Productivity shindig unlikely to lead to dramatic reforms

Jim Chalmers addresses the National Press Club. Picture: Martin Ollman / NewsWire

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I had hoped Jim Chalmers would have ditched his puerile penchant for alliteration, having massively overdone it in his first term. But, no, it’s back with a vengeance.

In his National Press Club speech in Canberra on Wednesday, the Treasurer spoke of “reform which is progressive and patriotic, in the PM’s words, and practical and pragmatic as well”.

Patriotic reform? That’s a new one. Donald Trump would be right on board – the US President doubtless regards his sweeping tariffs as an example of patriotic reform. It might be a term used by Chalmers to indicate the government is not investing sufficiently in national defence.

Leaving this flowery rhetoric to one side, the key questions are, first, is our Treasurer correct in his diagnosis of the economic challenges we face; and, second, will he identify and implement possible workable solutions?

According to Chalmers, “our budget is stronger but not yet sustainable enough. Our economy is growing but not productive enough. It’s resilient but not resilient enough – in the face of all this global economic volatility.”

To describe the budget position as stronger is drawing a long bow: after all, we are heading for deficits for the next four years and beyond. Government debt is about to tip over the trillion-dollar mark.

Government spending as a proportion of GDP is in the region of 27 per cent, which is markedly higher than in the first two decades of the century, excluding the global financial crisis and Covid interregnums.

Productivity is completely in the doghouse and we have experienced negative per-capita GDP growth in eight of the past nine quarters.

While it’s true that productivity growth has been sluggish in many countries, we are at the bottom of the ladder.

And there are exceptions, most notably the US, Ireland, Norway, Denmark and Switzerland. In the case of the US, the combination of a reduced company tax rate, the immediate expensing of business costs, and cheap and reliable energy has underpinned the strong growth in productivity in that country.

Of course, the proposed productivity roundtable should rightly be seen as a stunt, just a smaller one than that other stunt, the Skills and Jobs Summit, held early in the Labor’s first term in office.

The competition to attend will be vicious; the outcomes are likely to be insipid, in part because some of the most important issues, such as industrial relations and energy policy, will be excluded from the discussion.

The Treasurer has established three criteria for any suggestions that might emerge from the shindig. First, they must be in the national interest rather than cater to sectional interests. Second, they must be implementable. Finally, they must be budget-neutral or budget-positive, although the timeframe for this requirement is not clear.

The necessity of curbing government expenditure was briefly noted, but it is evident Chalmers is primarily focused on increasing tax revenue. And this is where there is a real difference of opinion among contributors to public policy debate.

For many, tax reform is really just code for collecting more tax, ideally by imposing even higher burdens on high-income earners and those with wealth. Chalmers’s proposal to increase the tax on earnings to 30 per cent on superannuation accounts above $3m is one example. It is clear he is not for turning on this new impost, even though the predicted additional revenue is likely to disappoint as people reorganise their financial affairs. This principle applies more broadly to all taxes levied on capital.

For others, tax reform should be about improving the efficiency of tax collection and assisting in growing the economic pie. Our tax system is dominated by income tax, company tax, the GST and a small number of excises, although not on tobacco products these days.

The long tail of other taxes raises very little money but causes substantial economic distortions.

The bottom line is, we should not expect any dramatic reforms from this Labor government and that our steady economic decline is likely to continue, particularly with the continued growth of the productivity-sapping care economy that is largely funded by the government.

The idea reform can be based on consensus, with everyone agreeing, is unworkable. Let’s face it, there were plenty of people opposed to the Hawke-Keating agenda of financial sector deregulation, tariff reductions, privatisation and industrial relations changes – Anthony Albanese among them. If we are to wait around until everyone agrees, we will be waiting for a long time.