Red tape-busting agenda needed for productivity

Stubborn inflation, low productivity, rising debt and high spending at all levels of government cannot be allowed to continue unchecked. As the federal election draws closer, there is a welcome focus back on what can be done to foster better commonwealth and state co-operation on these issues. In recent days, both Jim Chalmers and the federal opposition have looked back fondly at the macroeconomic reform agenda of the Keating and Howard years, where there was a focus on streamlining regulation to free the economy.

The Treasurer has announced a new scheme under which state and territory governments will compete for $900m in federal funding to advance productivity-enhancing reforms. Under the plan, state and territory governments will be eligible to receive support for implementing a series of predetermined productivity-boosting measures, such as changes to commercial planning and zoning rules, and removing other barriers to construction. The idea is to reward states with more revenue for delivering meaningful and measurable economic reforms. Dr Chalmers is right to say there is no more important structural problem in our economy than weak productivity.

The federal opposition is also doubling down on promoting competition among the states. The latest example is the final report of the cost-of-living inquiry, released on Friday. The report is designed to highlight the Albanese government’s failings in the cost-of-living fight. It says real disposable income has fallen 8.7 per cent on a per capita basis from March 2022 to June 2024, driven by the combination of anaemic GDP growth and persistently high inflation, and the accompanying stagnant real wages growth. The report recommends the federal government convene national cabinet to address excessive public expenditure by all levels of government. It wants national cabinet to develop productivity-enhancing reforms for the economy, including establishing a national deregulation agenda.

Cutting government spending and boosting productivity by slashing unnecessary regulation is exactly what is needed. But given the experience during the Covid pandemic, there is a big question mark over whether national cabinet is the place to get things done. Other suggestions in the Senate report, including the reinstatement of the Australian Building and Construction Commission to tackle union mischief and reduce building costs, are obvious. As is a crackdown on registered organisations that take their members for granted – think trade unions and industry superannuation funds. Breaking the union stranglehold on state and territory infrastructure projects would undoubtedly result in better value for taxpayers, and increasing the instant asset write-off threshold for small business to $30,000, as recommended by the report, would encourage investment where it matters, in the productive sector of the economy.

Despite the clear political differences on display, there is urgent need for governments of all stripes to focus on spending restraint and boosting productivity. As Judith Sloan writes on Saturday, the most recent National Accounts showed that labour productivity had fallen to its 2016 level, in large part because of the expansion of the non-market sector. Reserve Bank of Australia governor Michele Bullock has shown she will not be hoodwinked by electorally focused gimmicks, such as energy rebates, in the fight against inflation. The looming federal election is clearly starting to focus the minds of politicians. But it is not only the next term of government that matters. Long-term thinking on tax, spending and productivity will always be essential for the future prosperity of the nation.