. As well as enabling supplies (such as syringes, medical industry, it is driving new industry gloves, etc) to highly complex challenges, including workforce technologies such as hearing development and cyber security. implants, ophthalmic devices and Cybercrime affects individuals, medical software. The New South business and governments. Cyber Wales industry is Australia’s largest, security has emerged as one of the home to more than 1,000 medical most high-profile, cross-sectoral and technology companies. rapidly evolving challenges in the The New South Wales industry digital environment, alongside the generates an estimated $4.8 billion need for general digital capabilities. in revenue per year and employs Its rise has stimulated innovation in all around 7,000 people. It is estimated53 sorts of products and solutions that the medical technology industry has counter malicious activity. Australia’s the potential to create an additional cyber security industry now employs 28,000 jobs and $18 billion in GDP around 19,000 Australians. Over the nationally by 2025. Telehealth, next decade, it has the potential to e-health, remote-area health and almost triple in size, with revenues better use of patient data all offer forecast to soar from just over $2 the state extraordinary opportunities, billion in 2018 to $6 billion by 2026. both to improve our lives directly and The digital and cyber security sector to expand the industry. relies on a steady supply of highly Recognising the growth opportunities, skilled employees, low barriers to the NSW Government consulted trade and accommodating regulatory with medical technology stakeholders approaches from government. To in the state to develop the NSW ensure that New South Wales meets Medical Technology Industry cyber security skill needs, the NSW Development Strategy, launched in Government has developed the 2018. We should continue to reduce

2018 NSW Government Cyber the barriers to new products being Security Strategy51 and the 2018 brought to the market and focus on NSW Cyber Security Industry increasing collaboration by industry Development Strategy52. participants and researchers to develop stronger capabilities.

52 NSW Economic Blueprint Waste management – the circular economy The Environmental Goods and Services The IEGS report found that New (EGS) sector includes organisations South Wales has significant delivering waste, wastewater, water, research and industry strengths and energy management, renewable potential for innovation-led growth. energy, adapted goods, biodiversity Competitive advantages in subsectors and landscape products and services. include energy, heat and water In addition to environmental and management, renewable energy, economic benefits, research shows solid and waste water services, that a strong and mature EGS sector soil and water remediation and air has spill-over productivity gains that and climate protection. Associated compound along supply chains and research strengths include across industry sectors. photovoltaics, rechargeable batteries, water filtration and treatment and Fuelled by significant investment environmental remediation. in research and development, a New South Wales global environmental technology, The NSW Environmental Protection is home to 43 per boom has seen global patents for Authority (EPA) has developed cent of Australia’s green innovations grow four times a NSW Circular Economy Policy; faster than average. The EGS sector it provides a framework for EGS businesses is growing at a faster rate than the implementing initiatives to improve and 44 per cent wider global economy, with the product life cycles and reduce of its ‘innovative’ global market for environmental waste and pollution and can be goods in 2020 predicted to reach strengthened by complementary EGS businesses triple its 2011 value. industry initiatives. Supporting a vibrant ESG sector in New South New South Wales is home to 43 per Wales will help to cut waste, make cent of Australia’s EGS businesses sustainable recycling markets bigger and 44 per cent of its ‘innovative’ and more efficient and improve the EGS businesses – double Victoria’s waste infrastructure network. share. The Innovation in the NSW Environmental Goods and Services New South Wales, together with the (IEGS) report54 valued the sector at Commonwealth and other jurisdictions, $43.9 billion in 2017-18. has committed to set a timetable to: The significant waste challenge and • Ban the export of plastic, paper, opportunity has grown with the glass and tyres recent international trend for nations • Reduce plastics waste and diversion to ban or restrict imports of waste. to landfill The Australian Plastics Recycling • Build capacity to recover value Survey 2016-1755 found over 3.5 Mt of from waste and generate high-value plastic is consumed in Australia each recycled products. year, with a national plastics recycling rate of under 12 per cent. 50 www.brookings.edu/research/trends-in-the-information-technology-sector/ 51 www.digital.nsw.gov.au/sites/default/files/NSW%20 Cyber%20Security%20Strategy%202018.pdf 52 www.industry.nsw.gov.au/__data/assets/pdf_file/0003/193665/NSW-cyber-security- industry-development-strategy.pdf 53 NSW medical technology industry development strategy, 2018: www.industry.nsw.gov.au/__data/ assets/pdf_file/0005/182840/NSW-medical-technology-industry-development-strategy.pdf 54 Productivity Council, ‘Innovation in the NSW Environmental Goods and Services Sector’ (NSW Government, 2019). 55 2016-17 Australian Plastics Recycling Survey National Report: www.environment.gov.au/protection/waste-resource-recovery/publications/australian-plastics-recycling-survey-report 53 Looking to a vibrant future Advanced manufacturing As manufacturing adapts to disruption, offer opportunities for businesses to manufacturing businesses that use develop knowledge-intensive, high value new technology or advanced business technologies, products and services models are increasingly being termed for domestic and international markets. advanced manufacturers. The definition For example, the growth in novel relates to the sophistication of a business’ manufacturing techniques including 3D processes rather than its products. It printing enables new cost-competitive signals a shift away from competing on opportunities in bespoke product cost to emphasising value creation. design, rapid prototyping and novel components and materials. This presents Advanced manufacturing encompasses a promising opportunity for New South technologies including additive and Wales to re-capture market strength in precision manufacturing, advanced the design and servicing portions of the materials, robotics, artificial intelligence, manufacturing supply chain. virtual and augmented reality, advanced sensors, data analytics and quantum To accomplish this, New South technology. Its many sectors include Wales must pursue a long term, aerospace, defence, automotive, medical coordinated and focused approach, technology, digital technology, clothing with manufacturers, government and and food. the research sector engaging and collaborating with each other: Around half of the value added by the state’s advanced manufacturers is derived • Manufacturers must acknowledge either before (e.g. design) or after (e.g. opportunities and threats posed by sales and services) production, as Figure new manufacturing technologies 11 shows. Indeed, New South Wales’ high and adopt advanced technologies, wages mean the state’s natural advantage processes and systems to add value to no longer rests at the production stage. their products or services. Advanced manufacturers are research • Government must encourage, incentivise intensive and apply novel technologies, and facilitate collaborative research, systems and processes in their supply development and commercialisation of chains and products to subvert advanced technologies. traditional industries, for example, by • The research and education sector replacing traditional products and must improve collaboration with services, or enabling a step change in the manufacturers to research, test, productivity of competing supply chains, prototype and commercialise products or services. They tend to have technologies, processes and systems; long supply chains and drive advanced and open their high-quality teaching technology ecosystems in supporting capabilities to address critical components and servicing. workforce skills gaps. Historically, New South Wales has had a In May 2018, the NSW Government well-established manufacturing sector. launched the Advanced Manufacturing But it is now under pressure from Industry Development Strategy which aggressive international competition on identifies challenges to address barriers both price and quality. This competition and accelerate the growth of the shows in the relatively low proportion advanced manufacturing industry in New of advanced technologies, products South Wales. The strategy implementation and services that Australia exports to plan engages industry, government and overseas markets. In Harvard University’s the research and education sector and international rankings of economic proposes initiatives including: providing complexity, Australia ranks 93 out of seed support; supporting targeted high 133 countries, falling from 57 in 199556. impact research partnerships with clear High rankings have been shown to be end-user outcomes; making commercial predictive of future economic growth57. connections; providing collaboration ecosystems and platforms; and creating Yet the advances in technology which financial incentives to translate research underpin advanced manufacturing into commercial outcomes.

