Making It Work

Our long run of economic growth and standing as a world power should not lull us into complacency. One policy area needs reform to keep the good times going, says Tim James.

Australia’s invitation to the G7 meeting in Paris last week was confirmation that ours is one of the world’s most significant economies. We have had 28 consecutive years of economic growth, the highest median wealth in the world and a living standard that most other nations can barely imagine.  

There is much we are doing right. But it is pertinent to also ask: what should we do to ensure this run of prosperity continues? What policy area needs reform in order to maintain our standing and success? 

The answer is productivity. More than any other factor, productivity is the key to growth. Other forces, such as population and participation in the workforce, matter but none more than productivity. 

After recent statements and speeches, it is clear that the Morrison Government is building a blueprint for productivity. This will be a core focus for this term, and rightly so. Our nation needs it. 

There’s a lot at stake for the nation as a whole and the households we individually manage. 

The recent HILDA (Household Income and Labor Dynamics) report pointed to relatively static income levels which can be attributed to lagging productivity.  Productivity growth in Australia has decreased during the past decade, and even more so in the most recent few years. Our productivity is very narrowly focused too. Recent Treasury analysis has found that the top five firms in Australia account for almost all our productivity growth. 

There’s a lot of work ahead, but the opportunity is enormous. As Treasurer Josh Frydenberg said in his speech to the Business Council of Australia this week: “Should we get our average annual productivity growth from 1.1 per cent back to 1.5 per cent [which is the long run average] then the annual national income per person will be over $3,000 higher by the end of the decade. The level of GDP and real wages will be 4 per cent higher and the economy $70bn bigger overall in real terms.”

Bring on the blueprint, and action. 

Productivity was barely mentioned during the last election campaign. Strategists may think it is not a vote winner, but it should be. Improving it is vital for all Australians.

In his speech this week, the Treasurer laid out a range of ways Australia can lift productivity. There is much the government can and will do to drive productivity growth via tax reform (which is underway), infrastructure investment (the government has a $100 billion, ten-year pipeline) and a skilled workforce (the current Review of the National Skills Needs List will help drive this) as well as policies for a healthy and flexible labour force, trade growth and greater competition. A lot is already in place.

But productivity growth must also come from business. The government alone cannot make it happen. The private sector, which overwhelmingly employs people in Australia, must play its part and invest in the pathways to productivity growth. 

The message from the Treasurer to business was “back yourselves”, invest for the future and go for long-term growth. As I said in answer to a question on ABC’s The Drum on Monday night, there is short-term value and there is long-term value. At this time, Australia needs to see corporate Australia deriving and demonstrating long-term value through investment and business practices. 

People in business complain of short-termism in government, but the same condition applies in the private sector too, especially when it comes to quarterly reports and share prices. The Treasurer’s plea for more long-term thinking should be welcomed by the business community.  

Business Council Chief Executive Jennifer Westacott recently recognised this . “After all, it is being the productive country — not just the lucky country — that will guarantee Australia can continue to be ­resilient, competitive and punch above our weight.”

There’s no doubt that action on this in business will drive Australia forward. Let’s see it happen. 

Meanwhile the building blocks for strong policy-making in this term are being put in place. The Prime Minister’s recent speech to the public service was a further important and timely element for good policy. The Treasurer’s blueprint for productivity growth outlined this week is an essential ingredient. And Australia being involved at the most powerful meeting of world leaders doesn’t hurt either.