Here we go again: a chorus of economists and other critics calling for governments to increase the nation’s productivity growth. It’s a familiar cry but just as lacking in feasible government policy prescriptions as it has ever been.
At the height of the productivity boom, Paul Keating famously said: “I guarantee if you walk into any pet shop in Australia, the resident galah will be talking about microeconomic policy.”
Talk is cheap, but it’s just that – talk.
At last week’s G20 finance ministers’ meeting, Reserve Bank Governor, Phil Lowe, lamented: “… the political challenge is to get these good ideas that are already out there, through our political systems.”
Fair enough. But what are the good ones?
One for the ages is to increase the GST rate and/or broaden its base and use the proceeds to reduce the higher personal income tax rates.
If the Albanese government were to take such a policy to the next election the Dutton-led opposition would oppose it, claiming Labor to be the party of high taxes. The Greens would campaign vociferously against the inequity of the proposal.
Is Labor expected to commit Hari-kari to prove its reforming credentials, only to have the policy blocked by a combination of Coalition and Greens Senators?
Before getting to some potentially feasible policies, let’s dismiss some other popular ones among critics and commentators that have no hope of being adopted.
An economically rational tax reform would be to broaden the income tax base to finance lower rates. This is precisely what Keating did in 1985 when he introduced the fringe benefits tax and the capital gains tax to fund a lowering of the top personal rate from 60 per cent to 49 per cent and the next-highest rate from 46 per cent to 40 per cent.
The Coalition opposed both base-broadening measures. More recently, how could we forget the hysterical Liberal reaction ahead of the 2019 election to Labor’s proposal to remove cash refunds of excess franking credits and to limit negative gearing to new properties.
Earlier this year, the Albanese government announced a modest and highly equitable measure to reduce the tax concession on large superannuation balances and within nano-seconds Liberal leader Peter Dutton promised he would repeal it if he became prime minister.
Yet all is not lost on the reforming front.
Productivity improvements will depend on lifting the quality of teaching, reform of universities and smoother switching between vocational and higher education.
Ministers Jason Clare and Brendan O’Connor are working with the states on these very reforms, with encouraging signs of progress, consistent with 16 recommendations of the Productivity Commission’s five-year review released earlier this year.
Similarly, ministers Andrew Giles and Clare O’Neil are implementing recommendations of the same Productivity Commission review relating to the immigration program, to ensure Australia has the skills to support productivity growth where they are lacking here.
Work is underway on a simplified trade system, led by ministers Don Farrell, Clare O’Neil and Murray Watt, supported by a dedicated taskforce. It is intended to streamline unwieldy processes for exports and imports.
Health services are being digitised to increase both productivity and quality of care. And expensive health infrastructure in hospitals is being saved for patients who desperately need it through such initiatives as Medibank’s rehabilitation at home for hip and knee replacements.
This is just a small account of the productivity-increasing initiatives underway.
Perhaps a major statement, such as the Employment White Paper to be released in September, could bring these together in one place.
Enterprise bargaining has been revived through changes to the Better Off Overall Test that were agreed by employer groups and trade unions.
Disagreements will remain on industrial relations.
Some employer groups feared the new multi-employer bargaining arrangements would constitute a return to the pattern bargaining of the early 1980s. That was not contemplated by the Albanese government and has not transpired.
Now the subject of disagreement is the Same Job, Same Pay policy that Labor took to the 2022 election. We will see how that develops into actual legislation.
Productivity growth has dipped into negative territory in the last year. As the economy approaches full employment, this is to be expected. But it also follows the worst decade of productivity performance for 60 years.
Lifting productivity will require keeping the economy open, to adopt and adapt the latest technologies from overseas and at home. That’s a far more effective approach than responding to armchair critics who demand their favourite policy changes that have no hope of being passed through the Australian parliament and which might be of dubious value anyway.
Craig Emerson is managing director of Emerson Economics. He is director of the APEC Study Centre at RMIT University, visiting fellow at the ANU and adjunct professor at Victoria University. He was chair of the Productivity Committee of Cabinet during the latter part of the Gillard government.