54 NSW Economic Blueprint 13% R&D and 18% design jobs Logistics jobs 53% Production jobs 16% Sale and service jobs Profitability of jobs is thought to Sales and R&D and service design increase to the left and right of Logistics the smile curve Production Pre-production intangible Production tangible Post-production intangible Figure 11: Manufacturing’s ‘Smile Curve’ Advanced manufacturing value-add by stage of activity Source: Advanced Manufacturing Growth Centre. Agtech, food production The OECD Development Centre58 precinct of the Western Sydney estimates the Asian middle class will Aerotropolis and $55.6 billion over four encompass more than three billion years to 2022-23 in major transport people by 2040. As people transition infrastructure, will maximise the benefits from earning working class to middle of expanded food exports. class income, they consume more of In 2013-14, NSW agricultural businesses products like higher-protein foods, spent more than A$32 million on domestic services including housing and research and development, representing infrastructure (including schools) and 22 per cent of national R&D spending services such as education, tourism by businesses in the sector. At the same and healthcare. time, food product manufacturers spent The NSW food and beverage manufacturing A$215 million, or 36 per cent of the industry is well-established and innovative. national total60. It already sends a large proportion of our The NSW Government investment in exports to the Asian economies poised agricultural R&D is led by the NSW for fast middle class growth. There also is Department of Primary Industry’s (DPI) huge upside for education and tourism, GATE (Global Ag-Tech Ecosystem) in services already in high demand. But Wagga Wagga, a collaborative research other countries with established links in and technology facility designed to Asia also are positioning to meet this demand. cultivate and develop agtech ideas. There There is a global dietary shift away from is a long-term opportunity to increase grains and cereals towards meat, dairy, fruit the state’s exports of premium and and vegetables. The changing climate and niche foods, such as alternative proteins, current water insecurity notwithstanding, functional foods and beverages, new New South Wales’ climates suit crop- grain varieties, wine, craft beer and dairy growing. We also have a world-class products such as milk powder. regulatory system for food safety. Constraints to agricultural and food Transport infrastructure and smart industry expansion are many. They logistics are key to building scale and include water and energy security and comparative advantage in emerging affordability, the availability of sufficient markets for premium, provenance- arable land and the likelihood of more protected food goods59. Long-term NSW frequent droughts resulting from Government infrastructure investments climate change. such as commitments to the Western Sydney Airport and the agribusiness 56 Harvard University Growth Lab, Atlas of Economic Complexity (2017), Australia country profile available at atlas.cid.harvard.edu/ countries/14.57 César A. Hidalgo, Ricardo Hausmann, The building blocks of economic complexity, Proceedings of the National Academy of Sciences Jun 2009, 106 (26) 10570-10575. 58 The Organisation for Economic Co-operation and Development (OECD) Development Centre oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html 59 www.nswfarmers.org.au/NSWFA/Content/ IndustryPolicy/R_and_D/Supply_chain_transformation_and_export_readiness.aspx 60 www.industry.nsw.gov.au/invest-in-nsw/industry- opportunities/agribusiness-and-food/research,-technology-and-innovation 55 New South Wales has well-established defence industry capability and capacity at the beginning and end of the value chain.

56 NSW Economic Blueprint Aerospace and defence The aerospace and defence sector has exhibited strong global growth. This growth is forecast to continue, led by strong demand for commercial aviation from the growing international middle classes and increased The defence industry and its global military expenditure supporting industries employ 36,000 in response to geopolitical people across New South Wales66. tensions61. The Commonwealth We are home to the largest number Government is investing $195 of defence bases and capabilities of billion in defence technology any state or territory, including major over the period to 202662. sustainment hubs for the Australian Army at Holsworthy Barracks, the The global aerospace and defence Royal Australian Navy at Garden industry is dominated by major prime Island and the Royal Australian Air contractors based in the United States, Force at Williamtown. France, the United Kingdom, Italy, Canada and Japan. While Australia As identified in the NSW lacks a local aerospace and defence Government’s 2017 Defence and prime, many international primes have Industry Strategy, New South a significant presence in Australia Wales needs to seize opportunities and are reliant on long and diverse to grow the local aerospace and advanced technology supply chains defence supply chain and secure a which include many small and medium significant portion of major federal businesses in New South Wales. defence investments. Other states have been successful in attracting Through its procurement policy for significant defence industry activity defence contracts, the Commonwealth through focused and well-resourced Government also seeks to maximise investment attraction activities. the involvement of Australian industry in the international defence supply The NSW Government has also chain and to secure sovereign defence developed a Defence Industry Sector industrial capabilities as a strategic Investment Attraction Plan to identify priority63. This approach is defined which defence sector opportunities can in the Australian Government’s 2016 be developed and guide investment Defence Industry Policy Statement64, attraction activities targeting major the 2018 Defence Industrial Capability aerospace and defence primes and Plan65 and initiatives such as Defence upcoming government defence Innovation Hub and the Next procurements. This plan also aligns Generation Technology Fund (NGTF) with the attractive industry ecosystems which support the commercialisation offered by the Western Sydney of Australian defence R&D. Aerospace and Defence Industries Precinct at the Aerotropolis and the New South Wales has well-established Williamtown Defence Aerospace and defence industry capability and Aviation Precinct. capacity at the beginning and end of the value chain, from engineering research and development through to early commercialisation and ongoing maintenance and support services. 61 Deloitte (2019) Global aerospace and defensce industry outlook www2.deloitte.com/content/dam/Deloitte/global/Documents/ Manufacturing/gx-eri-2019-global-a-and-d-sector-outlook.pdf 62 www.defence.gov.au/WhitePaper/. 63 2016 Defence Industry Policy Statement (p23) www.defence.gov.au/WhitePaper/Docs/2016-Defence-Industry-Policy-Statement.pdf 64 2016 Defence Industry Policy Statement, www.defence.gov.au/WhitePaper/Docs/2016-Defence-Industry-Policy-Statement.pdf 65 2018 Defence Industrial Capability Plan, www.defence.gov.au/SPI/Industry/CapabilityPlan/Docs/DefenceIndustrialCapabilityPlan-web.pdf 66 invest.nsw.gov.au/sector-opportunities/defence 57 Hydrogen Hydrogen is emerging as a major economic opportunity for Australia to lead in the global transition to low emission sources of energy. Australia has the potential to become a major hydrogen supplier, with production projected to reach 100 million tonnes of oil equivalent of hydrogen which equates Space to 3 per cent of global gas consumption Space-derived products, services and today67. Capitalising on growing global applications are used by a multitude demand for hydrogen, Australia could of industries in Australia, including build a hydrogen export industry communications, transportation, energy, worth $1.7 billion annually by 2030 and aviation, advanced manufacturing, accounting for 2,800 jobs. robotics, agriculture, construction and New South Wales is actively information technology. contributing to the development of a As space-related technologies are National Hydrogen Strategy led by the rapidly adopted by industries seeking Commonwealth Government, which to improve their productivity and as the will consider international trends and financial and risk barriers to participation best practice, reducing red tape and in the space industry decrease, the encouraging innovation. Other states have global space industry is experiencing released their own hydrogen policies and significant growth. It is forecast to reach dedicated funding programs to accelerate over US$1 trillion by 2040. Consumer- the development of a domestic hydrogen focused commercial space activities market and unlock export potential. have grown quickly in recent years, so We are well-positioned for the that they now represent 77 per cent production and export of hydrogen, with of all space undertakings, outstripping access to abundant renewable energy government-funded programs. resources, existing transport and export Australia’s economy relies heavily on infrastructure and proximity to export space related technology, almost all of markets with the support of a highly which is currently procured overseas. skilled workforce and strong research Australia’s reliance on space technology capabilities. As at September 2019, there will continue to grow as we transition to are 1,171 megawatts committed large more future-focussed industries and as scale solar projects in New South Wales the Internet of Things powers more and and a significant pipeline of 15 gigawatts more industry. To address this need, the of proposed renewable projects. When Australian Space Agency has a goal of completed, these projects will double tripling the size of the space industry in the current installed generation capacity Australia and doubling the number of of New South Wales in supplying clean jobs by 2030. power for hydrogen production. With 30 per cent of people employed Hydrogen industry facilities could be in the Australian space industry based located in regional areas in providing in New South Wales, the state is well potential opportunity to aggregate with placed to benefit from this transition. the development of transport, logistics Space in Australia is still an emerging and utility infrastructure. The regional industry however, with few networks hydrogen supply chain could provide or support levers. Space technologies co-locational benefits to other industries are enablers and so supporting the such as agriculture, manufacturing, industry’s growth will have a catalytic mining and waste management in effect on the broader economy. further driving economic development and job growth. 67 International Energy Agency, World Energy Outlook 2018 and Australian Government Chief Scientist, media release, available at www.industry.gov.au/news-media/australias-hydrogen-potential-a-message-from- the-chief-scientist

