Australians have long enjoyed an extraordinary, improving quality of life, with subsequent generations more prosperous than their forebears. We have tremendous endowments including our natural resources, skilled and educated population, stable institutions, and proximity to the emerging Asian markets that will drive new forms of prosperity.
But Australians have been challenged in recent years as the high cost of living and stagnant productivity have meant falling living standards. At the same time, the world around us is rapidly changing with increasing geopolitical tensions, the upending of global trade norms, decarbonisation of economies, the impact of technology (including artificial intelligence) and digitisation to the way we live and work, and the rise of the Asian middle class. There are further challenges – and opportunities – on the horizon.
Other countries are taking steps to attract investment and improve their resilience and competitiveness at a foundational level. Australia must do the same by acting on the things we can control if we are to determine our destiny and support Australian households and businesses. Inaction means future generations risk not experiencing the rise in living standards enjoyed by previous generations.
Driving productivity growth
The only way to sustainably lift living standards and grow real wages is through faster productivity growth. This relies on an ongoing process of improvement in our human and physical capital, and innovating to produce existing goods and services in a better way or developing new ones. It is also about allowing our resources to be allocated where they can create the most value.
Productivity growth last decade was the worst in 60 years. The inextricable link between productivity and incomes also meant last decade was the slowest decade for incomes growth in 60 years. The expected outlook for productivity growth in the Commonwealth Budget is even more dire this decade. But even this may be overly optimistic as it assumes labour productivity growth returns to a pre-COVID 20-year average.
Simply put, productivity is not just an issue for the future but an urgent issue for today. It is critical for sustainably reducing inflation, driving real wages growth, and tackling our budget challenges.
The starting point is a change in mindset across the board. This means recognising both the urgency of our competitiveness and productivity challenges. It also means focusing on the key drivers of productivity – investment and innovation – through:
- Maintaining an open economy that is more competitive on the world stage;
- Investing in our people and their skills to develop the capability for success;
- Supporting new industries and modern manufacturing to modernise and diversify the economy;
- Tackling whole-of-system tax reform for more competitive and sustainable public finances, improved incentives to work, save and invest, and increased worker mobility;
- Continuing the commitment to our migration program to ensure we attract individuals with new and emerging skills;
- Supporting the net zero transition while maintaining energy security, reliability and affordability;
- Driving improvements in planning approvals and streamlining regulation to increase housing supply, improve affordability and support major projects;
- Becoming a world leading digital economy;
- Harnessing the potential of artificial intelligence, including through responsible adoption, investment in digital infrastructure, and building workforce capability to deploy and use AI tools effectively;
- Facilitating innovation and improve outcomes in the health and care economy;
- Reducing frictions in doing business through consistent and modern regulations;
- Attracting investment by streamlining our foreign investment screening regime;
- Improving the infrastructure delivery system;
- Reforming government services to improve productivity in the public sector and manage funding pressures in key programs; and
- Ensuring our workplace relations system better supports productivity and sustainable growth in wages.
There are major game-changing reforms across each of these areas that can shift the dial and lock in our prosperity. We can no longer afford to keep putting off difficult decisions. The hard and detailed work that underpins them must continue, but we are realistic these major reforms will take time.
At the same time, we can pursue a reform agenda with smaller, practical steps on the path towards substantial reform. These steps can produce quick wins and substantial cumulative benefits by reducing the frictions in our economy. They include by:
- Improving how we make and deal with regulation
- Making it easier to invest
- Making it easier to employ people
- Making it easier to do business
- Making it easier to trade
- Supporting the transition to net zero with affordable and reliable energy
- Supporting the modernisation of the Australian economy
- Making it easier to support small businesses.
