The one standout success metric for the budget

13 May 2024

This opinion article by Business Council Chief Executive Bran Black was published in The Australian Financial Review on 13 May 2024

More investment is required to drive productivity. We won’t get it without cutting red tape and making the Australian investment environment more fundamentally business friendly.

Can Australia compete for investment on the global stage? That question will be front of mind for me this week.

In the past two decades, Australia has tumbled from fourth to 19th in the global competitiveness rankings, leading to our stunning position as a net exporter of capital for four years in a row.

That’s the case for the first time in more than a century. It’s certainly a statistic that should concern all Australians.

I consistently hear from CEOs around the country that global boards are nixing investments in Australia because we don’t stack up well enough against our peers – we aren’t attractive enough for the mobile dollars flowing through the global economy.

So, when the government hands down its budget on Tuesday, our big test for the measures it contains will be whether the sum of its parts leads to a more competitive Australia or not. We will run an eye over every line item using this lens, and every Australian should.

Why? Because we need more investment in Australia to drive productivity – the most important economic indicator of all. And we won’t get that investment unless we cut red tape and make the investment environment more business-friendly.
Shockingly, Australian labour productivity is no better than it was in 2016.

Why does this matter? Because everyone’s standard of living depends on productivity. According to the 2021 Intergenerational Report, labour productivity contributed more than 80 per cent of the growth in Australia’s living standards over the past 30 years.

The Business Council of Australia has advocated for a clear requirement for new policies to be assessed with a productivity lens.

Productivity is simply getting more out of every dollar spent and every hour worked. If companies can produce more goods or services in the same time or with the same resources, they create more output or revenue, and can then afford to pay higher wages to their workers because they are generating more value for the business.

Being more competitive and winning more business investment is one of the paths to greater productivity. If a business decides to double down in Australia and outlay the capital to automate some of its operations (for example), that efficiency drives productivity. Those workers are freed up to engage in higher-value, more productive tasks.

This is exactly what has happened at BCA member Dulux’s operations in Melbourne. Investment in automation on its factory floors meant employees could use their time more efficiently and productively.

Winning investment and driving that increased efficiency in businesses makes a difference when it comes to the big economic challenge on everyone’s lips: inflation.

If wages go up without that productivity improvement, it means higher costs to businesses, and these are then passed on to consumers in the form of higher prices, and to our economy by lifting inflation. It becomes a vicious cycle. Last week, the RBA said wage growth was “still above the level that can be sustained, given trend productivity growth”.

You can’t tackle inflation properly without tackling productivity, and we won’t get enough productivity growth without attracting more investment – which is most likely done by simplifying planning, taxes and regulation in general.

The Business Council of Australia has advocated for a clear requirement for new policies to be assessed with a productivity lens – for instance, through regulatory impact assessments. This could be a role carried out by the Productivity Commission, as an independent assessor of whether a measure has a net positive or negative effect on Australia’s productivity.

Some areas with clear net negatives on productivity include the overwhelming burden of industrial relations regulation on businesses of all sizes. Had the Productivity Commission been asked to provide input on the regulatory impact of the recent “Closing Loopholes” regulation, I have no doubt it would have concluded that the changes were net negative for the economy.

Some areas with clear net positives on productivity involve simplifying and streamlining planning rules and payroll tax regimes across states and territories. Making these areas more efficient certainly gets more out of the work Australians do. The BCA believes this needs to be encouraged through a National Reform Fund that rewards states and territories for doing the hard yards.

Fundamentally, we won’t win the productivity battle unless we have more investment flowing into our country. And this won’t happen in the short term unless this budget makes us more competitive.

That’s why I have one standout success metric for the government on Tuesday – are we making progress in reclaiming Australia’s competitiveness?


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