Politics, Not Pandemic, Behind Collapsing Growth: Productivity Boss

Danielle Wood warned that red tape, weak bipartisanship, and stalled reforms are choking productivity.

03/05/2023 01:11 Danielle Wood, CEO of the Grattan Institute addresses the National Press Club in Canberra, Wednesday, May 3, 2023. (AAP Image/Lukas Coch) NO ARCHIVING

Partisanship, vested interests, and the constant churn of the media cycle have distracted from long-term growth, said Productivity Commission Chair Danielle Wood ahead of the Albanese government’s first national productivity roundtable in Canberra on Aug. 19.

“Growth has simply fallen down the list of priorities in policy making,” Woods said in her address at the National Press Club on Aug. 18.

“Nowhere is this more evident than growth in the regulatory burden,” she added.

Wood said productivity growth over the past decade has been less than a quarter of its 60-year average.

“It troubles me that our productivity growth engine is stalling,” she said. “Our growth was slowing well before the pandemic and has returned to those sluggish levels in the years since.”

Red Tape Holding Back Growth

Wood pointed to the ballooning complexity of government rules, with the number of words in Commonwealth Acts and legislative instruments more than doubling over the past two decades.

She said half of small businesses surveyed by the Australian Chamber of Commerce and Industry reported spending more time on compliance than they had a year earlier.

The Productivity Commission’s research has found housing and apartment projects now take 50 percent longer to complete than three decades ago—not because of construction delays, but because of slow approvals across planning, heritage, building, and environmental requirements.

“In New South Wales it takes, on average, more than nine years to approve wind projects,” Wood said, describing such delays as “regulatory hairballs” that clog the economy.

Even small businesses are entangled in red tape, with a Brisbane café owner needing 31 separate approvals and licences before serving their first flat white.

Five Pillars for Reform

Despite the bleak outlook, the Commission has proposed a wide-ranging reform agenda. Wood outlined five priority areas that she believes could help restore momentum.

Tax reform: The Commission recommends cutting the corporate tax rate to 20 percent for firms with turnover above $1 billion—covering 99 percent of businesses—while introducing a 5 percent cash flow tax to protect revenue.

Modelling suggests the change could lift investment by $7.4 billion and boost GDP by $14.6 billion.

Education and training: Citing OECD data, Wood said Australia’s school performance in reading and maths has declined sharply since 2000, with large gaps between disadvantaged students and their peers.

“More than half of the most economically disadvantaged 15-year-olds in Australia are not proficient readers,” she said.

She urged the government to provide quality learning resources and digital tools in all classrooms.

She also noted that workplace training has fallen behind other developed nations.

“Many working Australians are missing out on the opportunity to augment and improve their skills, including in areas like AI and management capability,” she said.

The Commission suggests financial incentives for small and medium businesses to support employee training.

Digital and AI opportunities: Early estimates suggest artificial intelligence could lift labour productivity by more than 4 percent over the next decade, delivering $116 billion in extra economic activity and an average income boost of $4,300 per household.

Care economy: With healthcare, disability services, aged care, and early learning expanding rapidly, their low measured productivity is dragging on overall growth. Wood called for regulatory harmonisation across the NDIS, aged care and veterans’ services to reduce duplication.

“These reforms will reduce costs for providers and workers, lower regulatory entry barriers and improve the safety of care, a rare policy hat trick,” she said.

Climate policy: Wood said the net zero transition could become “ground zero” for productivity reform.

A national carbon price would be the “most efficient, lowest cost way” to cut emissions, she said, particularly with bipartisan backing. She also urged faster approvals for renewable projects, recommending a dedicated strike team for high-priority developments.

Call for a Growth Mindset

Wood ended her speech with a call for governments to adopt a growth-first approach in every decision.

She recalled how, after John F. Kennedy became U.S. president in 1961, the Commerce Department asked every official: “What have you done for growth today?”

“Perhaps it is time we distribute those signs to government agencies and ministerial offices all around our country,” she said.

But she warned against the idea of a single “silver bullet.”

“There is simply no policy reform that can bring productivity growth back to its long-term average of 1.6 per cent on its own,” she said. “To shift the dial, governments will have to make a lot of pro-productivity decisions.”