The Productivity Commission is warning of dire consequences for everyday Australians unless urgent action is taken, but Jim Chalmers says the government won’t “agree” with all the recommendations made in a new report.
Productivity growth of just 1.1 per cent in the last decade has left each Australian $4,600 worse off as of 2020, with the Productivity Commission’s latest report urging the government to make sweeping changes across the economy.
The 1,000 page report includes 71 recommendations and identifies five key areas to address: building a skilled and adaptable workforce, harnessing data and digital technology, increasing competition and dynamism in the economy, raising non-market productivity, and securing net-zero emissions at the least possible cost.
Recommendations range from improving educational outcomes, to removing certain types of working visas and ending state-based stamp duty on housing.
Treasurer Jim Chalmers issued a statement following the report’s release on Friday and said the government took the productivity challenge “seriously.”
“We will deliver productivity gains by investing in our people and their abilities, from fixing our energy markets, and from making it easier to adapt and adopt technology, so it works for us and not against us,” Mr Chalmers said.
The main area of focus was Australia’s booming services sector which now accounts for 80 per cent of the economy and 90 per cent of the workforce.
Non-market services – those provided by government such as health, aged care, education, disability services, and defence – were given particular attention, reflecting ongoing concerns about programs like the NDIS which has seen exponential growth in the cost of its upkeep.
Government services, particularly in health and aged care, have seen almost no productivity growth sparking concerns as costs continue to rise. Picture: Asanka Ratnayake/Getty Images:
Productivity Commission Chair Michael Brennan said improving productivity in these areas had proven “difficult”, but emphasised tackling the issue was still important.
“Over the past 35 years in Australia, the expansion of employment in the services sector has been mainly in government-subsidised and regulated services, like health care and social assistance,” he said.
“Productivity in these areas can be hard to measure and achieve. In many cases, the goal will be to improve quality rather than reducing cost, but it remains important that we pursue productivity improvements.”
Michael Brennan, Chairman of the Productivity Commission, has said improvements in government services will be “difficult” but necessary. Picture: James Croucher
Treasurer Jim Chalmers admitted Australia has a “productivity problem” ahead of the report’s release. Picture: Martin Ollman/Getty Images
When low-productivity sectors take up a majority of an economy they begin to act as a drag in an effect known as “cost disease”.
With current growth at a 60-year low the Commission notes there is a heightened risk “cost disease will worsen and spread” throughout the economy, jeopardising living standards for future generations of Australians.
In fact, there is already evidence that flagging productivity growth has worsened outcomes. If the rate had remained at the nation’s 60-year average then every single Australian would have been $4,600 better off as of 2020, with that number continuing to climb as long as productivity stalls.
Treasurer Jim Chalmers gave a speech previewing the report’s release on Thursday where he warned that unless productivity lifted then Australians would have to “work harder for less money.”
“The primary reason we want to make our economy stronger and more productive is so that we can lift incomes and lift living standards,” he said.
However, in the same speech, Mr Chalmers revealed the government would not act on all 71 recommendations from the Commission, saying no government was “expected to pick up and run” with the report’s suggestions.
“No government has and no government will,” he said.
Treasurer Jim Chalmers has said the government won’t adopt all 71 recommendations from the Productivity Commission. Picture: NCA NewsWire/Gary Ramage
His comments come as the government undertakes a review into the Productivity Commission and how it conducts its analysis. The Treasurer flagged the review was underway on Thursday where he said he wanted to empower the Commission to “think about the data we have differently.”
“It’s [the review] already been consulting with a number of people who have a view about the future of the Productivity Commission,” Mr Chalmers said.
There has been no indication as to whether this might include unions who have been calling for the Commission to be scrapped entirely.
Mr Chalmers’ statement on the report said at least 36 of the 71 recommendations in the report fall under the jurisdiction of state governments, many of whom are yet to implement those made in the Commission’s first report tabled in 2017.
The Treasurer acknowledged the role of the states in implementing the changes saying he would discuss the recommendations with his counterparts “at our next meeting in June.”