58 NSW Economic Blueprint The hydrogen industry will help existing industries to move to hydrogen fuels where economic, while skilling up workers. For example, the $15 million Jemena Power to Gas Project aims to demonstrate how existing gas pipeline infrastructure at Western Sydney can be repurposed to store and transmit hydrogen, while showing its adaptability across the NSW gas network. Our well-established energy trading relationships give New South Wales advantages in meeting the clean energy needs of countries such as China, Japan, South Korea and Singapore. To capitalise on the state’s competitive advantages, we need to start building domestic industry capability and capacity. This could include supporting early investment for demonstration projects across the whole hydrogen value chain of production, transport, storage and use. 59 06. We think of the They hold most of the powers to Commonwealth Government take actions which directly boost productivity growth. The national and Reserve Bank of Productivity Commission’s 2017 Australia as chief controllers Shifting The Dial68 report made 28 of our economic fate. reform recommendations to lift Meanwhile, the state government productivity growth – and only six has enormous scope to influence of them were outside the direct the New South Wales economy control of state governments. directly and, in particular, indirectly, through its effect on education, The NSW Government infrastructure and other economic can pull seven main services that drive productivity. policy levers to enhance State governments have the economic performance: power to make high-impact change everywhere from building Lever 1: Human capital regulation to the control of Employment and skills development, taxi services. the education system, including the tertiary sector, industrial relations and the complex and often contentious issues around population and migration.

60 NSW Economic Blueprint How we get there Lever 2: Institutions Lever 5: Innovation The performance of government, The establishment of mixed including via procurement policies arts and technology creative and the government’s promotion of a precincts, government incentives so-called Global NSW and the state’s to encourage investment in research distinct cultural identity and ‘brand’. and development, investment in incubation infrastructure and Lever 3: Fiscal policy government acting as a facilitator The state’s taxation powers and for collaboration between industry, the ability to spend the revenue raised universities, government and and relations with the the community. Commonwealth Government. Lever 6: Energy and natural Lever 4: Infrastructure resources policy Ensuring that the transport network Includes a focus on specific areas and other public services can support affecting energy policy, water a growing population, that the resilience and the environment. right infrastructure gets built and maintained at least cost and that it Lever 7: Industry development encourages innovation and world’s and sector strategies best practice. Aiding the development of potential high-growth, high-skill industries and establishing rules and ongoing evaluation processes for industries selected for assistance . 68 Shifting the Dial 5 Year Productivity Review, Commonwealth Productivity Commission, 2017. 61 Lever 1: Human capital Population and skills We need to address the skill shortages and mismatches in the current workforce. These problems are exemplified by the construction industry, where rising government infrastructure demands and still-high levels of residential construction have tightened the Recommendation 1.1: labour supply/demand balance. But Work with the Commonwealth they also hamper growth everywhere Government to examine incentives for from the IT sector to tourism. new migrants to move to and remain The Commonwealth Government in regional areas of New South Wales, plays a key role in labour supply in as well as the implications. cities and regions. It manages the Recommendation 1.2: annual cap on the skilled migrant intake. In late 2019 that skilled intake Develop a timely and responsive stands at 70,000 per year69; the skilled migration list that regularly revised annual cap for total migration integrates the New South Wales is now 160,000 a year, down from list with that of the Commonwealth 190,000 previously. New South Government and use real-time data Wales needs to remain an active to identify skills in demand. participant in the COAG process – Recommendation 1.3: to devise a workable national policy Address construction industry skill on population, to help shape the shortages through increased investment make-up of the list of professionals in training and capability building. and skilled workers admitted in the intake and to ensure that the lists of the Commonwealth and state governments respond quickly to Education the changing demand for labour. The future prosperity of our people Recent migrants could receive begins with education. It is through incentives to settle in regional areas, the various tiers of our education through means such as expedited system that children and young adults permanent residency status or post- first learn the most basic of skills, study working visas. This would help such as reading and writing. It also to ease some of the pressures on should build in them the broader Sydney’s infrastructure and services abilities that make them not only and make regional communities more job-ready, but sufficiently nimble and sustainable. Again, it is important flexible to move successfully through that New South Wales work with multiple jobs. The system also should the Commonwealth Government to equip graduates with the ability to arrange this. undertake a lifetime of learning. New South Wales should take Our curriculum should focus not only advantage of the current construction on the basics, but on the essential boom to identify skills shortages, “Four Cs”: creativity, communication, address them through training and critical thinking and collaboration. capability building and support Instead, our teaching seems rigid and technology upskilling. The state should inflexible. Teacher quality is sometimes also collaborate with industry to build raised as a problem, despite our the capability, diversity and capacity teachers being paid at levels 30 per of asset managers in line with modern cent above the OECD average70. asset management practice.

