Government Will Be Judged on Productivity

The Australian 

By Jennifer Westacott
Chief Executive, Business Council of Australia

When the current federal parliament was formed, with Labor in a minority government position, the Business Council of Australia said a mark of its success would be the extent to which it found common ground on issues of national importance.

With a fundamental restructure of the national economy now in progress, there can be no more important issue on which to find common ground than the challenge of lifting flagging productivity.

While there may be different views on approaches to the productivity challenge, the legacy of the parliament will be the direction it takes to either agree on a long-term economic agenda to lift productivity and improve employment outcomes or allow our lifestyles to slip backwards.

The Business Council of Australia believes the community wants policies that will support a diverse and strong economy as we manage the resources boom and plan for a time when the benefits of the boom have receded.

What we do not need is to step backwards in time and reintroduce protectionist policies that remove incentives to innovate. Such an approach would cost more jobs in the long term.

The test of the parliament’s legacy is whether it responds to the challenges with policies that support innovation and provide the environment for businesses to be competitive, rather than policies that support inefficiency.

Australia, with its large stock of essential natural resources, is benefiting from its geographical location near an industrialising and urbanising Asia. There is high demand for these resources and commodity prices are high, leading to historically high terms of trade.

A side effect of the high terms of trade, though, is the adverse impact on the non-mining sectors, especially manufacturing. Suggestions have been made that governments should introduce special arrangements for manufacturing, including mandating the use of Australian manufactured goods in major projects, levies or even Reserve Bank intervention.

What is less understood is that the manufacturing sector in Australia in the past decade has already changed in response to new technology, changing consumer preferences and the growth of competitors globally.

Employment is down by 60,000 since 2004–5, but output has increased in real terms, reflecting greater efficiency and a switch to manufacturing products and services in which Australia can compete.

Introducing policies in light of the terms of trade impacts that act against this innovation would be detrimental to the sector and the broader economy.

First and foremost, companies need to be able to plan how they will conduct and invest in their business. Clear long-term, consistent policy settings that support a strong economy and make Australia an attractive place to invest are important for this. A renewed focus on productivity is a critical element of the future policy settings to support both a strong economy and improved social outcomes.

Much is known already about Australia’s poor productivity in the 1980s and efforts to address this in the 90s that supported more than a decade’s growth.

Increasingly, people are recognising the risks and costs that come with the decline in productivity in more recent years and the need to address this.

A renewed commitment to reforms is required to drive productivity and benefit all sectors of the economy, including services - from retail, tourism and banking through to science and technology - in which more than 1.5 million jobs have been added since 2004–5.

The role of the tax system in supporting growth and productivity can be enhanced by a considered long-term plan of simplification and removal of inefficient taxes. Structural reform of the tax system will support economic growth and workforce participation in the face of global competition, technological change and population ageing.

Ensuring we have sufficient people with the skills and capabilities required in all sectors of the economy and the capacity to manage employees in a way that they can best use their capabilities is essential to improve productivity.

Australia’s labour market is fast reaching a point where there is a mismatch between the types and location of skills required and skills available. There are growing concerns about new workplace rigidities that may adversely affect productivity.

Improved long-term planning for, and investment in, infrastructure will improve productivity and make it easier for products to get to markets, and people to get to work.

We need reduced and effective business regulation and a focus on removing divergent state regulatory regimes that make no sense in a global economy.

Opportunities exist for microeconomic reform in the government sector, especially in providing health services, and government debt needs to be pushed down quickly so as not to crowd out the private sector.

There are four priorities for specific actions by government.

First, the October tax forum provides an opportunity to ensure our tax system supports productivity and investment, including by cutting the company tax rate, reflecting international trends, and removing impediments to labour mobility, such as inefficient stamp duties.

Second, a renewed focus on training and retraining opportunities is needed to ensure the employability and possible future redeployment of manufacturing sector workers.

Third, unnecessary regulation should be reduced to cut business costs and improve competitiveness. The COAG reforms to occupational trades licensing should be sped up to improve labour mobility.

Fourth, the workplace relations system should not inhibit business innovation and productivity improvements.

The test of this parliament is whether it can lift the bar on productivity and ensure a strong economy that enables businesses to innovate, grow and provide more jobs, and the community to benefit through greater shared prosperity. To do this, parliament must subject all proposed legislation to a test of what it will do to improve productivity.