The 3 intergenerational challenges Chalmers’ roundtable must fix

Productivity is a long game, especially when viewed through an intergenerational lens. But the government’s upcoming Productivity Roundtable risks being yet another festival of short-term electoral thinking. 

Younger Australians — from those entering the prime of their working life to those preparing to enter the workforce — bear the burdens of poor decisions. Even small differences in productivity growth rates can compound into big differences in living standards.  

Those levers operate over 10–25 years — well beyond the horizon of any roundtable ‘fix’ that must show results before the next budget. 

Declines in labour productivity and GDP per capita suggest Australia cannot continue to coast on the tailwinds of our many natural advantages and the long-run effects of historical reform moments. This well-known problem has national ramifications that the roundtable must address to benefit coming generations.  

Productivity gains emerge from improved human capital formation and capital allocation, with the latter including whether workers face barriers such as high housing costs to hinder taking high-productivity jobs.  

The same policy areas (education, tax, housing) that can yield productivity growth are also areas where the intergenerational compact has become imbalanced.  

Economists recognise ‘human capital’ as a factor of production, but education policy is often overlooked as an economic contributor. With apologies to Paul Krugman, education outcomes aren’t everything — but in the long run, they are almost everything.  

Award-winning education economist Eric Hanushek argued in 2023 that the downward trend in Australia’s performance in international testing and high proportions of students unable to meet basic skills would have an impact equivalent to a 6% decline in lifetime earnings, compared to Australians of two decades ago.  

Over the past decade and a half, Australia has increased the funds spent on education, and ensured young people stay in school for longer, but this has not produced better results.  

As Hanushek is quick to point out, it’s what people know, not how long people have spent in education, that is important. Ever-increasing inputs for reduced outputs is practically the textbook definition of shrinking productivity.  

While it’s encouraging that the Productivity Commission has named time-saving approaches such as common lesson plans to enact the curriculum as a means of improving educational productivity, it’s unlikely policy emerging from a federal roundtable will trickle down to the classroom level. 

If education’s contribution to productivity is overlooked, tax reform is blindingly obvious. The overall tax burden is high by historical standards, and driven by direct income taxation of individuals and businesses.  

Younger, skilled workers — income-rich, but asset-poor — are paying increasingly-high average income tax rates through bracket creep and are less likely to benefit from tax-advantaged methods of savings and investment.  

Moves to address this ‘intergenerational tragedy’ are welcome, and the government is pushing at an open door in this area.  

But this is also dangerous. The government’s desire for budget neutral tax reform proposals indicates we may be at risk of baking in an assumption that ‘budget sustainability’ will be achieved through ill thought-through tax grabs elsewhere, rather than reducing spending.  

As my colleague Robert Carling has argued, tax reform can improve productivity if it helps improve incentives — but not if it only serves to redistribute income. 

There is no shortage of bad ideas on fixing Australia’s housing problems, with more government-funded social housing, rent caps or higher taxes on landlords are just a few ventilated by federal politicians.  

However, research from my colleague Peter Tulip is clear: for housing to be more affordable, governments must allow housing to be built to meet demand, and let the market decide shape, size and location.  

Regulatory constraints, such as restrictive zoning policies and planning permit processes, prevent the private sector from meeting demand for housing, and represent a bottleneck for growth.  

Not only that, research from the NSW Productivity Commission argues more and cheaper housing is equivalent to a pay rise, because workers gravitate towards cities like Sydney and Melbourne where they can boost their productivity.  

But this only works the way it should when they can find housing to meet their needs — or they stay in lower-wage, lower-productivity jobs than they would otherwise.   

With recent news that the Treasury believes the government’s ambitious 1.2 million homes target won’t be met, the clear solution is to let the market deliver housing to meet community needs.  

But with most levers outside the federal government’s control, the more likely outcome is counterproductive policies. 

Perhaps the best-case scenario for the coming roundtable is an ineffectual talkfest reminiscent of Kevin Rudd’s 2020 Summit.  

If, however, we want something more, then brave policies that cut through the federation mess to directly affect classroom practice, free up housing supply, and index tax brackets should be front and centre.  

Otherwise the roundtable discussion will just be noise. 

Trisha Jha is a research fellow at the Centre for Independent Studies