62 NSW Economic Blueprint We have an opportunity to take what are admirable basics and turn them Recommendation 1.4: into educational advantages. We can Undertake education reforms, reform the way teachers are accepted particularly those aimed at more into university and thus raise teacher flexible remuneration to help improve quality. We should ensure that New teacher performance. South Wales has flexibility to reward better teachers with higher pay, as Recommendation 1.5: Gonski71 recommended. And the Work with industry and with curriculum should adopt a focus on the Commonwealth and state lifelong learning, as well as the basics. governments to improve the performance of the vocational We should aspire to have a vocational education and training system, education system that is flexible including via the recently-formed and adaptive and that integrates Commonwealth stakeholders’ panel. constructively with industry. Also, we should aspire to close the chasm that has opened up in both educational standards and reputation between the vocational system and our universities. 69 Shifting the Dial 5 Year Productivity Review, Commonwealth Productivity Commission, 2017. 70 OECD 2019. Education at a Glance 2019: OECD indicators. OECD Publishing, Paris, doi.org/10.1787/f8d7880d-en. 71 David Gonski, Through Growth to Achievement; Report of the Review to Achieve Educational Excellence in Australian Schools, 2018. 63 Lever 2: Institutions Support the work of the NSW Productivity Commissioner needs, population growth offers In mid-2018, the NSW Government the opportunity to build a thriving appointed a NSW Productivity international metropolis and harness Commissioner and Commission the productivity potential of a staff to spearhead a reform agenda dynamic and bustling city.” focused on four core themes: On regional planning, the NSW • Raising the ease of doing business Productivity Commission’s discussion • Lowering the cost of living paper said that “to effectively support productivity improvements in our • Making housing more affordable regions and build on their existing • Making New South Wales the easiest strengths, it is worth considering the state to move to. regional-specific barriers to growth Much has been done in achieving in those areas. For instance, there is these core objectives. The NSW lower density in the regions, so there Productivity Commissioner is could be further potential to reduce examining, as part of a White Paper the requirements of the planning process, the efficiency of the state system and to tailor zoning to tax system, the planning system and regional circumstances.” the performance of the vocational On vocational education, the education and training (VET) system, recent Joyce review on behalf of among other matters. The 2040 the Commonwealth Government73 Blueprint suggests that government identified six broad issues that should support the broad objectives of be addressed: the Commission in enhancing the productivity of the NSW economy and • Continuing variation in quality in the specific policy areas above. between providers and concerns about the relationship between the On planning, the Commissioner’s regulator and providers discussion paper Kickstarting the Productivity Conversation72 said that: • A cumbersome qualifications system that is slow to respond to “Debate in the community has changes in industry skills needs reflected a growing concern about our ability to accommodate such • A complicated and inconsistent rapid growth. These concerns are funding system that is hard to not without basis: the demands understand and navigate and which of a growing city are significant is not well matched to skills needs and governments need to think • A lack of clear and useful differently about how we plan for information on vocational careers growing communities, especially if for prospective new entrants we are to address the agglomeration diseconomies outlined in the section • Unclear secondary school pathways above. Sydney risks becoming into the VET sector and strong more congested and less liveable dominance of university pathways if governments don’t address • Access issues for Aboriginal and these challenges.” Torres Strait Islander Peoples and “But, where government can adapt ‘second chance’ learners seeking its processes, update regulatory skills that will help them obtain and settings and deliver the infrastructure stay in meaningful work. and services that meet community The NSW Productivity Commission’s understanding of the issues in the VET sector have been informed extensively by this and other reviews and by its government can aim to consistently own analysis. adopt evidence-based decision- Recommendation 2.1: making. Government particularly Work with the NSW Productivity needs to better collect and use data, Commissioner to remove or reduce ensuring as broad a range of data issues that currently impede better as possible. Implicit in this too, is economic outcomes, including those the expectation that government related to planning, regulation and will establish a credible system of vocational education. post-implementation evaluation, as has been recommended by the Commonwealth Productivity Procurement: Government Commission (PC)74. as a customer More government decisions should go Government has significant scope to through a rigorous, evidence-based adopt many productivity-enhancing process. A good example of such a behaviours already adopted in rigorous government decision-making the private sector. For example, framework is the requirement that conditions in parts of the private projects funded from the Restart sector-dominated economy like infrastructure fund must have a benefit- financial services, telecommunications, cost ratio greater than one. Such entertainment, the media and the benefit-cost analysis can occur more retail sector have changed materially. broadly, with business cases required and projects’ effectiveness evaluated While there is an incentive Government has after they happen. These processes to deliver a value-for-money significant scope can improve the quality of government solution for taxpayers in interventions and investments. to adopt many the purchase of goods and productivity- services from the private Recommendation 2.2: sector, government should Freshen the parameters of NSW enhancing adopt a broader definition Government procurement to ensure behaviours already of value. For example, that government purchasing better adopted in the government procurement fosters innovation. private sector that plays a role in Recommendation 2.3: fostering innovation and entrepreneurship may, in fact, have Ensure that government decision- longer-lasting benefits than simply making is evidence-based, opting for the lowest-cost choice. underpinned by the best available Government behaviour may also alter and non-traditional data and analysis. outcomes in the “circular economy”. Recommendation 2.4: Government decision-making typically Make better use of data and digital is risk averse, but it can be less so. technology in delivering government Significant progress has been made services, especially health services. on improving decision-making, but 72 Kickstarting the Productivity Conversation, Office of the NSW Productivity Commissioner, October 2019. 73 Strengthening Skills, Expert Review of Australia’s Vocational Education and Training System, The Honourable Steven Joyce, 2019. 74 Shifting the Dial 5 Year Productivity Review, Commonwealth Productivity Commission, 2017. 65 Better promotion of ‘Global New South Wales’ Ask a visitor for their image of New South Wales and they are odds-on to name the Opera House or the Sydney Harbour Bridge. Our cultural identity and ‘brand’ is tourism-oriented. There is a need for a new ‘Brand NSW’ that appeals to foreign investors, business visitors and international students, not just tourists. It needs to appeal to entrepreneurs looking to invest and hire. It needs to focus on Sydney’s importance as a financial sector hub and the advantages and attractiveness of the regions. An important element of this ‘Brand NSW’ should be our rich First Other factors that will influence Nations arts and culture. We have the ability of NSW businesses to opportunities across the region develop export markets include to showcase unique and diverse our transportation services, First Nations stories, histories and telecommunications infrastructure sites of significance that are tens and supporting financial and of thousands of years old, locally professional services. Policy issues, and as part of a joined-up narrative including trade, will also be influential. that tells the First Nations people’s The ‘gravity model’ of trade tells us story of our state. Large and diverse that trade increases with closeness populations of Asian and Pacific – that is, we should expect to trade Islander communities across Sydney more with near-neighbours than with and beyond support New South more distant places. Wales’ position in the Asia-Pacific. Recommendation 2.5: Many artists and creatives from these communities create work that Develop a revised approach to NSW celebrates their cultural practice trade and investment to better and tradition. promote ‘Brand NSW’. Sydney has a tremendous opportunity Recommendation 2.6: to better promote its Asia-Pacific Better integrate tourism promotion identity and to be a cultural leader with promotion of Sydney and New of the region. New South Wales is South Wales as a place to invest, do one of the most culturally diverse business and study. places in the world – a meeting point for eastern and western cultures, comfortable adopting new ideas, full of a hybrid vigour that helps to bring our streets, communities and public spaces alive. Our unique arts and culture give us the chance to relaunch the brand to investors and travellers alike. New South Wales’ identity needs to move from a tourism and consumption-led identity to a community-owned identity built around culture, trade and innovation.

