I don’t generally take much notice of Henry Ergas’s op-ed pieces in the Oz, but even one-eyed Coalition shills sometimes have important things to say. So it was with Ergas’s article this morning drawing attention to actions by the Gillard government to diminish the role and effectiveness of Regulatory Impact Statements, especially by transferring responsibility for oversight of RISs from the independent Productivity Commission to the Department of Finance.
Troppo colleague Nicholas Gruen is a trenchant critic of the effectiveness of RISs in cutting bureaucratic red tape, but that doesn’t mean it’s a great idea to radically water down such checks and balances without putting something better in their place. As Ergas says, it doesn’t augur well for the Gillard government’s alleged commitment to boosting Australia’s productivity.
On the other side of the partisan pundit divide from Ergas, Ross Gittins has long been a cynic about the usefulness of micro-economic reform generally in boosting productivity. Gittins was on about it again the other day:
For the past 200 years, since the early days of the Industrial Revolution, the material living standards of people in the West have been rising almost continuously, thanks to continuing improvement in the productivity of labour and capital.
Have we had 200 years of continuing micro-economic reform to bring that improvement about? Of course not. So there has to be something seriously wrong with an economy that can’t achieve a satisfactory rate of productivity improvement without regular injections of reform.
Like most other things in the economy, micro reform is subject to diminishing marginal returns. And when we run out of things to reform, what do we do then? A counsel of perfection isn’t a lot of use.
We need to remind ourselves that governments don’t actually run the economy, business people do. So if businesses aren’t generating much productivity improvement, the obvious place to look is at the behaviour of business people.
Australia’s productivity surged at the rate of around 2 per cent per annum through the 1990s, mostly as a result of the Hawke/Keating government’s economic reforms. But since then productivity improvement has dropped back to a much more mediocre 1.4% per annum. Gittins reckons that only technological advancement makes much long-term difference to productivity, and that economists know bugger-all about how to stimulate technological innovation. He might be right, then again it might be that politicians since Keating have simply lacked the “ticker” to make the necessary hard micro-economic decisions. I’d be interested in the opinions of the giant economics brains which regularly inhabit the Tropposphere.
Just to stimulate discussion, I’ve listed over the fold and in no particular order a series of possible micro-economic reforms that I reckon would have significant positive effects on productivity if implemented. Feel free to critique them, and add ideas of your own. Of course, perhaps we shouldn’t take all this too seriously, as the oxymoronic image at top right suggests.
- Abolish or drastically cut stamp duty on purchase of family home to facilitate worker mobility to take up new job opportunities;
- Finance this and any other stimulatory tax cuts (e.g. abolition of payroll tax) by increasing GST rate to (say) 12%;
- Require unemployed workers to move to areas of high job availability if unable to find work within 6 months, unless involved in retraining and subject to obvious hardship exceptions (e.g. spouse in employment for more than 20 hours per week, children in senior years of high school);
- Provide government relocation assistance to unemployed workers to move to areas of high job availability;
- Require mortgage providers to offer repayment moratorium of up to 2 years to unemployed workers undergoing retraining;
- 160% tax deductibility for R & D expenditure by small-medium businesses (up to $20 million p.a. turnover);
- Reduced company tax rate for profits from provision of venture capital to small-medium businesses;
- Abolish automatic employee right to wrongful termination action. Employers to be allowed to pay out workers on termination at rate of 2 weeks pay for every completed year of service (in addition to accumulated entitlements). Employers who choose not to pay out workers by this formula would remain liable to wrongful termination action as at present;
- Facilitate abolition of shift penalties and negotiation of flat hourly pay rates in retail, tourism and hospitality industries, with strong “no disadvantage” mechanism;
- Increase proportion of adult population undergoing VET and higher education training programs e.g. by boosting student allowances to equivalence to unemployment benefit;
- 160% tax deductibility for apprentice wages paid by employers in areas of recognised skill shortage;
- Expedite implementation of national schools curriculum (this would enhance worker mobility by removing disincentive whereby children may sacrifice an entire year of schooling through curriculum misalignment between States);
- Trim scope of National Broadband Network to provide only fibre-to-the-node in regional centres of less than 40,000 people. Use the billions saved in renewed drive for upgraded road, rail and port infrastructure in bottleneck areas;
- Implement Nicholas Gruen’s proposal for an independent fiscal probity authority to recommend and make public appropriate levels of government borrowing, especially for productive infrastructure;
- Implement my proposal for greater powers and independence for Infrastructure Australia in scrutinising and prioritising public infrastructure proposals.