Stark choices needed to maintain living standards

As Business Council of Australia chief executive Jennifer Westacott calls time on leading Australia’s most powerful corporate lobby group and her successor, Bran Black, prepares to step up, the BCA has produced a blueprint for securing the nation’s future by making the economy more productive, resilient and competitive. After a decade of the weakest productivity growth in 60 years, that has left living standards improving at their slowest rate since the Depression, the blueprint, Seize the Moment, sets out the tangible benefits of the economy returning to its long-term growth average of 3.3 per cent a year. After a decade, the BCA contends, each Australian would be $7000 a year better off and that sum would continue to grow each year; an extra $50bn in taxation would be raised to cover services Australians need and expect, and the economy would be $200bn larger. That would be a distinct advantage at a time when the number of Australians over 70 will increase by 2000 a week over the decade.

The possibilities set out are eminently achievable if both major political parties, as they did in the Hawke-Keating era, look beyond short-term political considerations to embrace the challenge of reform. Some of the proposals, especially lifting the rate or broadening the base of the GST, would take political will, which has been notably lacking in recent years. The benefits could be worthwhile, however, including lowering personal taxes and reforming company tax, which is among the most uncompetitive in the developed world.

Productivity, the report makes clear, is not about “workers being forced to work harder or a cost-cutting race to the bottom’’. It is about working smarter, not harder, getting more output from every dollar invested or hour worked. And it is the key driver of higher wages and living standards. That dynamic should appeal to both sides of politics and the trade union movement, and underpin the Albanese government’s IR changes. The report identifies broad levers that should be pulled to improve productivity. These include fostering a competitive business environment to encourage and incentivise investment; an educated workforce with the right skills mix; a competitive, efficient tax system; minimal red tape and compliance regulations, and; access to integrated global supply chains and reliable, affordable energy.

“Our competitors are diversifying, adopting new technologies, increasing productivity and looking outwardly to tap into global supply chains and opportunities,’’ the report notes. “They are offering incentives to attract large-scale investment, ideas and talent.’’ The observations and criticisms of the status quo are pertinent. The economy has too many eggs in one basket, with the top 12 companies paying 35 per cent of company tax. The economic base, with just six products – coal, iron ore, natural gas, education, gold and wheat – making up more than 60 per cent of exports, is too narrow, leaving the economy vulnerable to global shocks and the decarbonisation agenda. Red tape and over-regulation are deterring investment and innovation. While spending is rising, education standards are slipping. The BCA also identifies opportunities that should work in our favour. The availability of low-paid, low-skilled workers no longer determines where production is based. High-value manufacturing relies on highly skilled and educated workers using new technologies, a shift that should be to Australia’s advantage. Developing nuclear-powered submarines under the AUKUS agreement is seen as a major opportunity to grow new industries.

Our competitors, the report warns, are adopting new technologies, increasing productivity and offering incentives to attract large-scale investment and talent. Doubtless the political class will be tempted to cherrypick the report, but they should be careful. From taxation and industry policy to education and the challenges of an ageing population, decisions need to be made. Many will not be easy. As a long-term road map to productivity gains through economic, IR, industry and tax reforms, the report has much to offer.