66 NSW Economic Blueprint Lever 3: Fiscal policy Create a more efficient state tax system Inefficient taxes, including transfer More cooperative and duty, payroll tax and insurance taxes, provide around 60 per cent of New productive federal South Wales’ own-source tax revenue. financial relations In the short to medium term, NSW The current system of federal taxation should focus on reducing financial relations is contested distortions and economic costs in this and anachronistic. Federal funding system, with an emphasis on reducing arrangements have grown too insurance taxes and stamp duties. Our complex and too restrictive. For some tax system’s ability to adjust to new states, their share of federal funding technologies and ways of working is can discourage reform. Through currently limited; that puts at risk the fiscal discipline and strong economic sustainability of our tax base. management, New South Wales Other problems threaten has become the engine room of the the tax base. For example, national economy, but instead of In the short to competition among the states being rewarded for our success, New medium term, NSW and requests for special tax South Wales has been penalised at a taxation should arrangements to remedy federal level, with the Commonwealth focus on reducing regional decline have limited and other states reaping the all states’ payroll tax revenues. benefits. Reforms are more likely to distortions and succeed when the states and the economic costs in New South Wales will continue Commonwealth collaborate. to face these risks. And the this system, with an Goods and Services Tax To this end, the NSW Government emphasis on reducing (GST) applies to a declining has commissioned a review of the insurance taxes and proportion of consumption, federal financial system, the NSW stamp duties eroding this revenue source’s Review of Federal Financial Relations. ability to maintain pace with The six-person panel is chaired by the costs of state services. David Thodey AO and will report to government in 2020. The review The NSW Productivity Commissioner is aims to deliver a roadmap to more examining the state’s taxation system sustainable funding arrangements and on the way to producing a Productivity greater financial autonomy for the White Paper in 2020. That paper will state. The review will reinvigorate the look closely at ways to mitigate the conversation between states and the economic damage caused by the Commonwealth over current funding more inefficient activity-based taxes, arrangements and provide a much- including transfer duties. needed state perspective. The panel Recommendation 3.1: is charged with finding ways to give Support the NSW Productivity states that embrace reform more Commissioner’s examination of the autonomy and more flexibility, making state taxation system. dynamic federalism a reality. Recommendation 3.2: Support the NSW Review of Federal Financial Relations with the aim of enhancing the reliability and predictability of Commonwealth Government funding. 67

68 NSW Economic Blueprint Lever 4: Infrastructure The NSW Government is already New South Wales needs to build delivering Australia’s largest public a better process and evaluation of infrastructure program. As this program its infrastructure needs. Consistent continues, New South Wales can break with the strategic directions in the new ground in cost-effective, innovative 2018 State Infrastructure Strategy, and best-practice delivery. Government’s development of an Asset Management Policy will embed There always is room for improvement. an asset management mindset and For example, regional transport planning approach that considers infrastructure should be improved. the full lifetime benefits and costs Also, we should continue to invest in of the infrastructure and not just the the key north-south and east-west cost, quality and time of delivery. This links, overcome pinch-points that requires a holistic understanding of prevent use of higher productivity ways to ‘manage before we build’, vehicles and decongest bottlenecks including a greater emphasis on in the rail network where freight service, policy and better use of movements conflict with passenger existing infrastructure responses to services in Sydney and other gateways future challenges before investment in to make it easier for primary producers new infrastructure. to reach overseas markets. The state must also address the skill Project selection has long been and labour shortages, particularly in at risk of politicisation, so careful construction, which have emerged governance of project selection is as infrastructure-building has needed. New South Wales should ramped up, by continuing to deliver leverage its robust infrastructure against the Ten Point Commitment planning and investment framework to the Construction Sector. The with the Infrastructure NSW’s State Government should examine advances Infrastructure Strategy, 5 Year in streamlining approvals processes, Infrastructure Plan and Infrastructure particularly for state-significant Investor Assurance Framework to projects. We also need to ensure that ensure we get the best out of our infrastructure governance addresses existing infrastructure and choose emerging risks of climate change, as the best new projects for the future. well as technological and societal The NSW Government has adopted change. Similarly, we should invest in a successful asset recycling scheme building the capability, diversity and which has contributed to funding capacity of asset managers. new economically productive assets. Recommendation 4.1: But the state should examine other creative ways to fund and finance Examine infrastructure governance spending, such as public private to identify ways to stabilise long- partnership arrangements and value term infrastructure policies, provide capture where the opportunity investment certainty, address risks presents. The state should also and encourage innovation. investigate options to decongest Recommendation 4.2: facilities, increase accessibility Improve freight networks from and recover outlays for transport regional New South Wales to global infrastructure and services by gateways to increase exports. adopting more innovative, integrated approaches to charging for trips on the road and public transport system. 69 Lever 5: Innovation Targeted investment in research and development capabilities Although the quality of research to establish ongoing collaborations and teaching at New South in research, development and Wales universities is strong, NSW commercialisation of novel and Australian universities have technologies, products and services, lagged behind their international with the support of government. counterparts in translating outcomes Internationally, putting industry and into technologies, products and research organisations in the same services that support NSW businesses physical space has proved effective and stimulate the economy. This in driving collaboration, innovation Australian weakness in research and commercialisation. Dedicated translation shows in the level of precincts offer shared facilities and advanced technologies, products equipment and help create innovation and services the Australian economy ecosystems, a common sense of produces – for instance, in the Harvard identity and strong formal and study75 cited earlier, where Australia informal networks and partnerships ranks 93rd out of 133 countries in amongst members in industry, economic complexity. universities and government. To secure our economic future, The Innovation Precincts established New South Wales must significantly by the NSW Government, including improve its economic complexity. the lighthouse precincts for priority A key driver of greater economic activation, will help support this complexity is better research ecosystem approach. These precincts translation and commercialisation target specific industry sectors of to improve uptake of advanced critical importance to New South technologies, systems and processes Wales’ future social and economic in NSW businesses. Areas of prosperity, including advanced particular strength in New South manufacturing, defence, agriculture, Wales where research translation digital technology and health and commercialisation could be technology. further improved include quantum computing, autonomous systems, While improving research translation artificial intelligence, medical outcomes, the Innovation Precincts technologies, the circular economy will also: and advanced instrumentation. • Help workers to develop their skills Better research translation and in collaboration with industry commercialisation can be encouraged • Make it easier for government to with appropriate incentives. Possible invest in shared facilities and in incentives include providing seed training and research funding, supporting targeted high- • Attract domestic and international impact research partnerships with industry to New South Wales. clear end-user outcomes, making These precincts will support an commercial connections, providing innovation and entrepreneurship collaboration ecosystems and creating culture that can help to address financial incentives to translate some of the biggest challenges in the research into commercial outcomes. NSW economy by bringing different To be effective, industry, research and parties together. These initiatives training initiatives need to be aligned. are supported by the formation of This requires industry and universities

