Allegra SpenderMember for Wentworth
Sep 17, 2024 – 11.01am
Australia’s lacklustre economic growth grabbed the headlines when recent national accounts were released, but the country’s poor productivity performance received a lot less attention.
Output per hour worked – a common measure of Australia’s productivity – fell 0.8 per cent last quarter and was only 0.5 per cent for the year. That’s less than half the rate that Treasury uses (1.2 per cent ) to model the future federal budget position.
Productivity might not grab headlines quite like the theatrics of question time, but it is the measure we can no longer afford to ignore.
This drop in productivity is a big deal. In a time of high inflation and anaemic growth, the only real way to both lower inflation and grow the economy is productivity. We need to do more with less.
Easier said than done. One place to start is the Productivity Commission’s landmark productivity review, Advancing Prosperity. It was released over a year ago, with 71 supply-side reforms. The government hasn’t provided a full response to the review. They should urgently. (Frankly, the federal government should be required to respond to such reviews and committee reports in full, as they are in NSW.)
The federal government is taking one step forward and two steps back on productivity. Steps such as improving the skilled migration scheme, increasing apprenticeships and reducing nuisance tariffs are positive, but their IR reforms that have driven wages and complexity without productivity gains are the opposite.
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Three areas to focus on
Three areas where we should be focusing are improving access to finance for new businesses, spending public money better, and reforming Australia’s tax system.
Research by e61 Institute shows it is young, growing businesses that drive productivity. But times are tough right now for new and small businesses, and access to capital is a major factor.
Angel and venture capital investment per capita in Australia is less than one-third of the levels of the USA, and half that of the UK. Despite having one of the largest pension schemes in the world, start-ups aren’t getting the financial support they need – super’s share of VC investment has fallen from 60 per cent to 30 per cent over the last decade.
The picture isn’t any better when we look at bank lending. RBA data shows that while lending to large firms is growing, the total value of small business lending has been stagnant since before COVID-19, and unsecured lending is almost invisible.
This is not a quick fix. But we could start by not doing things that make the situation even worse – like the government’s push to tax unrealised gains on superannuation. We need to consider how “My Future, My Super” should focus more strongly on net returns rather than fees; how updates to limits on deal size for venture capital partnership structures could help; and how to remove barriers to business lending.
Assess infrastructure spend
Business productivity is one thing, but with the public sector responsible for an increasing share of Australia’s economic activity, it can’t be all up to the private sector. One of the best places to start is infrastructure spending. We have had two recent reviews of federal infrastructure that have been scathing, finding that many projects lacked merit and did not meet national investment priorities.
We need a pipeline with rigorous and comparable cost-benefit analyses, and post-implementation reviews to identify why costs blow out. We need to set more realistic budgets up front, and postpone non-urgent spending that is driving construction costs. A more rigorous assessment of infrastructure spending must be part of a stronger culture of bang-for-buck government spending.
Lastly, Australia’s tax system needs reform to increase productivity. Outside of the mining sector, capital investment is at historical lows, and we are now a net capital exporter. The tax system can influence this. Stamp duty is a drag on productivity. States need help from the federal government to address this. Tax cannot continue to be ignored.
Productivity might not grab headlines quite like the theatrics of question time, but it is the measure we can’t afford to ignore any longer.
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Allegra SpenderMember for Wentworth
Sep 17, 2024 – 11.01am
Australia’s lacklustre economic growth grabbed the headlines when recent national accounts were released, but the country’s poor productivity performance received a lot less attention.
Output per hour worked – a common measure of Australia’s productivity – fell 0.8 per cent last quarter and was only 0.5 per cent for the year. That’s less than half the rate that Treasury uses (1.2 per cent ) to model the future federal budget position.
Productivity might not grab headlines quite like the theatrics of question time, but it is the measure we can no longer afford to ignore.
This drop in productivity is a big deal. In a time of high inflation and anaemic growth, the only real way to both lower inflation and grow the economy is productivity. We need to do more with less.
Easier said than done. One place to start is the Productivity Commission’s landmark productivity review, Advancing Prosperity. It was released over a year ago, with 71 supply-side reforms. The government hasn’t provided a full response to the review. They should urgently. (Frankly, the federal government should be required to respond to such reviews and committee reports in full, as they are in NSW.)
The federal government is taking one step forward and two steps back on productivity. Steps such as improving the skilled migration scheme, increasing apprenticeships and reducing nuisance tariffs are positive, but their IR reforms that have driven wages and complexity without productivity gains are the opposite.
Advertisement
Three areas to focus on
Three areas where we should be focusing are improving access to finance for new businesses, spending public money better, and reforming Australia’s tax system.
Research by e61 Institute shows it is young, growing businesses that drive productivity. But times are tough right now for new and small businesses, and access to capital is a major factor.
Angel and venture capital investment per capita in Australia is less than one-third of the levels of the USA, and half that of the UK. Despite having one of the largest pension schemes in the world, start-ups aren’t getting the financial support they need – super’s share of VC investment has fallen from 60 per cent to 30 per cent over the last decade.
The picture isn’t any better when we look at bank lending. RBA data shows that while lending to large firms is growing, the total value of small business lending has been stagnant since before COVID-19, and unsecured lending is almost invisible.
This is not a quick fix. But we could start by not doing things that make the situation even worse – like the government’s push to tax unrealised gains on superannuation. We need to consider how “My Future, My Super” should focus more strongly on net returns rather than fees; how updates to limits on deal size for venture capital partnership structures could help; and how to remove barriers to business lending.
Assess infrastructure spend
Business productivity is one thing, but with the public sector responsible for an increasing share of Australia’s economic activity, it can’t be all up to the private sector. One of the best places to start is infrastructure spending. We have had two recent reviews of federal infrastructure that have been scathing, finding that many projects lacked merit and did not meet national investment priorities.
We need a pipeline with rigorous and comparable cost-benefit analyses, and post-implementation reviews to identify why costs blow out. We need to set more realistic budgets up front, and postpone non-urgent spending that is driving construction costs. A more rigorous assessment of infrastructure spending must be part of a stronger culture of bang-for-buck government spending.
Lastly, Australia’s tax system needs reform to increase productivity. Outside of the mining sector, capital investment is at historical lows, and we are now a net capital exporter. The tax system can influence this. Stamp duty is a drag on productivity. States need help from the federal government to address this. Tax cannot continue to be ignored.
Productivity might not grab headlines quite like the theatrics of question time, but it is the measure we can’t afford to ignore any longer.