Bold growth strategy for Libs in our new age

Scott Morrison and the Productivity Commission have outlined a new vision for economic growth and prosperity for Australians that transcends the Hawke-Keating-Howard era and offers a new paradigm for “inclusive” growth around service delivery in health, education and cities.

This agenda has the potential to affect every individual and household. The blueprint, along with the Treasurer’s May budget, brings to a zenith a repositioning of the Turnbull government’s economic strategy. It constitutes a watershed in the evolution in ­office of Liberal Party philosophy and meaning.

This agenda, above all, is about three things: it is people-focused (the patient, the student, the consumer); it is state-based and ­aspires to a new negotiation ­between the national and state governments initially outside head-of-government meetings; and it looks beyond the destructive deadlocks dominated by spending cuts, Senate legislative battles and epic “big bang” ­reforms that are out of fashion and devoid of traction.

The Productivity Commission report brings to a climax the long-evolving approach of the commission under chairman Peter Harris and its alignment with Morrison’s aspirations as Treasurer based on practical, people-oriented reforms cognisant of the reality that “politics across the globe has been turned on its head”, which means “we cannot slavishly follow past political ­orthodoxies”.

This report is founded on the direct nexus between productivity and living standards. In this first of five-yearly reports, the central purpose identified by Harris is to “shift the dial” and jolt productivity “out of the mediocre trajectory of recent history”.

This demands vast cultural change and fast — much in the government sector. The commission highlights the opportunity and the costs of failure. Aware of the pressure to quantify the gains, the commission suggests benefits increasing over time to reach $80 billion each year that would continue to grow with the economy. Harris yesterday talked of gains of about $200bn over 20 years. The commission proposes a timetable — negotiations at official and Treasurer level to seal deals that the PM and premiers would stamp at the end of 2018.

When Harris briefed cabinet he said that health and education constituted 10 per cent of the economy two decades ago but had grown by a huge 50 per cent since then. These vital services are ­expanding, largely under government control, mainly immune from any productivity lens and ­offering vast gains from more ­efficient service delivery. The ­potential dividends are even “bigger” than from industry reform.

In his speech yesterday, Morrison said past reform era policies of “trade liberalisation, ­reduction in tariffs, widespread reform to capital markets, sale of government assets, changes to ­labour markets, competition and taxation reform and better targeting of macro-economic policy” sprang directly from the “burning platform” of the early 1990s ­recession. While they delivered an era of prosperity, “we are no longer standing on a burning platform” — in fact, just the reverse since the current generation grew up without experience of recess­ion, which meant reform “comes more stubbornly and incrementally”. For Morrison the “bandwidth available for change is narrower than it once was”, compounded by the binary debate over winners and losers. In short, a fundamentally new approach is imperative.

The Productivity Commission and Morrison will be savaged for going “soft”. In truth, they want to deal with the world as it is, not the fantasy land of purist free marketers who preach an agenda long since dead in public opinion offering only the guarantee of electoral suicide. Needed industrial relations reform is the perfect proof where the issue is not further deregulation but how far ­regressive re-regulation can be halted.

The philosophical spirit of the report is the need for co-operation, practicality, realism before idealism, the indispensable role of the states, recognition that COAG (the PM and premiers) isn’t working well, the imperative for joint federal-state reform agreements, restoring trust in government and making the federation work better. It says there is no single big idea, no silver bullet to solve all problems.

The cycle of decline sketched by the commission is chilling. On a “business-as-usual” basis, productivity growth “is more likely to fall than rise over the medium-term”. That means reduced prosperity growth. The outlook is stagnant wages growth and ­labour productivity lower than in the golden era of the 1990s and the long prosperity of 1950-70. The report says “the ­recent trend in income per capita — effectively the content of people’s wallets — is far below that in the decades that preceded it”.

Seeking to reverse the trend, the commission argues “the greatest prospective gains now lie in services” with health and education in the frontline. The report wants a new reform paradigm based on “win-win” for governments and people. As Harris said, the purpose via more efficiency is to deliver “the outcome an individual would expect”.

On health, for example, the commission says the nation has the third highest life expectancy in the world but one of the highest number of years spent in ill health — with high obesity rates still rising and 17.5 per cent of people with mental health problems. In NSW 1 per cent of patients account for 46 per cent of hospital beds.

Prevention of chronic illness remains in its infancy. The commission calls for a system of healthcare far better integrated, the ­patient as focus, reduction of ­unnecessary treatment (knee ­arthroscopies being a prime ­example), an emphasis on prevention and the move away from community pharmacy to automatic dispensing. It says health ­reforms could save $140bn to $200bn over two decades while delivering better patient care.

The commission warns the digital age, contrary to near universal popular belief, has delivered nothing like the productivity gains of earlier times — but Australia’s policy settings for the jobs of the future are inadequate, with student results declining. It enshrines skills formation as an ­enduring theme.

This requires better teachers, more classroom effectiveness, ­reform of the VET system and a pivotal change in universities that the commission says are too­ ­focused on publishing research ­instead of teaching. The report suggests university funding could be tied to student success, not research — a big idea — and provoked a self-interested kickback from the university sector.

The commission has a list of recommendations to improve cities’ productivity, an urgent priority — better co-ordination, road funds in each state to collect ­hypothecated road-user charges, cost-benefit infrastructure decisions, road user charging pilot programs, competition policy ­applied to land use regulation and a broadbased land tax to replace stamp duties. With 80 per cent of national GDP generated in cities, the productivity results from policies that succeed or fail are huge, with the commission suggesting gains to GDP of about $29bn from its proposals.

Confronting the bizarre hostility towards business in the current culture, the commission says businesses are the “immediate driver” of productivity in the market economy. It believes distrust of government is so high that it has become a risk to prosperity. The commission is alert to the difficulty of the task it proposes, saying of federal-state co-operation that “confidence is low between governments in Australia”.

This 1200-page report is full of ideas. In essence, it seeks a new synthesis between a changing economy and a political culture in transition. The commission says most people will gain from the reforms it proposes and optimistically declares “the distributional effects” are “not central”. Maybe.

The report embraces “inclusive” growth — moving the Coalition closer to Labor. If that diminishes political polarisation over reform, it is a vital plus. But change is always hard. The danger for Morrison is that the report, like the Treasury’s intergenerational report, becomes more notable for analysis than a platform for ­action. If that happens Morrison and the nation are the losers.