In an attempt to tackle low productivity growth, Jim Chalmers is offering up to $900 million to states and territories to help them improve.
Australian Treasurer Jim Chalmers has announced a new $900 million fund aimed at improving the country’s productivity, including infrastructure building.
Australia sits in the middle of OECD countries for productivity: behind the Nordic states, France, and the United States, but ahead of the United Kingdom, Canada and New Zealand, and the OECD average.
Over the decade to 2020—before the pandemic and under the former Coalition government—productivity growth was the slowest in 60 years, averaging just 1.1 percent a year.
Under Labor it marginally improved, but it’s already started to slip.
In 2022, Treasury downgraded its long-term growth forecast from 1.5 to 1.2 percent a year.
Keen to reverse this trend, Treasurer Chalmers commissioned the Productivity Commission to model the effect of revitalising national competition policy. It found that raising productivity could increase Australia’s annual GDP by up to $45 billion and cut prices by 1.45 percentage points.
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“That GDP boost represents about $5,000 per household, per year,” Chalmers told an Australian Business Economists event in Sydney on Nov. 13.
He said the report, yet to be publicly released, showed “substantial, if not staggering” benefits from a rejuvenated national competition policy.
And to encourage the states and territories to make that happen, he announced the creation of a $900 million incentive fund to streamline building approvals and enact other productivity-boosting reforms.
Annual productivity for 2022 across OECD member states. Source: OECD
It comes on top of the $3.5 billion in “performance bonuses” offered to states to streamline the building of 1.2 million homes over five years, and another $1.5 billion promised to state and local governments to build infrastructure in areas where new housing is needed.
“It’s all about rewarding states with more revenue, where they deliver meaningful and measurable economic reform,” Chalmers explained.
Other Incentives
Productivity in Australian construction has fallen over the past 20 years.
To combat this, the treasurer said he expected an agreement on fast-tracking the adoption of trusted international product safety standards and developing a general “right to repair,” both reforms led by the federal government.
States could also look at streamlining commercial planning and zoning and removing barriers to the uptake of so-called modern construction methods such as off-site fabrication, mass production and factory assembly as alternatives to traditional building.
The treasurer said the modelling showed that half of slowing productivity growth was due to more people working in services, where productivity grows more slowly. He also said “weaker investment also played a role” in what he called “dismal” productivity results.
Commission’s Report
The Productivity Commission’s 2017 report, Shifting the Dial, contained 28 recommendations. Of those, 22 were either the sole or joint responsibility of the states. They included such initiatives as replacing property stamp duties with a land tax, replacing vehicle registration with road user charges, and improving efficiencies and reducing duplication in health and education.
Chalmers said that while not all the Commission’s suggested reforms will be implemented, “we want to make meaningful progress where we can.
“There is no more important structural problem in our economy than productivity [and] no higher priority for reform.”
