Paul Fletcher (Bradfield, Liberal Party) Share this | Hansard source

I am pleased to rise to speak in reply to the Governor-General’s address. What I want to talk about in particular is the question of productivity, which was a key theme in the remarks the Governor-General made—scripted obviously for her, as is usual practice, by the government. It has also been a theme that we have heard quite a bit about from the Prime Minister and from the previous prime minister, including during his frenetic dash around the country in the week of Australia Day where he spoke a lot about productivity.

The Governor-General had this to say in her address:

Foremost among those challenges is the need to build a high-productivity, high-participation, high-skill economy that delivers sustainable growth for all Australians.

          …            …            …

The government will advance its economic reform agenda to lift productivity and competitiveness and prepare for the future, through reforms to taxation, superannuation and business regulation, and through investments in education and infrastructure to drive future growth.

I want essentially to argue three propositions today. The first is that it is reasonably uncontentious that Australia had good productivity performance for quite a number of years thanks to a bipartisan program of microeconomic reform, which was pursued for around 25 years until 2007, when it came to a screeching halt. The second thing I want to talk about is the issues that ought to be on the agenda now in policy terms if we are serious about improving Australia’s productivity growth. And then the third is to contrast what is called for as items that ought to be on the agenda by many expert commentators with the depressing reality of what we are in fact seeing when it comes to the approach of this government.

Therefore, let me start with the proposition that we have seen substantial microeconomic reform over the past 25 years and that that has been a contributor to our productivity performance. And there are many commentators who make this observation. Let me cite the Governor of the Reserve Bank, Glenn Stevens. He gave a speech couple of years ago to the alumni of the University of Sydney economics department, where he studied, and indeed where I studied—I noticed with some concern that some of the professors that he cited from when he was there 10 years ahead of me were still there when I was there so that suggests to me that I am somewhat older than I thought that I was. The Governor of the Reserve Bank had this to say:

Those who have looked into this in detail—

namely, the performance of the Australian economy—

have posited several possible contributing factors, including better macroeconomic policy frameworks, a wide range of microeconomic reforms in labour and product markets, and luck.

That is the voice of the Governor of the Reserve Bank.

What does Professor Fred Hilmer have to say? He is now the Vice-Chancellor of the University of New South Wales, but in the early 1990s he was instrumental in developing the competition policy framework, which was so important to Australia’s microeconomic performance throughout the nineties and to productivity improvements which followed as a result.

In a recent speech Professor Hilmer reflected on these forces. He noted that the federal government has ‘reaffirmed the importance of productivity in a number of reports’. He cited the Australia to 2050: future challenges Intergenerational report which talked of the criticality of the three Ps—productivity, participation and population—and which referred to productivity growth as the main driver of economic growth and living standards in the future. Professor Hilmer went on to note that ‘despite the professed commitment to improving productivity, recent performance is not encouraging’. He talked about the consequences of that bipartisan commitment to microeconomic reform throughout the eighties and nineties that I spoke about before, but he noted that in the last several years multifactor productivity growth has again slumped, averaging only 0.4 per cent per annum.

Interestingly, I note that the Department of Finance and Deregulation in its brief to incoming ministers recently released under freedom of information agreed with this analysis. The department noted productivity performance is a key determinant of living standards and that, following microeconomic reform in the 1990s, productivity surged but productivity growth has now been slowing and that that presents an important challenge for this term of government. So, so far, uncontroversial: there appears to be a consensus amongst many experts in this field that we had good microeconomic reform progress for many, many years, but it came to a screeching halt in 2007 and as a result we are seeing a decline in productivity growth.

The second issue that I want to address is the question of what ought to be on the public policy agenda now if we are serious about productivity improvement. Again, the first thing I want to do is go to the speech that Professor Hilmer made quite recently. He talked about the fact that there are plenty of forces which he described as ‘enablers’ of productivity growth, such as infrastructure, skills, the legal and institutional framework, labour market flexibility and technological progress. But he also made the point that there are three key incentives which are drivers of productivity growth: competition, tax and corporate governance. He made the point that there needs to be a shift from focusing on incentives to focusing on enablers. If I can quote Professor Hilmer directly, he said this:

While both incentives and enablers are important, without incentives enablers have a limited impact on productivity.

