Our productivity challenge will take more than Treasury

This op-ed was originally published in the Australian Financial Review

More rates pain denotes an even greater focus on the fight against inflation. Rightly so. As the Reserve Bank pulls harder on the monetary policy lever to reduce aggregate demand, a proper focus also falls on the role of all governments to do likewise through spending restraint.

However, it’s critical Australia doesn’t allow debate about reining in spending to come at the expense of efforts to enable the economy to have sustainably faster growth. Namely, how to lift productivity.

It’s more than 400 days since the Economic Reform Roundtable, or Productivity Summit. The fact that subsequent progress is mixed or too slow should equally be something all governments, departments and ministers are held to account for. Productivity is not the Commonwealth Treasury’s responsibility alone, yet too many other levels or arms of government seem to see it as someone else’s problem when all must have a serious role to play.

In financial services, where they have direct levers, Treasury’s productivity agenda has involved some welcome initial steps. Reducing duplicative reporting, Financial Accountability Regime simplification and growth mandates for APRA and ASIC are all positives. Proposed tax office data sharing with banks could create a step change in lending processes, making them easier for customers, faster for lenders, and reducing the risk of fraud.

Promised proportionality of regulation for smaller and mid-tier banks can ease unnecessary compliance burdens. The announced increases to caps on covered bond issuance will help to make these banks more competitive, driving even more consumer choice in an already highly competitive banking landscape. Of course, there is more Treasury could do to boost the productivity of capital or enhance consumer wellbeing by removing unnecessary complexity from financial advice rules.

From a broader economic perspective, the Treasurer’s reforms that are achieving faster approvals of foreign investment into Australia should be a benchmark for other federal agencies and state governments. Securing more foreign investment from safe and reliable markets is also a key reason why the parliament should support the negotiated free trade agreement with the European Union, which would more than quadruple their screening threshold.

In too many fields Australian governments take far too long assessing an application, only to ultimately say yes long after they could and should have done so. Wasted time is wasted money, lost productivity, and a deterrent to growth enhancing investment. Australia needs real urgency to see enacted reforms to planning and environmental approvals deliver speedier and harmonised outcomes, alongside building standards simplification to reduce costs and delays.

States, with their powers over not only their own processes but also local government, need to show far more hunger to contribute at speed to productivity efforts. The Business Council of Australia’s comparison of the states calls out the best and worst, but all should strive to do better. Stemming inflation and lifting productivity should top the agenda of all National Cabinet discussions for the foreseeable future. Policies that incentivise productive private investment must be a priority.

Productivity is not an abstract economic concept that can be improved through a single policy lever. It is the cumulative result of countless decisions about how people, capital, technology and public resources are used. 

Banking shows how many moving parts are involved. Technology and digital infrastructure determine how effectively information and payments flow. Workforce capability determines whether staff have the expertise to meet evolving customer needs. Funding and capital management affect the cost, availability and allocation of financial resources. And risk, compliance and regulatory frameworks shape how banks can innovate and bring new products to market. To stay competitive banks themselves seek productivity gains in these areas and look for government policy to be complementary. 

Compliance costs across the economy are now around $160 billion a year, roughly double a decade ago. For this reason, in partnership with the BCA, Australia’s banks support a 25% reduction in regulatory costs by 2030 via an economy-wide regulatory stocktake.

As many developed economies have stepped up efforts to reduce the costs of compliance and scope of regulation, Australia must lift our efforts. To stop things getting worse any new legislation or regulation must face true, rigorous cost-benefit analysis and impact assessments. These must be proper evidence-based processes, not tick-box exercises. If new regulation comes at a net cost, likely it shouldn’t be pursued.

Australia must also seize all we can from artificial intelligence and its enormous potential to boost productivity. AI can either happen to us, or we can seek to be a part of how it happens. While there are potential downsides to manage, we will be far worse off if we don’t grasp the opportunity to house as much infrastructure, innovation and adaption as possible in Australia.

Smaller government that reduces unnecessary transfers or distortions should also play its role in both the productivity and inflation battles. Parliament should not make perceptions of the perfect the enemy of the good in the delivery of budget savings. While bipartisan savings efforts have been achieved in areas such as aged care and the NDIS, any playing politics with individual savings measures is contrary to the national interest.

If Australia is to stem inflation and enjoy economic growth, productivity it is everything. That’s why lifting productivity cannot just be a job for Canberra, let alone for Treasury. It is a whole-of-government responsibility, a business imperative and a national challenge that demands action across the economy.