A path out of economic malaise

A day after Treasury’s Intergenerational Report set out long-run trends pointing to slower economic growth, higher spending, chronic deficits and debt, as well as slower population growth, the Business Council of Australia has released a sensible, pragmatic plan that has much to offer the nation, including workers. Achieving a 1 per cent increase in productivity growth a year by producing goods and services smarter and more efficiently, it says, would deliver an extra $10,000 in average Australian incomes across a decade. That is an encouraging prospect after the IGR warned Australians’ average incomes would be $32,000 lower than projected and the federal deficit twice as large by 2061 if the nation failed to reverse slumping productivity growth.

The BCA proposes a more diverse industrial base; building a low-carbon economy; remaining open to the world and competitive; lifting the skills of the workforce; making sure no one gets left behind; and rebuilding public finances. Within those broad goals the report, aptly entitled Living on Borrowed Time, tackles important policy details and highlights concerns raised by The Australian for years. The tax system, it points out, relies too heavily on a narrow base. The top 3 per cent of taxpayers pay more than 30 per cent of all personal income tax, and the top 10 companies, including mining companies and banks, pay a quarter of all company tax. More than half our exports are derived from six products and services: iron ore, coal, gold, natural gas, tourism and education. It feels as if we are putting a lot of eggs in one basket. Apart from CSL, the top five companies in Australia are the same as they were 35 years ago. In the US, none of the top companies is the same, suggesting greater dynamism and investment.

Diversification and attracting more companies to Australia to expand the revenue base is vital, Tom Dusevic writes. To that end, BCA chief executive Jennifer Westacott has posed an important question: will Australia be as successful a country as we could be with one of the highest corporate tax rates in the world and the inefficiencies of the federation? While advocating that we continue to do what we do well, the BCA identifies areas for diversification that line up with Australia’s comparative advantages. These include a pivot to goods such as lithium and rare earths in the mining sector and moving up the value chain in food production. Opportunities also are listed in clean energy, medical technology, artificial intelligence, defence, and aerospace. As the world emerges from the pandemic, new industries will emerge, as they did at the end of World War II, propelling expansion. Australia was well placed then to compete, attracting skilled immigrants who helped lay the foundations for a new era of prosperity. We need to be just as ready to adapt now. A 2050 net-zero emissions target is important, the report says, or Australia could face new carbon tariffs or lose business to overseas competitors. But closing the “technology gap” to allow the nation to move to an export-oriented, low-carbon economy would be a big challenge, it acknowledges.

While articulating the concerns of business, the report’s value also lies in its understanding of the concerns of unions and workers and the need to address serious social problems. In taking a broad, inclusive approach, Ms Westacott has ensured the paper has credibility and its main ideas should be more readily accepted. In leading the BCA, she has emerged not only as a voice for business but also as an advocate for fairness, reason and pragmatism in the national conversation. On current trends, the BCA says, it takes an average worker seven years to increase their wages by $100 a fortnight. In the past, workers could expect that size rise every year or two. “It’s why people don’t feel they are getting ahead,” Ms Westacott says. It is “simply unacceptable”, as the BCA notes, that despite extra billions spent on schooling, students are falling behind other nations and that a 15-year-old today is a full year behind where a 15-year-old was in 2000. Indigenous disadvantage and the fact one in 20 Australian children lives in poverty are also unacceptable.

Given the long-term economic and social stasis outlined in the IGR, a trillion-dollar public debt, stagnant income, an ageing population and a tax system that will struggle to meet spending on rising health and pension costs, kickstarting productivity to repeat the economic gains of the 1980s and 90s is Australia’s only path to prosperity.

Ahead of the federal election, the BCA has set out a blueprint for steering the economy from the slow to the fast lane. Simple realities must be faced, it says. A weak economy does not provide the means to lift wages. This is a discussion we need to have.