Recently at a meeting of financial executives canvassing our nation’s next decade, I was struck by the yawning gap between what the average Australian would see as necessary, what governments are promising to deliver, and what is happening on the ground.*
Sadly, at a time of record population growth, Australia is falling behind where it should and must be if common quality of life aspirations and State and Federal commitments to a bigger and better future are to be realised.
The politics of cost of living and interest rates dominate the daily news, but our future standard of living will be shaped more by action on deeper structural economic issues that various governments on both sides of politics have dumped in the “too hard” basket.
Essential reforms include driving productivity growth, invigorating business investment in R&D, increasing competition, constraining the growing cost of government from its current high of 27.2% of GDP, reducing red tape, and achieving an efficient and fair system of taxation as was envisaged as far away as 2010 by then Treasury Secretary Ken Henry.
The current trend though is the opposite way.
Instead of economic growth and efficiency we are witnessing a revival of the old inflexible industrial relations system, rising skepticism of the value and role of business, and creeping regulation slowing investment and driving up costs.
Continuing, often uninformed even ignorant partisan debate on energy and climate change only further complicates things, adding uncertainty for investors and confusion in the public mind.
Recent ABS figures (to December 2023) report our population growing at 2.4%, GDP growing at 1.5% and labour productivity shrinking by 0.4%.
Immigration, not productivity, is the main driver of economic growth and adds another dimension to an already existent housing and accommodation crisis.
Bankers will tell you there is no shortage of relatively cheap capital to fund the broad range of critical infrastructure needed for new industries, the energy transition, transportation, communications, and housing.
So what’s the problem?
Well, for a generation our education system has not delivered “bang for buck” in skilling up enough young Australians for the jobs of a complex changing economy, politicians have shied away from the economic reforms that would have stimulated stronger enterprise, and the possibilities of public-private partnership in cost effective nation building have been ignored or sidelined.
Ideology and a culture of entitlement has trumped pragmatic national economic development.
The upshot, as one Productivity Commissioner said recently, is a “productivity paradox” of a relatively highly educated country where annual productivity growth has slowed from 2.2% back in the 1990s to 0.8% over the past decade.
AMP’s chief economist, Dr Shane Oliver, has calculated that as amounting to a decade long $350 billion hit to future living standards, just at a time when there will be additional demands for defence spending, NDIS, and health care.
For Australia to get back on track and for governments to do more than tinker at the edges, a more informed and civically minded public expectation of government is needed, demanding that the Commonwealth and the States work together on the issues in the “too hard basket”.
The aim must be to restore what the OECD calls the “dynamism” of an economy that is competitive, prosperous, and sustainable.
Sectors like agriculture and IT systems show what is possible.
Agriculture demonstrates that growth and productivity can be achieved by investing in new technologies, continually adapting, and meeting the market challenge of international competition as well as the supply chain distortions caused by a domestic retail duopoly.
And while they are at it, our policy makers should take close account of research by the OECD and the Regional Australia Institute which suggests investment in Australia’s second tier regional cities will deliver biggest bang for buck in generating new productivity dividends.
*A shorter version of this article first appeared as “Agriculture shows way for future economy” in the Queensland Country Life, 7 March 2024, p 21.
Professor John Cole 