70 NSW Economic Blueprint the Waratah Research Network in Information failures are common 2018. The network aims to boost in new industries where there is government and university sector immature organisation for collecting, collaboration on state priorities and analysing and sharing information emerging issues and better leverage about innovation opportunities. Public university research. support may be needed to provide coordination mechanisms that spread Other approaches can also increase information and create partnerships research and development. They that overcome knowledge barriers include better strategic coordination between different actors and between universities, government and along supply chains. Matching and business for funding opportunities and sequencing ecosystem elements, having a ’front door’ for stakeholders collaboration and conditions including to understand how they can work sector and cluster groupings and with government on R&D. We also can place-based approaches are key better leverage the government’s own public sector interventions. R&D investment commitments. These strategies form part of the important As a major customer, the NSW work being undertaken by the expert Government can play a role in panel being overseen by the Hon encouraging key public service Gabrielle Upton MP. delivery agencies such as NSW Department of Primary Industries, Recommendation 5.1: NSW Customer Service, NSW Health Support the work being undertaken and Transport for NSW to share their by the expert panel being led by the data. Such data-sharing can be an Hon Gabrielle Upton MP, as part of important spur to innovation. They the review of the state’s research and can also provide these institutions with development landscape. the flexibility to commercialise their know-how, access venture capital and A supportive innovation develop explicit policies and programs to support entrepreneurs. ecosystem Recommendation 5.2: Driving innovation also requires a business climate that supports Use the development of precincts and the new models of enterprise and industry strategies to concentrate corporate restructuring and allows research strengths, drive collaboration small companies to set up and grow. between researchers, training and New South Wales is Australia’s most development providers and business innovative state with a strong culture and speed up innovation. of entrepreneurship. Sydney is the Recommendation 5.3: second highest ranked city in the Leverage Commonwealth Government Asia–Pacific region for innovation and investments to establish research, New South Wales is home to almost development and commercialisation 50 per cent of all Australian start-ups. facilities in the Innovation Precincts The Sydney Startup Hub and the which can be used by industry, Sydney Technology and Innovation research and training organisations. Precinct provide a supportive Recommendation 5.4: environment for entrepreneurs providing affordable work space for Establish risk management start-ups and early-stage companies. frameworks to let NSW Government The Sydney Startup Hub provides bodies pilot innovative solutions 17,000 square meters of net lettable and share government data with the floorspace and the Technology and broader public. Innovation Precinct will grow the Recommendation 5.5: stock of affordable work space for Support the growth and success of start-ups and early-stage companies early stage innovative businesses by in Sydney’s CBD with an initial developing programs to incentivise commitment of 50,000 square metres businesses to invest, innovate and hire. of net lettable floorspace. 75 atlas.cid.harvard.edu/ 71 Lever 6: Energy and natural resources policy Energy policy We have far fewer household connections than other states. Figure There currently is no energy policy 12 shows that the electricity sector at the federal level, following the demise plans more generation to come from of the Commonwealth Government’s renewable sources, rather than gas. preferred National Energy Guarantee (the NEG) in 2018. Nor is there a Gas-fired electricity generation will consensus on the best way forward, likely be needed to supplement including for diversifying the state’s intermittent energy sources, particularly energy industry further away from to meet demand in critical peak coal. This presents an opportunity for periods. Gas prices in New South the NSW Government to step into the Wales are driven by the export market. effective policy vacuum and develop a Western Australia has succeeded in state-specific energy policy. Such policy keeping gas prices down through its should be flexible enough to adapt if gas reservation policy, to the apparent and when an agreeable framework is benefit of both consumers and industry. adopted at the federal level. But the possible cost of this The state policy should be concerned approach may have been to make the with domestic energy security: development of some new sources of supply uneconomic. • Covering both electricity and gas, the latter as a transition energy source Engage in a sensible • Contributing to the competitiveness conversation about of NSW industry nuclear energy • Creating potential for exports, building on New South Wales’ An informed conversation needs to be advantage in renewable energy had on the use of non-carbon energy generation. sources, including the use of nuclear energy for power generation. The There also is huge potential for Commonwealth Government recently investment in the hydrogen industry. announced a review of the current Hydrogen is developing as a store moratorium on the use of nuclear of energy that generates no carbon power in Australia for other than emissions when used. scientific purposes. Recommendation 6.1: Work with the Commonwealth 35000 Government and the states to agree Withdrawn 30000 Upgrade a national energy policy, which should Generation capacity (MW) Proposed consider a mix of energy sources such 25000 Commited as nuclear, gas, coal and renewables. Announced Withdrawal 20000 Existing less Announced Withdrawal Recommendation 6.2: Develop a policy on hydrogen 15000 production and export. 10000 Enhance the security of 5000 gas supplies 0 The energy strategy should consider Coal CCGT OCGT Gas Solar Wind Water Biomass Battery Other other Storage gas, including the challenge of developing New South Wales resources. Fuel-Technology category New South Wales has significant Figure 12: NSW’s next energy sources for electricity generation reserves of gas but a relatively low New energy sources in New South Wales, projections to 2030, share of production in Australia. generation capacity in megawatts. Source: AEMO.

