Australians must share the burden of productivity reform to safeguard their economic future, Productivity Commission warns



If you have forgotten your password please

click here

Event supported by CEDA members

Event sponsors

Australia must develop a culture of ongoing productivity reform rather than a crisis management philosophy if it is to build sufficient infrastructure and meet the challenges of an ageing population, Productivity Commission Chairman, Peter Harris AO has told a CEDA forum in Brisbane.

Mr Harris said while a few sectors such as mining and energy, agriculture, finance and education services are relatively healthy, the rest of the economy is not looking good.

Multifactor productivity- the measure of long term productivity trends achieved through innovation, competition and technological change - had been consistently negative for a decade, he said.

"We need to get productivity growth up from one-point-something per cent per annum to about three per cent per annum in order to get the same national income growth that we've enjoyed for about 50 years," he said.

"There are only two years in the past 50 when we've had that level of productivity growth."

The Australian economy is not set up to deal with an ageing population and declining labour force participation, he said.

And unless policymakers act now to reduce regulation, increase competition, reform labour markets and provide incentives for innovation and investment, the burden will be carried by future generations, he said.

"My contention is that productivity performance has been poor," he said.

"The prospects for national income growth are also limited by things like falling participation rates and falling terms of trade, and that as a consequence we should engage now and persistently over a sustained period of years in structural reforms of the Australian economy."
Policymakers and industry need to do more than respond to crises and end the 'if it ain't broke, don't fix it' philosophy that has stifled productivity improvement since the 1990s, he said.

"If you put a collection of reforms together and you show that you are going to do it not just this year but the year after, what you get is a change in expectations," he said.

"You get everybody expecting that there will be a sharing of the responsibility to lift the reform game."

Australia has also suffered from poor infrastructure planning and needs to ensure projects are subject to greater economic and as commercial scrutiny, Mr Harris said.

This is especially critical in cities such as Brisbane which is expected to double in size by 2060.

The Productivity Commission's new infrastructure report recommends reforms to planning and funding models to open new pricing mechanisms. This would help to enable private financiers and superannuation funds to invest in infrastructure projects by providing mechanisms to recover their investment, he said.

More data and opportunities for private financiers and super funds to gain returns on investment will be critical to mobilising investment for infrastructure, he said.

"This is important because their future investment won't after all, be based on doing it for nothing," Mr Harris said.
Reforms to infrastructure planning and pricing and reforms to deal with an ageing population, such as changes to the pension, had the "scope to shift the dial in productivity performance", he said.