At this rate, the only outcome from this summit will be making us poorer

As we approach the productivity summit to end all summits, the various players have begun to stake out the propositions they wish to advance when Jim Chalmers’ roundtable begins in just over a week.

The various union representatives want to advocate for higher taxes, and further restrictions on businesses: this time in relation to potential AI job losses.

Meanwhile, the various business groups are focused on achievable reforms, especially in relation to regulation and red tape.

Though more united than in the lead-up to 2022’s disastrous ‘jobs and skills’ summit, business leaders should be very nervous about the prospect of being cornered and pressured into accepting a ‘compromise’ that is anything but.

Specifically, business leaders should outright reject any compromise that increases taxation in order to close the budget deficit. Increasing taxation, especially tax increases that also increase the progressivity of the tax system, will be terrible for productivity.

Nor will it actually fix the budget deficit problem which, as my colleague Robert Carling argues in his recent research, is driven entirely by increases in government spending. History has shown that attempts to close budget gaps with additional taxation will only lead to more spending. The deficit remains and the size of government ratchets up again.

Of course, whether the roundtable achieves anything tangible will depend on the extent to which the government will use the gathering to push its economic agenda.

Unfortunately, most of the Treasurer’s economic ideas are unlikely to increase productivity. If anything, his government-centric view of capitalism, and the broader left’s obsession with redistribution over growth, will reduce productivity growth.

That said, there is no reason for the government not to do so. It is riding high after a thumping electoral victory and the opposition is in disarray. The ALP previously outmanoeuvred the same groups to gain cover for its industrial relations re-regulatory program, and productivity remains a subject poorly understood by the public at large anyway.

Worse still for those actually concerned about the inevitable decline in future living standards that will come from poor productivity growth, the Labor government is the only one attempting to explain how their economic agenda fits into a broader vision for Australia.

This is where the true battle should be for the summit. Labor’s view of the economy is one with government at the centre directing the economic and social priorities of society in favour of unions, super funds and interest groups.

These are the core left constituencies, although they claim to represent broad swathes of society — a claim that could be the subject of substantial dispute in practice.

Over time, as their direct constituencies have fallen away, they have tended to adopt a broader social focus. One specific area where the left has shifted focus is the rhetorical move away from ‘poverty’ towards ‘inequality’.

At the same time that absolute poverty in Australia has fallen significantly, the focus on the need to increase the progressivity of the tax system has increased to the point where it drowns out all other concerns.

Consequently, redistribution is no longer just about creating a robust safety net for those who need it but a broader project aimed at the impossible goal of making society ‘fairer’ for all.

As we have already seen, parts of the left can never be satisfied that businesses and high income individuals have paid enough tax to meet their supposed ‘fair share’.

This has a direct and lasting impact on productivity. Higher taxes dampen incentives to save and invest. In a world where capital and high-income individuals are highly mobile, these incentive effects are amplified.

Even the government has admitted that a big part of the problem has been a sustained investment drought in Australia. Yet, for all the focus on cash incentives to lure businesses to invest again, almost no focus has been placed on why investment dried up in the first place.

Surely, at least in part, the constant increase in both the volume and complexity of regulation for decades now —together with the constant pressure for higher taxation on anyone who does make a decent return — has shifted the perceptions of risk and return?

Moreover, the need to constantly rebalance society to combat inequality means the burden of regulation and taxation can only increase over time. A temporary focus on deregulation at this summit, and perhaps for a short time after, will not shift this direction.

The risk of a summit like this is that business, government and unions will all get together and divvy up the economic spoils, without a thought for the interests of voters and consumers.

In that sense, not only does productivity growth not need a grand bargain from this event, there is every chance that such a deal will reduce productivity growth!

It is not just alternative policies that are needed: an alternative vision is needed as well.

A vision of society where anyone can get ahead, not just those who belong to the right political group. A vision where personal responsibility and personal freedom are matched and prioritised.

A society of low regulation and low taxation, with a genuine safety net for those who need it, not one that institutionalises envy, and pursues policies aimed at punishing people for being successful, (like taxing unrealised gains).

This leads to an economy where the interests of the consumer are put above the interests of both business and unions. Such an economy is vibrant, innovative and productive.

Simon Cowan is research director at the Centre for Independent Studies.

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