72 NSW Economic Blueprint The NSW Parliament is also conducting We should also invest greater effort to: a review into nuclear energy. • Develop and extend technologies The debate around nuclear options and strategies to minimise water should be encouraged, with particular loss – for instance, by using more attention on smaller scale modular sensors in the water and wastewater reactors. It is recognised, however, reticulation systems that design, development and • Ensure water, stormwater harvesting construction of a nuclear power and recycling policies are fit for facility is expensive relative to purpose and optimally deployed renewable sources. • Develop and extend our abilities Adoption of nuclear energy is to produce drinkable water, via uneconomic in the absence of desalination or other technologies. a price on carbon. and Australia Land, energy and water costs are already currently lacks the skills and expertise reshaping industry practices, including necessary to construct nuclear energy for example, vertical farming techniques. facilities. All the while, sources of The state should make a systematic renewables power are becoming assessment of costs and benefits of new cheaper in relative terms. Figure 13 techniques and efficiency opportunities shows that renewables have made such as increased use of robotics and consistent gains in recent years and artificial intelligence and of our governance now represent more than 15 per cent arrangements for technical and non- of all energy in the state, from around technical aspects of urban water supply. five per cent in 2008-09. Recommendation 6.3: Develop water strategies Adopt a longer-term policy on drought that moves capital towards enhancing to enhance resilience water resilience and better drought- The state is facing a lengthening proofing properties. drought and broader problems with Recommendation 6.4: water security. We need to discuss and plan for greater water resilience Develop a state-wide policy to enhance and drought mitigation. water security, with a clear position on investment in water recycling Water resilience and food security and desalination. are strongly linked. Some evidence even links water security resilience to economic growth, in part because 80 25 water resilience reduces the acute 70 20 and chronic impact of water-related hazards like droughts. Better water GWh 000s 60 15 Percent security will create more planning certainty for commercial users of 50 10 water such as farmers, miners and 40 5 power generators. 30 0 Additionally, secure and sustainable 2008-09 2011-12 2014-15 2017-18(e) water supplies may encourage Other Solar PV investment in industries that would Wind Hydro Natural gas Black coal otherwise move elsewhere or remain Renewables share (RHS) relatively small-scale. For instance, water insecurity may inhibit the growth Figure 13: NSW renewables rising of the agriculture industry, effectively Trends in NSW energy sources for electricity generation, 2008-09 to 2017-18. Source: Commonwealth Department of the Environment reducing our potential food exports & Energy, NSW Department of Planning, Industry & Environment. to Asia. Furthermore, water security is emerging as a global issue and building industry strength in water management represents an export opportunity for New South Wales. 73 Lever 7: Industry development Economic development should put an the provision of industry support economy on a path to higher growth want for clarity and consistency. by improving the productivity of firms Moreover, there is no explicit limit and people. The result should be used to manage the annual cost to higher incomes and living standards government. The amount of assistance for all, deep prosperity and growth is constrained only by broader budget that is robust, shared and enduring. circumstances. It would be prudent to If New South Wales is to achieve its improve governance arrangements by key policy priorities to deliver great imposing specific budgets. opportunities and quality of life for By adopting such a framework, all citizens across the state, the NSW government could help to ensure Government will need to refresh its that its direct assistance is given approach to economic development consistently and in a way that lines to reflect a more coherent and holistic up with the government’s policy and understanding of how to expand the industry development priorities. That economy and opportunity. in turn will make the state’s industry Creating a good development initiatives more effective. investment climate Recommendation 7.1: Establish an industry taskforce to Like other jurisdictions, the NSW work across government to support Government provides industry New South Wales’ transition to high- assistance in both indirect and direct growth future industries. forms. It: Recommendation 7.2: • Provides information Adopt the criteria for future growth • Supports industries in building industries outlined in Chapter 5 to their capabilities help identify priority industries and • Supports industry and research tailored development initiatives. networks Recommendation 7.3: • Provides grants, concessional loans, regulatory relief and tax concessions Set funding governance arrangements and selection guidelines for project • Offers specific project investment specific assistance to ensure efficient incentives resource allocation and consistent • Helps pay commercial rents decision making. • Provides public infrastructure like innovation hubs and precincts Prioritise NSW future • Assists with training. growth industries for The NSW Government should craft engagements only with well-defined economic development outcomes. Then it can work out FINANCIAL SERVICES whether subsequent activities are Sydney already dominates Australian meeting their policy objectives and financial services and is an important developing the economy. financial hub in Asia. The global To effectively develop priority financial sector is changing rapidly, industries, the Government should however and threats to Sydney’s support specific projects that, for global standing as a financial centre example, fill gaps that private firms are could emerge if the sector does not not filling. Projects should also help stay nimble. The NSW Government build a strong business ecosystem for needs to keep promoting Sydney as a these priority industries, encourage regional finance hub and encouraging innovation and help businesses to sell, further development of emerging buy and invest on world markets. technologies for fintech and regtech like blockchain, artificial intelligence An overarching framework for and quantum computing. providing such assistance is missing, however and some decisions about

74 NSW Economic Blueprint 75 Recommendation 7.4: industry support mechanisms of more Create a digital finance and fintech established industries. industry development strategy. Recommendation 7.8: Recommendation 7.5: Release a Space Industry Development Develop a digital emerging Strategy, including an initiative to technology industry strategy with support technology testing and space a focus on artificial intelligence, qualification by start-ups, small and blockchain and quantum computing. medium businesses and researchers. AEROSPACE AND DEFENCE ADVANCED MANUFACTURING New South Wales can capitalise The NSW Government has developed on huge global opportunities to an advanced manufacturing strategy to develop the defence and aerospace address barriers and to speed up growth industries. The development of the in the industry’s capability and capacity. Western Sydney Aerospace and The strategy draws on best practice Defence Industries Precinct at the from Australia and overseas and offers Aerotropolis and the Williamtown a whole-of-state approach to build a Defence Aerospace and Aviation ‘match-fit’ advanced manufacturing Precinct present New South Wales industry in the state. If successfully with a unique opportunity to cluster executed, this will provide an important high-tech aerospace and defence foundation for economic strength and industries, including major prime innovation in New South Wales. The contractors and a healthy ecosystem strategy adopts a 10-year program with of small and medium businesses. four core pillars focused on: New South Wales’ 2017 Defence and • Improving networks in advanced Industry Strategy and the Defence manufacturing Industry Sector Investment Attraction • Putting advanced manufacturing Plan offer a pathway to attracting a technologies, systems and processes meaningful portion of the aerospace into action more quickly and defence supply chain to the state. • Supporting advanced manufacturing Recommendation 7.6: workforce and skills development, in Commit to sustainably resourcing close collaboration with industry implementation of the 2017 Defence • Establishing collaborative advanced Industry Strategy and the Defence manufacturing research, Industry Sector Investment commercialisation and training based Attraction Plan. on a hub and spoke model – that is, a Recommendation 7.7: core facility with linkages to industry centres of expertise around the state. Develop targeted advocacy strategies for NSW to offer the necessary Recommendation 7.9: capabilities required for upcoming Commit to long term funded short-term and long-term major initiatives to support the productivity defence procurements. benefits of transitioning to advanced manufacturing models identified in the SPACE INDUSTRY NSW Advanced Manufacturing Industry The global space industry is Development Strategy and support experiencing growth that is predicted innovation to scale new advanced to continue over the coming decades. manufacturing opportunities. New South Wales can benefit from increasing international and national ENVIRONMENTAL GOODS investment in the sector. Our state AND SERVICES is home to the largest share of the International experience indicates Australian industry, generating 50- that effective programs in this field 75 per cent of Australian’s space- have focused on two aims: providing related revenue. We are home to 41 investment certainty and using per cent of Australia’s space related regulatory and procurement levers and businesses and account for 50 per market settings to drive innovation and cent of Australia’s space export demand for sustainably sourced and revenue. But the industry is young developed goods and services. and disconnected and it lacks the

