An unrealistic productivity target

Thursday, 1 August 2013  Media Alerts

The Prime Minister has proposed a pact between government and business which is aimed at boosting Australia's productivity to 2% per annum. A senior academic at the Australian School of Business says this is unrealistic, and that deals or pacts between business and government are not a substitute for governments listening to, and acting on, sound advice.

Dr Nigel Stapledon, from UNSW's Australian School of Business, says "it is for the Government to set the parameters or economic environment in which business operates. Those parameters provide the incentives for business to maximise productivity. It is then for business to get on with it regardless of whether the parameters are industry assistance or exposure to market forces, taxation, product or labour market regulations."

He argues that a 2% per annum target is not in any way realistic. "Even with the best parameters for business to operate in, which courtesy of earlier reforms was the case in the period from 1993 to 2003, productivity growth only managed 1.9%. Since 1978, the long term average is 1.5%. In the current environment - without substantive changes in the policy parameters in the right direction - a result below that long term average and closer to 1% is much more likely. The figure of 2% seems to have been plucked out of the air, and without consultation."

He has researched the level of productivity in Australia, and says that after the economic malaise of the 1970s, there was a political consensus for a change to drive productivity. "The Hawke-Keating and then Howard governments, in pursuing micro-economic reform, shifted the parameters to ones that lifted productivity by creating increased incentives for businesses and the workforce."

"Those reforms included reducing industry protection which made the environment more competitive, and making the labour market more flexible," he says. "It took a while before we saw an effect, but the lagged result of this was a period of significantly better productivity performance, leading to increased living standards for all Australians. A key source of advice was the Productivity Commission, but today it is a shadow of its former self. The sidelining of the Productivity Commission has coincided with policies which have if anything acted as a break on Australia's productivity. If the government really wants to do something about productivity, maybe it should listen to its own commission."

For further comment contact Dr Nigel Stapledon on 02 9385 9703.

Media contact: Julian Lorkin: 02 9385 1574