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Productivity plan should be first priority for the next Parliament

This is a final pre-election comment from Ai Group Chief Executive, Innes Willox, on the need for the next parliament to prioritise productivity.

There was not enough talk about productivity during the election campaign.

In contrast to the role it would play in expanding the country’s future opportunities, the key challenge of productivity growth seems to have been put in the too hard basket. If it remains there, we will all suffer. And regardless of the lack of talk, it is essential that the incoming Parliament puts boosting productivity at the top of its agenda.

It’s not as if we can take productivity growth for granted. After all it has been in a funk for a while. All the different measures of productivity growth show the same thing: it has fallen over the past few years and is now hovering at a very disappointing level.

For instance, in the 2018 year the growth in labour productivity (market sector GDP per hour worked) grew by just 0.5 per cent. It has been on the slide for over five years during which it averaged 1.8 per cent per year.  

As a country there are very good reasons to be looking for ways to lift us out of our current low-productivity rut and then to sustain a higher productivity growth path over the years ahead. It might not be headline-grabbing, it’s certainly not sexy and you need to project over more than one parliamentary term to appreciate the real dimensions of its benefits.

Traditionally the benefits of higher productivity growth are expressed in terms of higher real incomes. That’s the money you and I can take home. Alternatively, they can be thought of in terms of an expanded opportunity set: the opportunities that extra income can bring. The opportunity set includes the ability to purchase more, to spend more on education, aged care, the environment and health and the ability to invest to generate additional jobs.

If we could lift the average rate of growth of productivity by one per cent a year from its current rate of about 0.5 per cent, our opportunity set after a decade would be 16 per cent above today’s level compared with a 5.1 per cent increase if productivity growth remained at its present level.

If we dare to project even further forward and think more about the well-being of generations younger than our own, after 25 years the opportunity set would be 45 per cent higher than todays compared with a 13.3 per cent lift if we did not lift the rate of productivity growth.

Without question, the largest gains lie in lifting the skills of the future and the current workforce. Lifting the foundation skills of literacy and numeracy both for school-age children and of current employees may prove to be the most fertile ground. Similarly, we might not know what the future holds but we can safely bet that greater digital literacy will more than pay off for its workforce. Add in a properly functioning and flexible approach to apprenticeships, a more demand-responsive vocational education and training sector and more work-relevant courses and curriculum among our higher education institutions and we’d have built-in years of productivity gains.

The gains would be social and distributional as much as they feed into higher productivity. A whole heap of kids that otherwise would be destined for low-skilled jobs and ever at risk of unemployment would be much less at risk and could instead dare to aspire to equip themselves for challenging and well-paid employment.

On productivity-enhancing industry policy, we are currently in our infancy. Turning “innovation” from being unmentionable to being encouraged, supported and rewarded is a no-brainer. This includes building on the spattering of successful examples of productive collaboration between our business and research sectors.

With the Entrepreneurs’ Program (and its predecessors) we have had our toe in the water on lifting the capabilities of our numerous small and medium-sized businesses, so they are better equipped to look for and execute new opportunities. At the federal level we’ve splashed around in the baby pool for over a decade and it’s time to lift our ambitions and take a real plunge.

On taxation we need to reopen abandoned conversations and gear them towards real action. It should be clear by now that consensus is the missing ingredient and that progress will call for re-uniting the goals of efficiency, equity and simplicity. We could do a lot worse than dusting off the Henry Review and proceeding with both patience and determination.

And last, in this list at least, we need to attend to what has become the sclerotic administration of our enterprise bargaining system. It is a leading source of frustration among our businesses and should be flushed out. But this in itself would just clear the way so that we could rejuvenate the whole idea of bargaining at the workplace level to allow for the better design of work and workplaces.

None of this is radical. But nor is it a walk in the park. It requires first the recognition that we need to lift productivity if we are to address the slow growth in incomes of recent years. Just wishing for higher wages is not enough. And then it requires a creative and inspirational national leadership that is focussed on getting the job done.

In large part the productivity agenda was missing in action during the election campaign. Here’s to hoping that we do not have a parliamentary term of productivity policy inaction.

Innes Willox, Chief Executive, Australian Industry Group

Media enquiries: Tony Melville – 0419 190 347