Productivity Is Key to Everything

Note from Graham Bradley: Seeing the article in today’s paper, written just before Christmas, it struck me how much can change in a few short weeks. The disaster in Queensland reminds us that we can never afford to imagine that good economic times last forever and that, for Australia, they can rely on a range of factors outside our control. Commodity prices and a strong Chinese economy sit at one end of the spectrum and the forces of nature at the other. While the devastation in Queensland reinforces the importance of maintaining a strong economy to withstand such drastic unforseen events, it also shines a light on the role large businesses can and should play in our communities. I am grateful to BCA members for all of their efforts in supporting communities of which they are a part.

The Australian

Graham Bradley
President, Business Council of Australia

There is a good deal of common ground in what Australians are looking for from political and business leaders.

To get the ball rolling this year on important economic reforms, political and business leaders will need to address a modern paradox common to most democracies.

BCA research shows almost all Australians want a strong economy and expect governments to deliver one on their behalf. But they have difficulty embracing the policy choices necessary to underpin a strong economy.

This disconnect makes it important to explain the reforms we need to keep our economy strong – reforms too easily deferred amidst our current good fortune.

As last year ended, there were mixed signals about the sustainability of Australia’s currently thriving economy.

Employment growth has remained strong but productivity continues to lag. Centrally important industries are facing skills shortages and associated wage blowouts. A high dollar is challenging our manufacturing, tourism and education sectors.

We know about the skills shortage in the resources sector, but acute shortages are looming in other areas as well, including telecommunications and health, in which we will need an estimated 1 million extra workers in the next 20 years.

The Prime Minister has said this will be a year of “decision and delivery’’. If that is to be so, the government needs to make progress with a reform agenda that includes taxation, infrastructure, energy policy, a seamless national economy, health and education, and closing the opportunity gap between indigenous Australians and the broader community.

All that will involve working alongside business to build, and not undermine, community confidence that our market-based system – with strengthened checks and balances – is the best available to create future prosperity.

This communications exercise is central to developing sensible policy responses, and communicating them far more effectively and honestly than was the case last year.

The past year provided clarity on some of the major challenges we will face as a nation.

The Intergenerational Report defined the looming economic and fiscal challenges of our ageing population.

The Henry tax review highlighted the disincentives embedded in our tax and welfare systems. Our booming terms of trade drove our exchange rate to US dollar parity, challenging the manufacturing and services sectors to be more competitive.

But it seems to me we spent too much time last year articulating the problem – and too much time focusing on second-order issues.

Community concern on the stability of a free market system is an understandable, lingering by-product of the global crisis, and it fuels the tendency of politicians to seize upon new regulation as a quick and easy cure-all.

Among the many downsides to this approach is the abrogation by our leaders of responsibility to explain the challenges before us and canvass alternative responses.

High on the BCA’s reform agenda for this year are policy areas that demand a style of leadership, by politicians and all community leaders, that restores confidence in our market-based system and builds common ground on what’s necessary to ensure it delivers a strong economy.

Tax reform is high on our list of priorities. Tax settings are critical to build and sustain an economy that depends heavily on rates of investment, a growing workforce and new technologies that allow us to do more with less – in other words, improving our languishing productivity.

Structural reform of the tax system will support economic growth and workforce participation in the face of global competition, technological change and population ageing.

The promised tax summit this year is an opportunity for tax reform, but only if the government allows a wide range of options to be considered, and works with business and community leaders on a compelling case for change.

The Henry review provided a blueprint for the next phase of tax reform. It must be developed and implemented through wide and transparent consultation.

More effort is needed to explain the review’s key findings, including why company income tax has the largest adverse effects on economic growth, followed by personal income tax, and why broad-based consumption and land taxes, on the other hand, have the least adverse effect.

This should be the year we step up the pace of infrastructure reform. A rigorously developed national plan will deliver better regulation, pricing and market structures, and planning that improves use of, and more investment in, infrastructure.

The mandate of Infrastructure Australia should be reviewed and strengthened to enhance its independence and resources, with a commitment to publish more transparent costbenefit analyses of major projects. Its national infrastructure audit function should be transferred to the Productivity Commission.

For the BCA, and Australia as a whole, this will be a year to reassess the capacity of the Council of Australian Governments to achieve microeconomic reforms. With emerging signs of more competitive, rather than co-operative, federalism COAG’s effectiveness is at risk.

The COAG agenda should be tightened to focus more on reform areas with the biggest potential to increase productivity, where having divergent state regulatory regimes makes no sense in a modern global economy.

Reforms to create a seamless national economy are high on this list, including completion of competition reforms in transport and energy regulation.

Other aspects of COAG’s productivity boosting agenda in which we need to see real progress are the rollout of e-health initiatives, and education and training reforms.

Defining a national population strategy could be the most challenging national conversation this year. Again, its achievement depends on clear articulation of the choices we could make about our long-term goals and how best to achieve them.

The BCA will engage in Population Minister Tony Burke’s consultation process to explain the evidence behind our belief that Australia’s best long-term strategic option is well-managed population growth.

We cannot assume that economic arguments alone will win community support on this. Business needs to communicate its position in a way that takes account of social and environmental factors, and respects alternative perspectives.

The BCA has developed a strategic framework to help the community weigh up different choices on population growth, and will use this framework to explain our pro-growth position.

Our task is not just to convince government, but to build recognition in the wider community that properly planned population growth is in the best interests of current and future Australians.

When the resignation of Treasury Secretary Ken Henry was announced just before Christmas, David Uren wrote in The Australian of Henry’s respect for the teachings of Indian Nobel laureate economist Amartya Sen.

Sen supports economic growth as a means of enhancing the quality of life and freedoms enjoyed by individuals, but he warns that the success of a market economy depends on mutual trust and a basic code of business behaviour, which he describes as being like oxygen – we take an interest in its presence only when it is absent.

Approaches may differ, but I believe there is a good deal of common ground in what Australians are looking for from political and business leaders.

Many have difficulty identifying just how a strong economy benefits them as individuals, but they know it needs to be pursued in tandem with broader community prosperity.

Business stands ready to communicate better, to lead by example and to support the government in building the case for reforms that will allow Australia to achieve its full potential.

If this is to be a year for decisions and delivery, it is incumbent on leaders from all sectors to join the dots.