Tax and labour productivity need to be tackled

Six weeks before the Albanese government’s productivity roundtable, its potential to trigger policy changes to help reverse the fall in the nation’s living standards is becoming clear. Jim Chalmers has called for “collaboration and compromise” from politicians, unions and business leaders to secure reforms that will drive productivity and produce a sustainable budget. Two important aspects of the debate came into sharp focus on Sunday: labour productivity offsetting wage rises; and tax, including possible changes to the GST.

Assistant Minister for Productivity Andrew Leigh, one of the best-qualified economists in Australian politics, belled the cat about an issue that must be raised at the roundtable when he told The Australian that wages growth would improve living standards only if it were accompanied by productivity gains. “That’s ultimately just how the economy works,” Dr Leigh said. He reiterated a point made consistently by Reserve Bank governor Michele Bullock and other economists – that long-term wage gains have to be grounded in productivity. That connection, unfortunately, has been missing from too many wage case and enterprise bargaining outcomes in Australia in recent years, especially under the Albanese government’s regressive industrial relations policies.

Since the election this year, with inflation largely contained, Anthony Albanese and Jim Chalmers have put productivity growth at the centre of their economic objectives. Doing so is essential, with productivity growth crawling along to just 1.3 per cent in the 12 months to March this year and falling by 0.4 per cent per capita. During the campaign, the Prime Minister backed former workplace relations minister Murray Watt’s claim that real wages growth could be achieved without stronger productivity growth. “There has been wages growth and productivity growth has been lower,” Mr Albanese said, backing above-inflation wage rises for low-paid workers. Some of those rises come into effect on Tuesday as a result of the Fair Work Commission’s decision to award a 3.5 per cent wage increase to 2.9 million people on award and minimum wages.

Dr Leigh also raised two other worthwhile productivity reforms, including artificial intelligence-enabled technologies being used in care homes to supplement the work of humans, such as fall detectors to ensure somebody is able to get to a person in aged care quickly. And with the government eyeing cuts to red tape to boost productivity, he also said a mixture of federal, state and local government rules would be looked at, including state and local housing regulations. That sphere has been identified by Housing Minister Clare O’Neil as an area needing reform. Earlier in June, Ms O’Neil said red tape was making it too hard to build houses in Australia.

While it is not clear whether premiers and state treasurers will be included in the roundtable, which will be limited to about 25 participants including business and union leaders, Queensland Treasurer David Janetzki has raised an important issue about the need to include GST reform in the roundtable. It is a central economic issue for the states and the federal Treasurer has promised a process to involve states and territories on economic reform proposals. Potential changes such as increasing the rate or broadening the base of the GST – with compensation for highly disadvantaged people – are worth considering as a means to lessen the burdens of personal and company tax and increase incentive for investment and hard work.

As former Treasury assistant secretary David Pearl writes: “A popular constituency for pro-growth tax reform exists in this country. How can it not when our 47 per cent top marginal rate cuts in at only $190,000, less than twice the average annual income; and owing to decades of bracket creep, our reliance on income tax is as high as it was before the GST was introduced?”