So he is drawing a clear distinction between things that are nice to have and things that are really important in driving productivity.

The next person that I would like to cite on this topic is Gary Banks, Chairman of the Productivity Commission. He makes the point that, notwithstanding the emphasis we have seen from this government in talking about education, research and development and so on, the recent slump in Australia’s productivity was not caused by any lack of spending on education and training or by a falloff in research and development or even infrastructure. In other words, the challenges which need to be addressed when it comes to genuine productivity reform are more substantive and underlying than merely pumping more money into education and research and development.

He talks, interestingly, about some of the drivers of poor productivity performance. He talks about government procurement and notes quite critically the recent decision by the New South Wales government to introduce a price preference of up to 25 per cent for locally supplied goods and services. I cannot pretend to be shocked when I learn that the completely hopeless New South Wales Labor government is being fingered for poor performance on productivity, consistent with its atrocious performance on just about every other indicator one could mention. Gary Banks also talks about that longstanding recipient of industry assistance initiatives, the automotive industry, and notes that there is a real temptation to hand out cash to the automotive sector. He talks critically about that being done by the Australian government and it follows that if we are serious about productivity we have to question the kind of approaches that are being pursued in this area.

Again, it is interesting to look at what the Department of Finance and Deregulation has to say on the question of productivity growth and the issues which need to be on the agenda. Looking at the incoming government brief, the department of finance talks about productivity savings made to date in regulatory reform activities such as in the seamless National Partnership Agreement, but then talks about unfinished business, including the removal of retail price caps in relation to electricity generation, the removal of state based regulation of road transport and rail and maritime safety and other areas. The point I am making is that, when you look at the detail of what the experts in the area say are the issues that need to be addressed, if we are to get serious about improving productivity growth in Australia, you see that there is a yawning gap between the issues identified by the experts and the agenda of the current government.

That brings me to the third area I would like to talk about: what is it that we are actually seeing being done by this government as opposed to its rhetoric about the topic of productivity? Let me start by going to some of the things that Professor Hilmer has had to say. He has talked about the great attraction that this government has for regulation in so many areas. I will quote verbatim what he had to say:

There are a number of examples of regulation being introduced that appear to continue this trend of increasing anti-competitive regulation which include:

Prohibiting financial planning trailing commissions versus simply requiring full disclosure;

Unwillingness to let economics determine energy and conservation choices;

Unwillingness to allow a market solution for the provision of broadband;

Restricting overseas ownership of housing; and

Reducing the degrees of freedom available to universities when competing for students and funding.

Professor Hilmer may not have wanted to make the point in these terms but I am happy to make the political point, the important point, that when you look at what this government is doing—and he has cited a number of instances—you see it is pursuing an agenda which is completely at odds with its stated preference and desire to improve productivity.

Let me come to the next issue about which we see a yawning gap between the performance of this government and the rhetoric—that is, how major infrastructure projects ought to be assessed. The Chairman of the Productivity Commission—again, in the speech he made last year—talked about, as a second potential source of productivity gain, those larger scale nation-building infrastructure proposals which were brought forward and selected without the opportunity to conduct adequate cost-benefit analysis. I wonder what he might have been referring to there. I wonder whether he was referring to this government’s stated policy of committing $43 billion to the National Broadband Network while refusing to conduct a cost-benefit analysis. Is it any surprise that the Chairman of the Productivity Commission is raising his eyebrows at this conduct on the part of this government, which is so at odds with the stated emphasis of pursuing gains in productivity?

