2012 summary


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CEDA's Economic and Political Overview publication, launched with a series of events across Australia, examined the important issues of productivity and federal/state financial relations as well as providing economic and political outlooks for 2012.

The 2012 publication includes:

Economic Overview by NAB Chief Economist Alan Oster and NAB economist Ali Knight examining the year ahead, including the challenges faced by our multi-speed economy and the European debt crisis and its likely impact on Australia.
Political Overview by University of Western Australia Winthrop Professor and Contributing Editor, The Australian, Professor Peter van Onselen, examining the potential for leadership challenges and the likely impact of key policies including the carbon tax, mining tax, poker machine reforms, the national broadband network and industrial relations.
Productivity review by Bank of America Merrill Lynch Australia Chief Economist Saul Eslake examining Australia's productivity performance over the past decade, the reasoning behind the slowdown in growth and how to reverse the decline.
Federal/state financial relations review by CPA Australia Senior Policy Adviser/Senior Tax Counsel Garry Addison examining options for tax reform to achieve greater productivity growth.

In summary, key findings include:

Economic

Australia's economic outlook remains positive. However, the multi-speed economy is likely to again be a dominant feature of the Australian economy providing challenges as more resources are pulled to the sectors currently booming.
In addition, divergent economic conditions across regions are likely to become more pronounced as mining investment progresses and consumer caution abates.
The Australian dollar is expected to moderate, easing some of the hardship for non mining sectors.
Forecasts for unemployment and public sector debt suggest improvements in both these areas.
Productivity slowing may be a result of cyclical outcomes due to the nature of Australia's current development and external conditions rather than structural issues within our economy.

Political

To achieve surplus commitments, we can expect a tough budget with shifting of spending commitments to outer years.
With the Greens now controlling the Senate, this year we are likely to see the Government focus on bedding down what it has achieved, rather than embarking on new reforms.
Both Julia Gillard and Tony Abbott are at risk of challenges to their leadership. Ongoing speculation around Julia Gillard's position is likely to have flow on effects for public policy and business and consumer confidence in 2012. Challengers to Tony Abbott are more likely to emerge only if they suffer an election defeat, provided the Coalition's polling remains strong.
The carbon tax will remain the frontline political issue in 2012. However, other significant policy debates will include poker machine reforms (a package of reforms is still likely to be tabled), the rollout of the National Broadband Network, the mining tax and its revenue forecast, education with the release of the Gonski Review and asylum seekers.

Productivity

Productivity slow-down is partially attributable to the absence of any productivity-enhancing reforms since the early 2000s.

Productivity decline since the beginning of the 2000s has been attributed to the major expansion in the mining and utilities sectors. However, this investment does not account for the entire decline in Australia's productivity since the turn of the century.

Excluding the mining and utilities sectors, labour productivity growth in the rest of the market sector has slowed from 3.1 per cent per annum over the five years to 1999-2000 to 1.3 per cent in the last five years.

We need to continue exposing sectors of the economy that have remained insulated from competitive pressures to greater levels of scrutiny. This should include service sectors dominated by public sector agencies such as health care, education, public transport and law enforcement, private service professions such as law and medicine and parts of the agricultural and aviation sectors.

There has been reduced political and business incentive to focus on productivity-enhancing reforms due to significant growth in economic activity, employment and household disposable income. However, business sectors - particularly those adversely impacted by the mining boom - have renewed focus on productivity.

If there is not a renewed focus on productivity then it is likely Australia's economic performance, after the present resources boom comes to an end, will deteriorate significantly, and this will impact on the living standards of Australians.

Australia has dropped from being among world leaders to being behind the pack in innovation compared to global competitors. Better targeted investment in skills formation and infrastructure would contribute to improving productivity.

Federal/State Financial Relations

Major economic benefits would accrue from eliminating inefficient state taxes funded by an increase in the GST rate.

CPA Australia state taxes reform modelling found lifting the rate to 15 per cent the best option - this would provide a gain in living standards of $4.7 billion and allow the abolition of 40 per cent of payroll tax and the removal of commercial transfer duty, insurance duties, the fire insurance levy, motor vehicle duty and registration fees.

Any changes to the GST rate would require compensation as part of the final package.

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2012 summary

Events