2 days ago
What could Albanese do to improve productivity? Here is a short, non-exhaustive list
In his address last week at the National Press Club, the prime minister announced a 'productivity roundtable' in concert with the Productivity Commission's latest inquiry into the issue. I won't be at the round table, but I do have a few ideas.
First off, remember that productivity is the amount you produce with the hours and equipment you have. Work better with what you have or (usually) get better equipment to do your work faster, and productivity increases.
It is not about reducing the cost of producing things. Getting paid $10 less an hour to do the same amount of work does not increase productivity even if your employer is more profitable.
Unfortunately, productivity is often confused with profit and so business groups argue the key is lower company tax. They claim this will increase investment in things that increase productivity (such as new equipment or new buildings and structures).
The evidence, though, is pretty nonexistent.
The massive 2017 Trump company tax cuts, for example, which cut the federal US company tax rate from as high as 35% to a flat rate of 21% did bugger all to spur investment:
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Hopefully the Productivity Commission will heed the advice of the current productivity commissioner, Danielle Wood, who in 2018, wrote that cutting the company tax rate would 'see national incomes go backwards for six years'.
And income is really what productivity is about – specifically workers' income and their living standards.
In theory, the real value of how much you earn an hour should rise in line with productivity. In the 1990s this mostly happened, but from 2000 onwards workers have missed out:
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So, when worrying about productivity, we must remember to ask who benefits.
But what could the government do to improve productivity? Here is a short, non-exhaustive list.
This year, the government will pay about $10bn in diesel fuel rebates to mining and transport companies and the agriculture sector. By 2028-29 it will be $13bn. Despite growing almost as fast as the NDIS, we never hear the government talk about needing to rein in the expense:
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But the fuel tax credit not only encourages use of fossil fuels, it creates a disincentive to investment in more efficient, and productive new vehicles – such as electric trucks.
Research and development is vital to produce new equipment and technology (such as electric trucks). But the Australian government spends much less on R&D than most other OECD governments:
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The government in April extended the $20,000 instant asset write-off for small business. This was purely a political rather than economic decision. Rather than encourage investment in productivity enhancing equipment, it is mostly a tax rort to buy big utes.
How do we know this? Well, last week the AFR's wealth reporter, in a column about avoiding paying tax, described the instant asset write-off as 'a favourite perk of small businesses and sole traders'. They ain't lying.
What else is a bad productivity investment? Residential land. It adds bugger all. But Australians devote far too much capital to property – almost 2.5 times that of the US:
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Our tax system encourages this with the 50% capital gains tax discount and negative gearing, while also reducing housing affordability.
The Parliamentary Budget Office estimated that removing the tax discount and negative gearing on investment properties would raise about $13.35bn in 2025-26.
Dental health hurts the economy and reduces productivity because workers avoid going to the dentist because of the cost and end up with chronic issues that reduce output. A public system would be much more productive because it would massively reduce the cost hurdle for workers.
The PBO estimated that putting dental into Medicare would cost $13.7bn. Rather conveniently for us, that is essentially the same as removing the CGT discount and negative gearing.
By the same token, we know health systems that are dependent on private health insurance, such as in the US, are unproductive because the resources devoted to them deliver worse outcomes than public health:
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Australia's health system is generally well regarded, but a recent report noted that we faired quite poorly when it came to access to care.
Private health insurance is not a productive industry – consider the hours and expense devoted to marketing that yields no extra benefit.
The same goes for private schools and the fees people pay fees. A 2022 study found that private education does not improve a student's academic performance. More resources devoted to no better outcomes is the essence of poor productivity.
Currently both are exempt from GST, which effectively incentivises people to spend money on them (as does allowing donations to build structures in private schools to be tax deductible).
Including both within the GST would deliver revenue that could go to improving productive public schools and hospitals, while repairing the shrinking tax base of the GST.
Best of all, because richer households spend more of their income on both private school and private health insurance, the tax would actually be progressive.
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Controversial? Of course. Which is why a government would also want to announce something huge – like say dental in Medicare.
Productivity is an ongoing issue, but the key is to always think about who benefits from changes, and that the solutions are not about increasing profits or offshoring labour or reducing workers' pay, but should always be about making people's lives better.
Greg Jericho is a Guardian columnist and policy director at the Centre for Future Work
