Reverse productivity slump to improve living standards

Less than a week after promising that improving flatlining productivity would be the focus of the government’s second term, Jim Chalmers has back-pedalled, suggesting the problem will take a third term to turn around. As Labor begins its new term with a vast reserve of political capital – the largest ALP caucus since Federation, Anthony Albanese noted on Monday – the Treasurer is letting Australians down in lowering expectations of what can be achieved across the next three years. As we argued before and after polling day, the nation needs better government, especially economic reform, to fix the productivity slump. Doing so is the only way to arrest the fall in living standards, which OECD data released in March showed are falling faster here than in any comparable developed nation. And ratings agency S&P has warned that Australia’s AAA credit rating is at risk of a downgrade because of excessive government spending.

Policies to foster productivity and profits to boost revenue, and budget repair, are essential. Rather than lowering expectations, Dr Chalmers should commit to the government enacting promised productivity reforms as efficiently and as soon as it is practical to do so. Productivity fell by 1.2 per cent in the year to December. Measured as GDP per hour worked, Matthew Cranston writes, the 10-year average annualised growth is now only 0.2 per cent – the weakest in at least 35 years. Despite that concerning performance, Dr Chalmers, writing in The Australian in April, said: “Our vision for a second term is rebuilding incomes, reinforcing resilience and boosting produc­t­ivity to ensure Australia remains an island of opportunity and ­stability in a sea of global ­uncertainty.”

Nobody should pretend the challenge will be straightforward or quick, especially with Labor committed to union-dominated industrial relations policies that impose regulations on employers that were wound back during the Hawke-Keating and Howard eras. As former productivity commissioner Michael Brennan told Cranston, no single lever provides a quick fix for slow productivity growth: “It’s a broad-based effort and you want multiple policy settings focused on encouraging private investment, competition, innovation, new firms and new business models.” The government had some good architecture in place, Mr Brennan said, such as a renewed competition agenda, “but it will be important to progress measures under this agenda as a matter of priority”. We agree.

Productivity also is affected by broader economic policy, as the former head of Patrick Stevedores and waterfront reformer Chris Corrigan said on Monday. Labor’s plan to tax unrealised capital gains on superannuation, transferring revenue from the productive sector to expand the public sector, for example, was a “complete inverse of a plan for productivity”. It is a problematic policy, setting a bad precedent.

Before the election, the government announced a new national system for occupational licensing and a ban on non-compete clauses (that restrict workers from moving to a competitor firm). National competition policy would be revived in conjunction with the states, Dr Chalmers promised. In December 2024, he announced a Productivity Commission review to report later this year but he has ruled out delivering all its recommendations. The review will focus on creating a more dynamic and resilient economy; building a skilled and adaptable workforce; harnessing data and digital technology; delivering quality care more efficiently; and investing in cheaper, cleaner energy and the net-zero emissions transformation.

As businesses large and small and industry groups emphasise, ensuring gas supplies are unlocked to supplement renewable energy is necessary to increase productivity. So is cutting unacceptably long approval times for major projects that often drag on for years, mired in green and red tape. The transfer of Queensland senator Murray Watt from the employment portfolio to environment and water in Monday’s reshuffle needs to bring about an early resolution to the uncertainty and delays surrounding Woodside Energy’s $30bn proposal to extend the North West Shelf gas project to 2070. The project won clearance from the West Australian Labor government of Roger Cook in December, much to the irritation of green activists. Former environment minister Tanya Plibersek was due to make a decision on approving or blocking the project by the end of March but rescheduled until May 31. She is better suited to her new job, Social Services Minister. The transfer of the former minister in that portfolio and for the National Disability Insurance Scheme, Amanda Rishworth, to employment and workplace relations hands her responsibility for an economic portfolio with a significant influence on productivity. Businesses know that Labor’s first-term IR changes – cracking down on use of labour hire; the right to disconnect; same job, same pay rules; and arduous controls on casual work – are productivity killers.

The promotion of second-term MP Andrew Charlton as cabinet secretary and Assistant Minister for Science, Technology and the Digital Economy should boost Labor’s economic firepower, especially after the exit of former industry minister Ed Husic, an advocate of lower corporate tax and investment allowances to renew business machinery. Dr Charlton, a former Rhodes scholar, entrepreneur, Wesfarmers executive and economics adviser to Kevin Rudd during the GFC, is a pro-business voice in government. His electorate scheme, Parramatta Connect, helps big business tap into the services of smaller local businesses.

The inclusion of Victorian MP Daniel Mulino as Assistant Treasurer and Financial Services Minister will give the government more economic muscle. Dr Mulino, an economist, has a PhD from Yale University.

It also should be a plus that Mark Butler, a good performer as Health Minister, is adding the NDIS to his responsibilities. In the interests of disabled, vulnerable Australians and taxpayers who pay for the $48.5bn scheme, he should reform its administration and eligibility criteria.

Dr Chalmers is correct when he says the productivity challenge has been an issue for two decades and will take time to turn around. His agenda to do so, despite global uncertainties, is Labor’s most important economic task of its second term. Succeed or fail, the impact on living standards will be felt across the medium to long term.