Want better productivity? Keep wages rising strongly
This is the week we fix our productivity problem, but how far we get remains to be seen. The problem is that, while improving the efficiency with which the economic machine converts inputs of raw materials, capital equipment and human labour into outputs of goods and services has been the way we've raised our material standard of living over the past two centuries, there's been no improvement in this productivity for a decade.
But if that's the problem, we still have a problem: no one wants to accept responsibility for fixing the problem. That's for the government to do. Even the Reserve Bank wants to pass the parcel to the government.
Last week, while finally cutting the official interest rate by a click, the Reserve lamented the need to lower its assumed annual rate of improvement in productivity from 1 per cent to 0.7 per cent, with governor Michele Bullock noting there was nothing the Reserve could do about productivity.
The weirdest thing about this episode is the way the business lobbies have got away with portraying the lack of productivity improvement as having been caused by the government. It's as though productivity is something created on the Cabinet room table, the product of good – or not-so-good – policy decisions.
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You'd never know that the figure for national productivity improvement is largely the summation of what's happening in all our farms, mines, factories and offices. By how much have each of them become more efficient at doing what they do.
But no one ever bothers to ask the bosses – or even their Canberra lobbyists – why they've stopped getting better at what they do. If they did, they'd be told it was all the government's fault. Too much regulation and red tape, too high taxes and too little freedom to change their employment arrangements.
Yeah, sure. You get closer to the truth when you remember Sims' Law. Rod Sims, the former competition watchdog, never tired of explaining that improving their productivity was just one of the ways businesses could increase their profits.
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SBS Australia
8 hours ago
- SBS Australia
All about the federal government's productivity summit
Listen to Australian and world news, and follow trending topics with SBS News Podcasts . As government officials, business leaders and economists attend a national economic round table in Canberra this week, you will keep hearing them mention a buzzword: productivity growth. According to the Reserve Bank, productivity refers to how much output can be made within a given set of inputs. One is labour productivity, which focuses on workers themselves, such as their skillsets, the technology they use, and how they are managed. The other one is multifactor productivity, which looks at factors beyond the workers, such as capital, land, energy and materials. Why will it be the focus of the national economic round table this week? Federal Treasurer Jim Chalmers says that's because there's no better time than now to talk about it. "Our economy is finally balanced, between the progress we've made on wages and inflation and living standards and the productivity that we desperately need to sustain that progress in the years and decades ahead. Living standards, higher living standards, are the holy grail, and that makes productivity the primary focus." In recent decades, Australia's productivity growth has slowed. During the Financial Year of 2022/2023, it was only 0.9 per cent. It mirrors the general experience of many advanced economies, but the Reserve Bank says the slowdown also reflect persistent flaws of Australia's economy, such as declining business competition, slower upgrades in technology, and low wage growth. Trent Wiltshire, Deputy Director of Grattan Institute's Economic Prosperity program, says in the past decade, there have been attempts and measures by both federal and state governments to increase talent pools and business investment. "There have been reforms to skilled migration in the past few years, (such as) streamlining employer sponsorship (which has been) good, the reform of point tests (which) is underway - that's a big layer for the input - but it hasn't been implemented. There's been some attempts on tax reform, although not particularly big. We have seen some changes in higher education. State governments also play a role too, so we've seen Victorian and New South Wales (government) are reforming their planning system on more houses can be build at where people live." But Mr Wiltshire says these policies haven't been able to offset some persistent barriers for Australia's productivity, including its ageing population. He says Australia's growth of service sector also slows down productivity. Ahead of the round table, various stakeholders already signal their pitches to boost Australia's productivity. Business representatives call for cutting the levels of red tapes and the uptake of emerging technology. Unions want to see four-day working weeks. Welfare advocates urge the Government to fix what they call the broken employment services. Among the calls, one of the most controversial topics is artificial intelligence. It follows the Treasurer's comment that A-I is what he calls a game changer for Australia's economy. But questions have been looming regarding A-I's tolls on human jobs, regulations on copyrights, and the capacity of businesses to roll out the technology. Even Mr Chalmers has also admitted that Australia needs to find a middle path for A-I. Dr Jake Goldenfein is a law and technology scholar at Melbourne Law School. His research has found while A-I may help boost productivity at work, the roll out of A-I can be pricey and slow. "If we as a nation are interested in increasing sovereign capability around A-I and getting benefits from A-I, we need to think about ways in which we can do that but don't rely so heavily on international software companies, because we are sending a lot of cash overseas in order to procure these technology products that aren't necessarily what our organisations need, and require a lot of work to operate safely." The three-day national summit only serves as a brainstorming platform for the Albanese government. But Danielle Wood, the chair of the Productivity Commission, says the government needs to re-adopt what she calls the growth mindset to its policy making, as young Australians are already paying price for the low productivity growth. "Australians born in the 1990s – who hit the job market in the 2010s when economic growth was slow – were the first generation not to earn more than people born a decade before. "This generation will bear more of the cost of addressing climate change – both the impacts of wilder weather, and the policy response – because Australian policy makers have for so long avoided the lowest cost policy choices." Dr Chalmers says he has realistic but also optimistic expectations on the outcome of the summit. He says while the round table won't solve all economic problems in three days, it will set light on the government's budgets in the next three years. "I'm optimistic that there is an appetite for reform, there is ambition when it comes to dealing with the three major challenges in our economy, productivity first of all, but also economic resilience and also budget sustainability as well. So I'm realistic, but I'm optimistic that we can make some progress together."
