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Judith Sloan

Chalmers is already gaming ‘reform’ roundtable

Judith Sloan
Treasurer Jim Chalmers during Question Time at Parliament House in Canberra. Picture: Martin Ollman
Treasurer Jim Chalmers during Question Time at Parliament House in Canberra. Picture: Martin Ollman

The planning for the Treasurer’s productivity roundtable is in full swing. After the Prime Minister announced the proposed high-level meeting to discuss productivity, Jim Chalmers has enthusiastically grabbed the reins. Treasury officials are busily drafting communiques.

Chalmers thought about dropping productivity from the title, preferring the term “reform”. The beauty of this switch was that his idea of reform is my idea of counter-productive and costly action. There is much more accountability in productivity because it is measured. Sensibly, he opted to switch back.

Even so, Chalmers has made some extraordinary preliminary comments. According to him, “we’ve made a lot of progress together in our first term making our economy more productive, dynamic and resilient”.

Chalmers is perfectly entitled to make political comments. But it’s another thing to claim to have delivered “a better living standard” when per capita GDP has declined in seven of the past nine quarters, and labour productivity is where it was in 2016. Business investment is the same share of the economy as it was in the recession of the early 1990s.

The idea that the economy is “more productive, dynamic and resilient” is not supported by the facts. Twenty per cent of our exports are dominated by one commodity – iron ore – with most of it heading to China, underscoring the fragility of the economy.

The dramatic expansion of the government-funded, low-productivity care economy at triple the rate of economic growth is another factor contributing to our delicate economic situation. The predicted years of budget deficits is a further consideration.

But back to the roundtable. Chalmers has cunningly opted for a relatively small number of participants, which has the effect of heightening the competition for places as well as enhancing the presumed prestige of attending.

Whether Liberal Party deputy leader and shadow treasurer Ted O’Brien was wise to accept is debatable. The mere attendance at these types of events implies a degree of co-ownership of any outcomes. At the same time as this event is being planned, the Productivity Commission is receiving submissions on the five inquiries Chalmers commissioned late last year. Anticipating the possible criticism that the Labor government lacks a reform agenda, Chalmers nominated the following areas for the PC to consider: delivering quality care; data and digital technology; economic dynamism and resilience; a skilled and adaptable workforce, and; the net-zero transformation.

The fact the PC has covered most of these topics quite recently didn’t concern Chalmers too much. The timing would suit him and some of the ideas contained in the submissions could be highlighted, rejected or lampooned. Chalmers may be a second-rate economic manager, but he is a skilled political operator.

Into this environment, several prominent players have added their penny’s worth, often in the context of seeking to win favour with the government. I’m not sure we are really expected to take seriously the Commonwealth Bank’s suggestion that Australia should introduce a wealth tax. After all, wherever a wealth tax has been attempted, the perverse outcomes have been sufficient for governments to reverse course.

Bernie Sanders delivers remarks on stage at NHTI Concord Community College.
Bernie Sanders delivers remarks on stage at NHTI Concord Community College.

A wealth tax must involve a tax on unrealised capital gains, something that appeals to far-left American politicians Elizabeth Warren and Bernie Sanders. Not only are the compliance costs huge – wealth must be estimated every year – but there is also the real possibility affected individuals simply flee the jurisdiction to avoid the tax.

The return of a carbon tax is another perennial favourite. It’s certainly true that a national carbon tax, calibrated for what is happening in other countries, has certain positive features. But the case for a carbon tax exists only if all the other climate-related government measures are abolished.

This includes all the subsidies to renewable energy; the Safeguard Mechanism; the New Vehicle Emissions Standard; all household subsidies related to energy use and green devices, and the list goes on. Both federal and state government interventions would need to be scrapped. The point is this isn’t going to happen and so there’s no reason to talk about a carbon tax.

Spotting an opportunity, the superannuation industry has decided to get in on the game of making “helpful” suggestions. According to lobby group the Association of Superannuation Funds of Australia, “institutional super funds have funded approximately 14 per cent of Australia’s capital stock, which generates domestic economic activity”.

This is illogical in economic terms because it assumes the funding would not have occurred had it not been for superannuation. The evidence is clear, however: the impact of compulsory superannuation on domestic saving is very small.

Based on dubious modelling, the further claim is made that the 30 years of compulsory superannuation has lifted GDP by 2 per cent – a trivial number given that there is now $4 trillion of superannuation funds under management. Leaving these mistruths aside, the concrete suggestions made by the ASFA are truly frightening. They claim a lower target rate of return for investing in nation-building activities should be accommodated within modified rules. A similar point is made in respect of housing – “loosening reporting requirements on super funds” is called for.

Elizabeth Warren
Elizabeth Warren

The fact remains that superannuation funds are governed by the sole purpose test to maximise the retirement incomes of the members. Chalmers would be ill-advised even to consider these suggestions lest workers lose out in the name of some people’s ideas of lifting productivity.

An electricity grid based mainly on renewable energy, for instance, is far less productive than a centralised one based on a small number of large plants. Not only is there a need for a massive overbuild of renewable kit, but there is also an inherent redundancy in the system because of the need to back up intermittent power. The case for transforming the electricity grid has nothing to do with productivity, quite the reverse.

As we go through this “hundred flowers blooming” stage, it’s best to be realistic about what will come from the productivity get-together. The outcomes will be modest. It will give off the appearance that the government is active in this space while failing to achieve any meaningful boost to productivity. But it’s a shiny ball for the media to follow in the meantime.

Judith Sloan
Judith SloanContributing Economics Editor

Judith Sloan is an economist and company director. She holds degrees from the University of Melbourne and the London School of Economics. She has held a number of government appointments, including Commissioner of the Productivity Commission; Commissioner of the Australian Fair Pay Commission; and Deputy Chairman of the Australian Broadcasting Corporation.

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Original URL: https://www.theaustralian.com.au/commentary/chalmers-is-already-gaming-reform-roundtable/news-story/f1d7dd9d94149edcf6b20f5f73571685