Albanese government spending and regulating too much: former PC chair Banks says

Rather than overhaul an inefficient tax system, Labor is diverting money to the public sector and costly projects such as the NDIS, the Productivity Commission’s inaugural chairman says.

The Productivity Commission’s inaugural chairman, Gary Banks, has slammed the Albanese government over wasteful spending, distorting labour and energy markets, and over-regulating at the cost of much-needed productivity gains.

Speaking at a competing economic reform roundtable arranged by Nationals senator Matt Canavan and held in a room above the Treasurer’s own roundtable in Parliament House on Wednesday, Professor Banks said the government’s approach to spending would further worsen productivity in Australia, which is languishing at 60-year lows.

“Unfortunately, attention to regulation has been more about increasing, rather than reducing it or improving it, and the government’s productivity agenda is mainly a spending agenda,” Professor Banks said.

He said so-called reforms in the key areas of energy and industrial relations had only added to the regulatory burden, while government spending in these two areas had also been inefficient and lacked sound economic rationale.

“The kind of regulatory reforms that are needed now, (in) energy and labour markets, two areas of crucial importance to Australia’s economic performance, have been particular casualties of so-called reform,” he said.

Former Reserve Bank governor Philip Lowe on Tuesday criticised the Albanese government’s spending agenda, arguing that Jim Chalmers needed to “reimpose some discipline.”

Professor Banks took particular aim at the massive increase in government-funded jobs in the healthcare sector, such as the NDIS.

“The key strand of the government’s productivity agenda is to further promote the scale and reach of the burgeoning care economy, so-called. In reality, of course, this will do little for national productivity,” he said.

“In fact, it’ll diminish it. What it will do, of course, is increase the number of people employed in the non-market economy. And again, you’ll see the numbers on that, which are staggering – the high proportion of total job creation that’s being created with taxpayers’ money.”

Figures recently released by the Australian Bureau of Statistics have shown that one in three jobs created in 2024 was in the public sector, while more than three-quarters of new roles were in government-funded industries such as health.

“As we know, workplace regulation is not being discussed on the floor below, despite Treasury’s previously expressed concern about the effect of restrictive labour market regulation on the dynamism that they see as the key to productivity growth,” Professor Banks said.

Professor Banks also took aim at the Albanese government’s Future Made in Australia policy, where taxpayer dollars are funnelled into, arguably, inefficient industries.

“It’s therefore a bit ironic that having ignored, or added to, such (regulatory) impediments, the government is embarking on a Future Made in Australia pitch for Australia to become a leader in green manufacturing. Even more ironic is the recognition that this could only be achieved with substantial subsidies from the taxpayer.

“While it’s asserted that this time the government’s approach will be, ‘more nuanced and disciplined’, the basis for that is unclear, to say the least. None of the schemes appear to have had the benefit of the sort of evidence-based approach they need. Just declaring that an initiative is in the national interest does not make it.”

Analysis by the Institute of Public Affairs of the government’s renewable energy subsidies shows the commonwealth is spending $9bn on climate change and net zero policies.

“In the case of energy, rather than leveraging the power of markets to discover least-cost means of reducing emissions, Australia-wide, governments have opted for ad hoc subsidies and regulatory measures without regard for their widely differing costs and significant distortionary effects on resource allocation,” Professor Banks said.

“They have adopted targets for emissions and renewables without any clear idea of how to achieve them, and in so doing they’ve assisted technologies that cannot deliver reliable power, while suppressing those that could.”

Professor Banks said that instead of focusing on the removal of deadweight costs of an inefficient taxation system, or a more efficient government service provision, the Albanese government had engaged in “the diversion of resources to the public sector”, which has been a “major contributor to the decline in productivity growth in Australia”.

“The conditions for sustained improvement don’t exist, despite government narratives to the contrary,” he said.

“As someone who spent much of his career at the Productivity Commission and its predecessors, the sense of deja vu is palpable. What did Yogi Berra say? Deja vu all over again?”

While Professor Banks presented his arguments to the Canavan roundtable, which included prominent business leaders such as Maurice Newman, who once chaired the Australian Securities Exchange and the ABC, the government’s roundtable started hearing from BHP’s Mike Henry and former PC chair Michael Brennan on better ways to cut regulation.