Bigger economic pie needs courage, not just accounting

Shuffling tens of billions of dollars in public money from one level of government to another, as national cabinet agreed to on Wednesday, ticks political boxes in relation to the NDIS, healthcare and federal-state relations but it remains to be seen how much, if at all, the deal helps grow the national economic pie.

That is of paramount importance if Australians are to receive the social services they increasingly expect from government, national defences are to be strengthened – as they must be – and the transition to a low-carbon economy funded. National accounts figures just released show real GDP growth halved to just 0.2 per cent in the September quarter, well below the expected forecast of a 0.5 per cent lift. Dismal as it was, the weakness was masked by a surge in net migration. Adjusting for population growth, the economy in per capita terms contracted by a sharp 0.5 per cent over the quarter, economic correspondent Patrick Commins wrote. The sluggishness seems entrenched. ABS figures show GDP per capita has not increased for three straight quarters.

The economy had “hit the wall”, Westpac senior economist Andrew Hanlan said, due to a combination of inflation, higher interest rates and additional tax obligations leading to a sharp decline in household disposable income. Company collapses across Australia surged 12 per cent in November, leaving the Christmas sales period looming as an “acid test” that will set the course for the business sector over the coming year. For borrowers, the upside is that further interest rate increases, at least for the first few months of 2024, are increasingly unlikely. If inflation continues to abate, a long hiatus would help encourage consumption and investment. Boosting growth, however, will also depend on improving productivity, incentives for business and individuals through tax reform, and factors such as workplace relations.

Among advanced economies, Australia’s 30 per cent corporate tax rate (25 per cent for small businesses) is one of the least competitive in the OECD. For individuals, the stage three tax cuts, to which the Albanese government, wisely, is committed to making from July next year, will reduce tax payable for workers earning above $45,000 by lowering and flattening marginal rates. Taxing work is not the way to promote growth. Nor is a more centralised, rigid industrial relations system.

Workplace Relations Minister Tony Burke’s agreement with Senate crossbenchers David Pocock and Jacqui Lambie to pass key components of the government’s Closing Loopholes bill was a step in the wrong direction. Unions, unsurprisingly, hailed the development, unveiled on Thursday, as a win for millions of workers. It was also a win for Mr Burke’s negotiation skills. But as workplace editor Ewin Hannan writes, mining giant BHP, which along with Qantas is a chief target of the laws for labour hire workers, warned the new laws would add to the cost-of-living crisis, drive up costs and do nothing to address Australia’s productivity problem. BHP Australia president Geraldine Slattery said the laws would “make Australia an even more expensive and less competitive place to do business, making it harder to attract the global capital needed to develop vital new resources projects and the highly paid mining jobs that come with them”.

The Minerals Council of Australia agreed. Its chief executive, Tania Constable, said the bill was a “devastating blow’’ for the resources states of Western Australia and Queensland that would put a ceiling on growth. The sector, which paid an average wage of $151,000 and more tax than all other industries combined, has long opposed the bill. By dramatically lifting the cost of doing business in Australia, business will look elsewhere, to other nations where opportunities abound and political risk is low, Ms Constable said. “And while nations clamber for access to critical minerals to build the clean-energy technology required for net zero, this weakens Australia’s international competitiveness.’’

After the release of the national accounts on Wednesday, Citi chief economist Josh Williamson said “productivity growth remains below where it needs to be to allow wages growth to be consistent with sustainable inflation outcomes”. The latest workplace changes make it more important that productivity, including workplace productivity, and other reforms are tackled. The Australian supports efforts to make the federation, and the delivery of social policy, as effective as possible. It will take more than funnelling taxpayers’ money from one level of government to another, however. As independent economist Chris Richardson said after Wednesday’s agreement: “We didn’t get courage. We got accounting.’’