Productivity Commission blueprint to stop economic luck running out

Unless productivity improves in services such as health and disability services, they will continue to be a taxpayer drain, Productivity Commission report warns.

Treasurer Jim Chalmers has acknowledged challenges facing Australia’s productivity. Picture: Dan Peled / NCA NewsWire

Multi-employer bargaining could lead to more strikes and collusion, visas should be modified to entice foreign workers into aged-care jobs and Labor’s signature emissions safeguard mechanism must cover the entire economy, the Productivity Commission has found in a landmark report likely to incite political acrimony among businesses, unions and the Albanese government.

The inexorable rise of big government from an ageing society will crowd out private enterprise, drag down growth and increase the tax burden unless the nation lifts productivity by streamlining the burgeoning care sector, said the commission’s report published on Friday.

The commission’s vast five-yearly review of productivity ­directly challenges policymakers to lift their game on skilled ­migration, business taxation, the clean-energy transition, workplace regulation, the take-up of digital technology and land taxes.

 

It also sets up a series of flashpoints for the Albanese government, which faces chronic budget deficits, high and persistent inflation, and rising community expectations for cost-of-living relief.

The 1000-page blueprint calls on the federal government to ­embrace dozens of measures that have broad support within business and among public policy ­influencers, but would rattle organised labour and progressive constituencies, with new and bitter fights likely on energy policy, industrial relations, taxation and immigration if Labor were to embrace the commission’s agenda.

The new proposals confront a highly unionised and bloated public sector, expose costly industry protection and challenge ­directly Labor’s controversial multi-employer bargaining regime, which the commission warns could cause more strikes, reduce the scope for “enduring real wages” and lead to “de facto collusion”.

Productivity Commission chairman Michael Brennan. Picture: James Croucher

The report also recommends the abandonment of subsidies for renewable energy and electric vehicles, introduction of road-user charges rather than fuel taxes, new models of funding and delivery in health and aged care, more even taxation treatment of profits, wages, debt and equity, and higher fees to pay for more places in vocational and tertiary education.

The commission’s 71 recommendations, covering 29 reform directives, provide a long-range road map for action, with the ­independent but embattled ­agency identifying areas the Albanese government could immediately implement, including elevating the safeguard mechanism as the primary emissions-abatement tool, sharing government data with business and abandoning the flawed skill occupation list for migration.

 

While Jim Chalmers has ­conceded “Australia has a ­productivity problem”, on Friday he said some of the commission’s recommendations were contrary to Labor’s values and priorities.

“This is not a time for whack-a-mole policies,” the Treasurer said in Logan, in his Brisbane electorate. “We don’t think you get productivity growth in our economy or in our country, by hacking away at people’s job security, or their industrial relations conditions. We don’t believe you get productivity by hacking away at clean-energy programs.

“We think the best way to get productivity growth in this country is to invest in people and their capacity, to fix our broken energy markets, and to make sure that technological change works for us, and not against us.”

Business groups welcomed the report, with Business Council chief executive Jennifer Westacott describing it as “a critical blueprint for a more dynamic and productive economy that can deliver the living standards and opportunities Australians expect”.

Ms Westacott said Australia risked stagnation if the nation did not change course.

“This isn’t about working harder for less,” she said. “Productivity is about creating more value by doing things differently, by using new technology, putting improved systems in place and doing processes in new ways.

“And it’s about avoiding own goals like workplace relations changes that leave our feet stuck in the cement of complexity and disruption.”

ACCI chief executive Andrew McKellar said lifting productivity was “the only way we will be able to afford the healthcare, education and disability support programs that Australians expect – and it’s the only pathway to being able to pay for the AUKUS program announced this week”.

The ACTU criticised the commission as “outdated and irrelevant” and said the report contained many “anti-worker proposals”, including an attack on penalty rates and a proposal to remove anti-dumping rules.

Dr Chalmers has vowed to refresh the commission this year to make it more modern and relevant to Labor’s agenda and governing style.

 

The report states productivity growth has slumped to its lowest rate in 60 years. It finds failure to restore our performance to long-term averages would see incomes shrink by 40 per cent over the next 40 years and Australians working two hours longer each week.

Commission chairman Michael Brennan said the reform recommendations would help Australia overcome its “productivity predicament”.

“Australia’s economy has changed. Almost 90 per cent of Australians now work in service industries, including education, health, hospitality, retail and finance,” Mr Brennan said. “It has traditionally been difficult to lift productivity in these sectors. But we are not alone. Economies around the world are grappling with the same issues.”

 

The PC report lays out five pillars for action:

● Building a skilled and adaptable workforce, through education reform, skilled migration and modern, fit-for-purpose labour market regulations;

● Harnessing data, digital technology and diffusing new ideas, focused particularly on the adoption of ideas by the 98 per cent of businesses who are not cutting-edge innovators;

● Creating a more dynamic economy, through a range of levers — from competition policy and sector specific regulation to broad enablers of business entry and investment;

● Lifting productivity in the non-market sector, reflecting its unique structure, incentives and culture;

● Securing net-zero at least cost, as well as fostering efficient adaptation to a changing climate.