It is not only Gary Banks, Chairman of the Productivity Commission, who is raising concerns about the issue of cost-benefit analysis. What does the Department of Finance and Deregulation have to say in its incoming ministerial brief? ‘There would be benefit in expanding and strengthening the established Infrastructure Australia processes.’ Of course there would be if the biggest single infrastructure project in Australia’s history—as we keep being told—has completely sidestepped the Infrastructure Australia processes. What a remarkably disciplined piece of understatement this is from professional bureaucrats who are presumably gritting their teeth as they write it. They go on to say, ‘There is a strong case for finance to play a stronger role in this area through updating its guidelines on cost-benefit analysis.’ What they also might want to do is publish them and circulate them to the office of every minister in this building because apparently no copy has been seen in the office of the broadband minister, Senator Stephen Conroy.

There is also in the incoming brief a very interesting proposal which is again relevant to the question about whether this government’s performance on microeconomic reform and seeking and delivering improvements in productivity is in line with its rhetoric. What are the government’s own officials saying to the government? They are saying this:

Infrastructure needs can also be addressed by making better use of existing infrastructure.

And what do we see when it comes to the National Broadband Network? Do we seek the better use of existing infrastructure, or do we see the payment of $11 billion of taxpayers’ money to the owner of the largest telecommunications network in this country to trash it, to rip it up, to throw it out, to say that this network will not be available to anybody to use even if they would quite like to have the choice of using this network as an alternative to the National Broadband Network? Do we see ‘making better use of infrastructure’ as is recommended by the department of finance in its incoming ministerial brief, or do we see precisely the opposite of that from a government which is acting in a way that is wholly inconsistent with its stated rhetoric about pursuing policies which will deliver improved productivity growth? I am very sorry to report that we see the latter.

Is it only the department of finance which has expressed concerns about this? Is it only the Productivity Commission which has expressed concerns about this? Funnily enough, it is not. What has the OECD had to say about the question of microeconomic policy in the telecommunications area? Once again, you get a strong sense, as you review what the OECD has said, that the officials are gritting their teeth as they try as best they can to convey their deep concern about the approach which is being taken by this government. Talking about the heads of agreement between the National Broadband Network and Telstra, the OECD said:

The heads of agreement signed with Telstra eliminate competition between the new fibre optic network and the existing technological platforms … This implies a de facto restoration of a public monopoly over the supply of access to wholesale Internet services. Multiple empirical studies have stressed the value of competition between technological platforms for the dissemination of broadband services. Moreover, such a monopolistic incumbent could forestall the development of, as yet unknown, superior technological alternatives.

We have a government which claims to be concerned about driving improvements in Australia’s rate of productivity growth. It is uncontentious, between the major parties, that that is a worthwhile goal; it is uncontentious that achieving improvements in productivity growth is critical to growth in our gross domestic product and to the welfare of Australians; and it is uncontentious that you will only achieve material improvements in productivity growth if you are pursuing a sustained and disciplined program of microeconomic reform. Regrettably, although the rhetoric of this government is designed to give the impression that that is precisely its objective, its behaviour—its conduct—is quite the opposite.

I think the framework which Professor Fred Hilmer has articulated is an extremely instructive one. Professor Fred Hilmer is the man who was responsible in the early nineties for the carriage of the competition reforms which were so critical to the improved microeconomic performance of this country. Professor Hilmer has now taken the opportunity to review Australia’s progress in microeconomic reform and productivity growth and to ask the question: how are we are doing now compared to that hard work, that detailed program of work, throughout the nineties which delivered such sustained improvement in productivity and in the welfare of Australians?

The framework which Professor Hilmer has used to analyse this question is to draw a distinction between incentives and enablers and to make the point that ultimately it is about incentives for behaviour by participants in the economy. You can talk all you like about spending money on various areas. As we know under this government ‘reform’ is a codeword for ‘spending’. The real benefits in terms of microeconomic reform and productivity improvements are only going to be realised and achieved if we are serious about continuing to deploy the force of these incentives which Professor Hilmer talks about—competition, tax and corporate governance.

What we have seen in the last three years is that 2½ decades of consensus on microeconomic reform has come to a shuddering halt. We have a government which is making the popular and easy decisions. We have a government which has never turned its back on an opportunity to spend money. We need to get serious about improving productivity. Let us see the action match the rhetoric.

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