Government spending and jobs are productivity killers

The battlelines are being drawn for Jim Chalmers’s productivity round table. The union movement says poor management and a harried workforce are to blame for Australia’s poor productivity results. The Productivity Commission points the finger at inept government and a bloated public sector for the malaise.

A grand coalition of business representatives is putting on a united front in a bid to avoid a repeat of the Jobs and Skills Summit where they were divided and conquered by Labor to satisfy the interests of trade unions. Cutting red and green tape is high on the business wish list together with tax reform, away from income tax towards a system that better promotes growth and investment.

The Productivity Commission has provided a welcome snapshot to cut through the Chalmers puffery regarding the care economy. The PC sheets much of the blame to government spending on low-productivity endeavours. It says non-market (government-funded) health, education and care services have grown particularly rapidly in Australia: “Since these sectors have lower measured productivity, their expansion weighs on overall productivity growth.”

Labour productivity growth has averaged just under 0.4 per cent a year since 2015, compared to the 60-year average of 1.6 per cent. Labour productivity growth is yet to show signs of reviving in the years since the pandemic, “suggesting more systemic factors are at play”.

The PC says poor policy choices by successive governments, coupled with a lack of appetite for economic reform, have weighed on productivity growth by adding unnecessary frictions to the Australian economy.

This is the target for business. A coalition of 27 groups representing Australia’s small, medium and large businesses, universities and the investment community wants a commitment to a 25 per cent reduction in the regulatory burden by 2030, similar to what has been promised by the Starmer Labour government in the UK.

Business is also calling for comprehensive tax reform after a three-month review supported by Treasury, the Productivity Commission, business representatives and other relevant stakeholders.

This should be coupled with sweeping government efficiency measures and spending restraint to ensure government lives within its means.

Business is looking for a rethink away from personal income tax, which has an outsized impact on decisions to work, save and invest. The business coalition wants broadbased tax reform to rebalance the tax mix in a way that better promotes growth and investment. It says reform should include an overhaul of planning and major project approvals.

This includes implementing the key elements of the Samuel Review into the Environment Protection and Biodiversity Conservation Act. Missing from the list is a realistic look at the anti-productivity measures being built into the system by Labor’s changes to industrial relations laws during the Albanese first term. The trend has continued with one of the federal government’s first items of business for the new parliament to legislate penalty rates rather than allow companies to make their own arrangements.

It is a mistake for business not to go on to the front foot on the issue of IR. It must challenge head-on union claims that shorter working hours for the same pay is somehow good for productivity. And it must take seriously the latest missive from ACTU secretary Sally McManus that worker burnout is a major cause of lower productivity because “too many employers have equated lifting productivity to doing more with less”. This is a recipe for increased union supervision of management that can only make things worse.