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Australia's productivity puzzle

The Economist magazine of May 28 to June 3 2011 had a 16 page special report on Australia, which it dubbed "the next golden state".  Noting that Australia's productivity growth had stalled since the late 1990's, the report went on the say that "no one quite knows why".

Despite it being obvious for several years that there has been no improvement in productivity since the late 1990's, the economic policy makers, such as the Reserve Bank of Australia, weren't even talking about the problem until 2011.  Now that the policy makers, business leaders, and others are talking about it we seem no closer to agreement on why and what to do about it.  It is important, since our future standard of living depends on productivity growth - especially since the leading edge of the large baby boomer generation has reached the traditional age of retirement (65) which threatens to reduce workforce participation over coming years.

A recent talkfest (the Australian Conference of Economists) was a blame-shifting game.  Treasury blamed second-rate management practices.  Some economists contradicted this and blamed the industrial relations system for distracting managers.  Business groups have blamed government regulations, high costs and labour laws that give unions too much power (Australian Financial Review, 11 July 2012, page 1).

Australia has a Productivity Commission and it is disappointing that they have presided impotently over this period of neglect.  The Productivity Commission was formed in 1998, at about the same time that productivity stalled!  Former union leader and now Labor senator Doug Cameron has called for the chief of the Productivity Commission (Gary Banks, who has been the chief since 1998) to be sacked and for the Commission to be disbanded because they are economic ideologues (ABC news online, July 13 2012).

The blame game is not productive!

Perhaps the Howard government is to blame for being complacent.  The Howard (Liberal-National coalition) were swept to power in 1996 and from 2000 onwards were focused on the war on terror and boat people.  There was a mining boom, so money was pouring into the country and perhaps this lulled Treasurer Peter Costello into a state of torpor.  There was a Productivity Commission - a potential excuse for complacency on the part of the government.

The Howard government introduced a goods and services tax in 2000.  In so doing, it instantly created hundreds of thousands of unpaid tax collectors in small businesses.  These unpaid tax collectors have been hounded by the Tax Office to do their job and are fined if returns are late.  This has been a huge negative for the productivity of a large proportion of the working population.

No wonder, there has been no increase in productivity this millennium!

The unpaid tax collector productivity millstone could be lifted at the stroke of a pen.  Pay small businesses for collecting the tax!  That will boost productivity greatly and immediately.  Perhaps businesses with sales of $200,000 or less could retain 100% of their GST balance and a sliding scale used for businesses with higher sales revenue.

This immediate boost to productivity would be very handy because the blame game on display will lead to nothing in the short-term and little in the medium-term..

The Howard government was booted out in 2007 and then the Labor Party sacked their sitting Prime Minister in 2010.  The Labor Party seems certain to be dismissed in a landslide at the next election (in 2013) and a Howard protege, Tony Abbott, will be swept to power.  A recipe for more of nothing to improve productivity.

Charlie Nelson
July 2012