SBS Australia
10 hours ago
- SBS Australia
What is the economic reform roundtable and what will it achieve?
Around 30 leaders from business, unions and civil society will convene in Canberra on Tuesday for three days of discussion and debate about the country's economic future. The summit, first announced in June, is a key part of the government's strategy to build national consensus around economic reform. Treasurer Jim Chalmers has said that the ideas discussed at the roundtable will inform "the next three budgets and beyond". A number of topical and controversial ideas for reform are on the table, including major tax reform, deregulating artificial intelligence and a four-day work week. So what can we expect from the roundtable, and what might it achieve? Treasurer Jim Chalmers speaks to the media ahead of his three-day economic reform roundtable. Source: AAP / Mick Tsikas What is the point of the roundtable? When Prime Minister Anthony Albanese announced the summit in June, he said the aim was to "build the broadest possible base of support for further economic reform". It addresses a need for long-term economic reform, in particular to improve Australia's sluggish productivity — a key determinant of our standard of living. After the RBA's announcement, Chalmers told reporters that "productivity is the most serious economic challenge that we have in our economy". Who will be there? The roundtable is organised around three main themes: - Productivity (Wednesday) - Budget sustainability and tax reform (Thursday) On the invitation list is a diverse assembly of around 30 leaders from the business community, the union movement and civil society who will attend alongside economists, policy experts and heads of key government agencies. Some of the sectors represented at the roundtable include banking, universities, mining and superannuation. RBA governor Michele Bullock will deliver a presentation at the three-day economic roundtable. Source: AAP / Dan Himbrechts Presentations will be delivered by RBA governor Michele Bullock, Productivity Commission chair Danielle Wood and Grattan Institute CEO Dr Aruna Sathanapally among others. The government says a further 900 submissions from experts, industry leaders and individuals will also inform the outcome of the roundtable. What are some of the big ideas up for discussion? Housing is a high priority on the government's agenda, with leaked documents seen by the ABC suggesting the government may be considering deregulation to boost housing supply. These changes could include pausing the National Construction Code and reforming the Environment Protection and Biodiversity (EPBC) Act in order to speed up development approvals. Artificial Intelligence is also proving to be a hot topic, with the Productivity Commission leading calls to reduce regulation of AI to boost productivity. This has been met with resistance from unions and creative bodies who are calling for greater protection of workers and intellectual property against the risks of AI. Multiple proposals for tax reform can be expected . Independent MP Kate Chaney is calling for an increase to the Goods and Services Tax (GST) to 15 per cent, combined with an annual offset payment of $3,300 to individuals. Meanwhile, the Productivity Commission is arguing for a lowered corporate income tax rate for small and medium-sized businesses, which it says will boost investment. What are the concerns with it? The leaked Treasury advice published by the ABC last week raised concerns that the outcomes of the economic roundtable may have been determined before the roundtable began. This led Opposition treasury spokesperson Ted O'Brien, who is attending the roundtable, to warn the summit had been "engineered to rubberstamp" Labor policy and could become a "privileged talkfest". In response, Albanese told reporters that they were "awaiting the forum, and ideas will then come through normal government processes. That's how good policy happens". Prime Minister Anthony Albanese has defended the purpose of the economic roundtable, arguing that its role is to generate ideas that will inform economic policy. Source: AAP / Dean Lewins A spokesperson for Chalmers said the government is not "pre-empting ideas" but "preparing for them as you would expect". Nonetheless, the government has already confirmed it won't be implementing all the ideas brought forward to the roundtable. What we won't see Chalmers has already poured cold water on the ACTU's bid for a four-day work week. Last week, he told The Conversation "it's not something we've been kind of working up or considering". Instead, Finance Minister Katy Gallagher has signalled a focus on working from home. Albanese also downplayed the prospect of major tax reform when speaking to reporters last Thursday. "The only tax policy we're implementing is the one we took to the election." Outside Parliament House on Monday morning, Chalmers said that while the roundtable presents a number of challenges, he is optimistic about Australia's appetite for economic reform. "I am realistic but optimistic that we can make progress together. I don't believe we will solve every challenge in our economy in three days. This is about three days to inform the next three budgets and beyond and I am really looking forward to that."
AU Financial Review
15 hours ago
- AU Financial Review
Summit must end national complacency about Australia's prosperity
As Reserve Bank deputy governor Andrew Hauser noted last year, it can be easy to forget just how prosperous modern Australia became in the first decade or two of the 21st Century. Measures of relative affluence, such as gross domestic product or wealth per head, regularly now place Australia 'in the top echelon' globally, as Hauser noted. Australia's per capita income remains significantly higher than in the UK, Germany, Sweden or Japan, for instance. This has been of enormous benefit to almost all Australians. But Australia has experienced comparable periods of relative affluence before in its history, such as in the 1850s to the 1880s, in the early 1950s and the late 1960s to early 1970s. Such periods have generally given way to lengthy periods of relative under-performance. This has much to do with Australia's economic structure as a commodity-exporting and capital-importing developed nation.
