UNSW Sydney Vice-Chancellor and President Professor Attila Brungs says idling productivity over the past decade is estimated to have cost each Australian about $11,000 per year in lost income.
For the first time in Australian history, younger generations are forecast to have a lower standard of living than their parents. People across the country know about the cost-of-living crisis and the housing affordability crisis.
Less appreciated is that both are rooted in Australia's stagnating productivity. But a sense of déjà vu pervades discussions about Australia's productivity crisis. Paralysed by relentless polling cycles, political leaders have been unable to undertake serious productivity reform for more than two decades.
This has resulted in a political leadership vacuum, leading to the long-term entrenchment of productivity stagnation. Idling productivity over the past decade is estimated to have cost each Australian about $11,000 a year in lost income.
Tackling productivity is challenging at the best of times, but even harder is ensuring broad-based productivity. This is where all parts of society derive appropriate benefits and improvement to standards of living. Too often, governments support narrow sector-specific productivity improvements, relying on "trickle down" economics (a largely unevidenced theory) to see an anaemic flow of those benefits to the general populace.
Solving our productivity challenge is complex and tricky to explain. Political problems with complex solutions are wide open to simplistic oppositional attacks and vulnerable to media confusion. Fortunately, we presently have a government with vast reserves of political capital, a committed treasurer and a huge parliamentary majority unthreatened by an opposition undergoing an existential crisis. There has never been a safer time for those in government to embark on an ambitious economic reform agenda.
Universities support productivity through our innovation (multifactor productivity) or our education (people productivity), and improving productivity is a core enabler of our public mission to improve the lives of all Australians. However, it is incumbent on all of us within organisations that influence productivity - whether that be universities, education institutions, public enterprises, big or small businesses - to support the treasurer in spending the government's political capital wisely: on serious ideas that boost productivity and restore living standards for all, particularly young generations.
This means being creative and confronting some hard truths.
The first truth is that JobSeeker is inadequate in its current form. Productivity is not advanced by pushing more people into financial insecurity. The JobSeeker replacement rate is among the lowest in the OECD. This acts as a barrier to people finding the most suitable jobs. People who cannot afford transport to interviews, or who are living in extreme stress, are not being set up to re-enter productive employment. Coupled with limited incentives for individuals to upskill/reskill when in employment or between jobs, it is a huge handbrake on productivity. A serious productivity agenda would substantially lift JobSeeker early in the unemployment period, and simplify and increase learning support so that people can retrain, complete qualifications, and move into better, more productive jobs faster. The productivity boost quickly covers the investment.
The second truth is that we need to radically shift our perspective on when and how we undertake skill-building or learning. Not just universities and TAFE, but business and government departments all now need to contribute at scale to upskilling those already in the workforce. This is critical for driving productivity and for the artificial intelligence transition. All individuals need to have access to these opportunities.
The third truth is that our tax mix is another brake on productivity. Australia relies unusually heavily on income tax and unusually lightly on the GST compared with peer economies. We raise 64% of tax revenue from aggregate income taxes, versus an OECD average of 34%, while only 11% comes from GST, compared with 22% across the OECD. We keep debating the quantum of tax to levy while refusing to confront the more important question of how to tax in ways that support work, investment and mobility and improve the progressive character of taxes.
The GST has been a sacred cow. The government could, for example, increase the GST rate to 15%, while offsetting the effect through a GST consumption threshold, say a $22,000 GST-free threshold for all Australians. This would leave most Australians, the bottom 60% of income earners, better off, while still generating substantial revenue that could be used to reduce deficits, fund services, cut more distortionary taxes elsewhere or, importantly, pay for the JobSeeker idea today - with money left over.
The fourth truth is that the housing crisis and the productivity crisis are linked. Housing affordability is a productivity problem because when people cannot live near the best job for them, labour productivity suffers. Yet policy gravitates to short-term grants rather than reforms that improve mobility and supply. State governments have previously suggested replacing stamp duty with a buyer's-choice land tax model. This, combined with concrete supply side initiatives, would reduce one of the clearest barriers to people moving for work or obtaining the housing security to fully participate in the economy. And again, fiscally neutral.
Finally, there is innovation, where the gap between rhetoric and action is perhaps widest of all. Australia's business expenditure on research and development fell from 1.3% of GDP in 2009-10 to 0.9% in 2019-20, with the decline continuing to 2025. Meanwhile, university research capacity, whilst globally leading, has become increasingly dependent on international student revenue as business and government research spending has retreated. This severely compromises Australia's sovereign capability and productivity. If the government wants productivity growth, we can't treat research as an extra; we must price in the full cost of nationally aligned research and create stronger incentives for private capital, particularly our leading superannuation industry, to invest in R&D. The recent Ambitious Australia report started this critical conversation.
I'm optimistic; we need courage and acceptance that productivity policy success isn't simply about making already successful sectors richer and hoping the benefits trickle somewhere. Broad-based productivity means widening opportunity, improving and supporting labour mobility, strengthening innovation, reforming regressive taxes, and removing structural barriers that prevent ideas, people, and capital from flowing to where they are most beneficial.
This article was first published in The Australian Financial Review and republished here with permission. Read the original article .
