As conversational topics go, productivity is hardly a barbecue stopper. Nevertheless, adopting policies that boost national productivity is really the only way for Australia to avoid a slide into national penury as our population ages and the Chinese mineral boom ends.
That’s why I was interested in an article on the subject by Peter van Onselen in The Australian a few days ago. Van Onselen raises numerous interesting points. However, I was rather puzzled by his concluding suggestion that there are grounds for optimism about the new Coalition government’s productivity reform prospects, unless it succumbs to “timidity” in which case “Abbott’s government will only be the lesser of evils” (presumably by comparison with Labor).
The most immediately obvious policy reform areas that could contribute to enhanced productivity are education and training; public infrastructure investment (especially road, rail, port and telecommunications); taxation policy; and workplace regulation.
On education and training, even van Onselen concedes that the Howard government’s record was fairly inglorious and that the early signs for the Abbott government are no more promising.
On infrastructure spending, Abbott’s electoral emphasis on “the roads of the 21st century” is matched by an equally clear refusal to countenance federal funding of rail or port infrastructure, despite the fact that both are arguably more important to productivity improvement than exorbitantly expensive tollways that just move peak hour traffic jams a few kilometres further up the road. As for telecommunications infrastructure, the jury is still out on whether the Coalition’s FTTN version of the National Broadband Network will be better for productivity than Labor’s painfully botched FTTH vision. Personally I’m cautiously optimistic that Malcolm and Ziggy will manage to conjure a workable and efficient solution.
On taxation policy, there is no way that Abbott could increase the GST rate or broaden its base during the current term of Parliament without dooming his government to an electoral defeat more certain and devastating than the one Julia Gillard inflicted on Labor. And I doubt that Abbott would have the courage/stupidity to go to an election at the end of his first term on a Howardian express policy of increasing and broadening the GST. Moreover, any other significant tax initiatives would inevitably result in his being hoist on his own petard by Bill Shorten continuously shouting “great big new tax!”. Mind you, Rudd/Gillard’s record on tax reform wasn’t exactly a triumph, although they did manage to plug most of the more egregious middle-class welfare rorts of the Howard government.
The improbability of meaningful tax reform is more than a little unfortunate in my view. I am rather persuaded by the argument of University of Melbourne’s Professor John Freebairn that productivity could be significantly boosted by increasing and broadening the GST and using the resulting extra revenue to abolish inefficient state taxes, reduce company tax and compensate lower income earners for the regressive effects. However, while it might make a lot of policy sense, in the world of realpolitik it just ain’t going to happen.
The same goes for workplace regulation, where Abbott has repeatedly ruled out revisiting Work Choices, a point his chief consultant spin doctor Mark Textor emphatically underscored on ABC Lateline only a couple of nights ago. I also think that is a little unfortunate, because I strongly suspect that Australia’s abysmal productivity performance over the last few years is not entirely unrelated to the dog’s breakfast otherwise known as the Fair Work Act (although former Productivity Commission guru Dean Parham attributes the slump at least in part to the short-term effects of the investment phase of the minerals boom).((However, there are numerous useful measures that could be implemented short of reviving the much maligned individual Australian Workplace Agreements that are generally seen as the essence of Work Choices. For example: (1) exempting small business from the unfair dismissal provisions of FWA and substituting automatic employee entitlement on termination to a fixed payment for each year of completed service; (2) simplifying and streamlining the EBA provisions of the Act to make the potentially large benefits and flexibility of an Enterprise Bargaining Agreement much more accessible and affordable for small business. ~ KP))
Whatever the cause/s, productivity under the Rudd/Gillard government averaged -0.7% per annum compared with a long-term average of +1.2%. In a rational world we would begin focusing much more strongly on productivity-enhancing reform and stop being distracted by fourth-order issues like asylum seeker policy or whether Indonesia is or has any right to be offended by the fact that Australia spies on them rather more effectively than they spy on us. But that ain’t going to happen either.
Finally, for anyone actually interested in this topic, here are a couple of links to articles by John Quiggin rather persuasively arguing that there never really was a golden age of high productivity in Australia up to a decade or so ago, fuelled by the microeconomic reforms of the Hawke/Keating government. Nevertheless, even if Quiggin is correct, that doesn’t deny the need to focus on productivity-enhancing reform. It just means we shouldn’t too readily embrace simplistic solutions (e.g. a mindless race to the bottom on workplace regulation – Australia will only prosper by working smarter not just cheaper).