Productivity roundtable’s uncertain impact. What was the point?

With the Productivity Roundtable now ended, it is hard not to wonder what the point of the exercise was? Surely it was not the 10 supposed reform directions, some of which contradict the others in practice (eg tax reform).

Having 10 priorities also brings to mind the old cliché: “if you have more than three priorities, you have no priorities.

Of course, the roundtable participants were cautiously optimistic — no doubt at least in part because they had spent three days being told that their ideas were central to the future of Australia. Also, at least with respect to the business leaders, they were also probably happy that things didn’t get worse.

The government, with the same political cunning it has displayed since it took office, managed to create the appearance of consensus by keeping the reform directions relatively vague. And by agreeing on areas of policy rather than specific reforms.

This allows those with diametrically-opposed views to agree that ‘a better tax system’ is a priority, with each thinking it means their proposed reform direction (higher or lower).

In many respects the outcomes, or lack thereof, from the roundtable were predictable. Many areas are intractable.

For example, it is impossible to see a meaningful path forward on fiscal reform; or at least a path that would lift productivity rather than lower it. There are two reasons for this.

First, the budget is massively in deficit. This means that any incentives to attract investment must be limited.

You could argue, quite strongly, that an investment in lower corporate taxes would lead to higher investment, greater productivity and ultimately economic growth that would boost living standards. You could also note that dividend imputation would cushion some of the cost of tis tax cut.

However, it would be going too far to argue that this cut would pay for itself, at least across this term of government. Spending cuts would be necessary to fund these reforms.

On this score, in the long term, the government may well have achieved more to boost productivity this week by its NDIS reform than anything that happened in the roundtable. There are reasons for caution there too, but that is for another day.

Second, many participants at the roundtable believe taxes should be higher, not lower. And they believe the tax system should also be more progressive, which means hiking the exact taxes that reduce investment and productivity.

Judging by the government’s actions and rhetoric across multiple terms of parliament, a significant portion of the Labor party firmly holds  these exact views.

Nor are other areas likely to be more ‘productive’. The unions want to tax business into investing in skills (an idea tried and abandoned in the 90s) and like the luddites of old, are deeply resistant of new technology for fear of job losses.

Again, you could argue quite strongly that hundreds of years of economic history definitively show that technological innovation leads to more employment, not less.

Nor are the unions willing to even consider unwinding the industrial relations re-regulation that has occurred over the past 15 years. Can we even mention boosting skilled migration?

Where there was agreement at the roundtable on changes — for example on housing reforms — there are substantial obstacles outside the room, such as obstinate local governments appeasing NIMBY constituents, which will be challenging to overcome.

A big part of the problem is that there are no easy solutions. Take the issue of deregulation / red tape.

Even the phrase ‘red tape’ is misleading. It implies meaningless form-filling and pointless hoops to jump through.

Some regulations may exist that meet this definition, but not many. You can bet the ones causing all the problems will be defended by regulators and vested interests who believe they are vital for the safety and prosperity of Australia.

Another ministerial directive to minimise red tape, and the repeal of old regulations, will achieve nothing.

Instead, we need a change in attitude and priorities among regulators themselves. As anyone who has dealt with a planning department at a city council can tell you, many regulators think they are the first line of defence and their job is to say no as often as possible.

They should instead be encouraged to think of their job as facilitating both regulatory compliance and the project applicants are bringing before them.

One way to achieve this is to borrow from Australia’s successful Charter of Budget Honesty and create a Charter of Regulatory Effectiveness, as outlined by CIS contributor and veteran regulator Jim Cox.

Cox outlines four major objectives of the Charter. It facilitatesdecision-making by giving regulators the expectation of stewarding of the legislation they administer including removing obsolete, duplicative and unnecessary provisions.

It would also seek to streamline the process of regulation with emphasis on the importance of encouraging innovation and productivity growth and timely approvals. This would be matched by a robust process of review and evaluation of the effectiveness of regulatory systems in particular areas of policy.

Finally, responsibility and accountability for the regulatory system as a whole should be assigned to suitable ministers and public service departments who should report periodically to parliaments and the public on the effectiveness of the regulatory system.

If this Charter had buy-in from the government and public service, it could genuinely shift the mindset of regulators in a way that would inevitably flow through into better regulation.

The buy-in and will to change are the most important thingsmissing from our efforts to address productivity over the past 10 years. There have been almost an infinite number of reports and committees, summits and roundtables.

Yet, unless politicians, regulators and ultimately the voting public, are finally willing to accept reforms to boost productivity, nothing will change.

Simon Cowan is Research Director at the Centre for Independent Studies.

Photo by Polina Zimmerman