76 NSW Economic Blueprint The NSW Environmental Protection TOURISM AND THE Authority’s (EPA) NSW Circular VISITOR ECONOMY Economy Policy provides a framework Tourism is a significant opportunity for for implementing initiatives to improve businesses and industries in regional product life cycles and to reduce New South Wales to diversify and waste and pollution. Complementary become more resilient. The NSW industry initiatives can strengthen it. Government established six new By supporting the growth of a vibrant Destination Networks to improve environmental goods and services industry engagement and collaboration sector in New South Wales, we can in regional New South Wales. Each cut waste, drive sustainable recycling Destination Network now has a markets and improve the waste Destination Management Plan that infrastructure network. The NSW explains the competitive positioning Government should work with the of the various visitor destinations in Commonwealth Government to devise the region and the priority projects strategies for dealing with waste identified by the industry that will and take advantage of emerging underpin future growth. opportunities in waste management and the circular economy. This is supported by an overarching strategic framework known as the Recommendation 7.10: Statewide Destination Management Plan. Create an environmental goods and The NSW Government is also investing in services development strategy. growing the visitor economy in regional New South Wales through the $110 Recommendation 7.11: million Regional Tourism Infrastructure Work with the Commonwealth Fund and the $300 million Regional Government and other jurisdictions Growth-Environment and Tourism Fund. to build on the progress made at the recent COAG gathering to better deal Recommendation 7.14: with waste. Develop programs to build capability and support the diversification of businesses CYBER SECURITY in regional New South Wales to capitalise The cyber security industry offers on growth in tourism, including through significant opportunities for the nature-based and eco-tourism. state’s economic development. By combating cybercrime, a thriving AGTECH AND FUTURE digital and cyber security industry FOODS PRODUCTION will help drive productivity. Leading businesses in the New South Wales food and beverage manufacturing Recommendation 7.12: industry are developing new products in Realise the ambitions of the NSW response to increasingly sophisticated Cyber Security Industry Development consumer demand. They are adapting Strategy by committing to ongoing advanced manufacturing techniques and support of the NSW Cyber Security technologies to increase productivity Innovation Node. and find new markets. New businesses are emerging in niche food sub-sectors MEDICAL TECHNOLOGY with massive growth potential, such as The medtech industry in New South alternative proteins, food as medicine, Wales generates an estimated $4.8 functional and free-form foods and billion in revenue per year and hemp as food. The state’s primary employs around 7,000 people. While producers are embracing home-grown the sector is growing, there are agricultural technologies to give them significant opportunities to accelerate a competitive edge. this growth. It is estimated that the medical technology industry has Recommendation 7.15: the potential to create an additional Develop programs to build capability 28,000 jobs and $18 billion in GDP and support businesses to maximise nationally by 202576. the commercial and export potential of new food, food technology and agtech Recommendation 7.13: products emerging from the state’s Establish medtech commercialisation universities, research organisations and accelerator programs in priority and businesses. areas of capability. 76 MTPConnect. 2016. Medtech, biotechnology and pharmaceutical sector competitiveness plan. 77

Appendix 1 References • A 20 Year Economic Vision for • NSW Electric and Hybrid Vehicles Regional NSW, July 2018 Plan, January 2019 • A Platform for Growth: The NSW • NSW Food and Beverage Economic Development Framework Manufacturing Industry 2013 Development Strategy 2019 • Agriculture Industry Action Plan, • NSW Future Mobility Prospectus November 2014 2018 • Albury-Wodonga Regional • NSW Defence and Industry Strategy Economic Development Strategy 2017 2018-2022 June 2018 • NSW International Education and • Australian National Outlook, CSIRO, Research Industry Action Plan, 2019 September 2012 • Bringing Big Ideas to Life: NSW • Study NSW International Education Innovation Strategy, 2015 Strategy 2019-2020 • China Strategy: NSW International • NSW Medical Technology Industry Engagement Strategy Development Strategy, October • Connected and Automated 2018 Vehicles Plan • NSW Minerals Industry Action Plan, • Digital NSW Designing our February 2015 Digital Future • NSW Minerals Strategy, February • digital.nsw – Building our Digital 2019 Future • NSW Professional Services Industry • Future Transport Strategy 2056, Action Plan, September 2012 2018 • NSW State Health Plan: Towards • Future Transport Technology 2021, 2014 Roadmap 2016 • Planning for Australia’s Future • Greater Sydney Region Plan: Population, September 2019 A Metropolis of Three Cities, • Regional Economic Growth March 2018 Enablers, NSW Department of • India Strategy: NSW International Premier and Cabinet, April 2017 Engagement Strategy • Risk and Rewards: When is • International Engagement Strategy Vocational Education a Good Working with NSW Agribusiness Alternative to Higher Education? 2015 Grattan Institute, 2019 • Kickstarting the Productivity • Strengthening Skills. Expert Review Conversation, Office of the NSW of Australia’s Vocational Education Productivity Commissioner, October and Training System, the Honourable 2019 Steven Joyce, 2019. • Making it Happen in the Regions: • The NSW Economy in 2020: Regional Development Framework A fore-sighting study • NSW Advanced Manufacturing • The Path to Prosperity: Why the Industry Development Strategy, Future of Work is Human May 2018 • Through Growth to Achievement, • NSW Climate Change Policy March 2018 Framework, November 2016 • Tomorrow’s Digitally Enabled • NSW Cyber Security Industry Workforce, CSIRO 2016 Development Strategy, November • Tourism and Transport Plan, 2018 March 2018 • NSW Digital Economy Industry • Visitor Economy Industry Action Action Plan, September 2012 Plan 2030, August 2018 78 NSW Economic Blueprint

Appendix 2 Stakeholders consulted • Advanced Manufacturing Growth • Infrastructure NSW Centre (AMGC) • NSW Innovation and Productivity • AECOM Australia Council (IPC) • American Chamber of Commerce • Jobs for NSW in Australia (AmCham) • John Holland Group • ANZ Banking Group • McKinsey & Company • ARUP • Moir Group • Australian Bankers’ Association • National Australia Bank (ABA) • National Farmers’ Federation – NSW • Australian Hairdressing Council • National Farmers’ Federation (AHC) • The Nous Group • Australian Industry Group – Canberra (Ai Group) • NSW Business Chamber • Australian Industry Group – NSW • NSW Chief Information and Digital Officer, Greg Wells • Business Council of Australia (BCA) • NSW Chief Scientist & Engineer, • Business Events Sydney Professor Hugh Durrant-Whyte • Clifford Chance • NSW Health • Committee for the Economic • Plenary Group Development of Australia (CEDA) – National Economic Council • Pacific Services Group (PSG) Holdings • Committee for the Economic Development of Australia (CEDA) • PWC Australia • Committee for Sydney • Royal Botanic Gardens and Centennial Parklands • Commonwealth Deregulation Taskforce • Simon Kucher and Partners • Commonwealth Treasury • Sydney Business Chamber • Create NSW • Sydney Metro • Defence industry contractor • Sydney School of Entrepreneurship (undisclosed) • Tamworth Regional Council • Deloitte Australia • University of Newcastle • EY • University of Technology Sydney • Herbert Smith Freehills • Western Sydney Local Health • Housing Industry Association (HIA) District 79 80 NSW Economic Blueprint 81 Image credits: Adobe Stock, Destination NSW, Sydney Metro, Western City & Aerotropolis Authority 82 NSW Economic Blueprint