Productivity reform can have a red-tint too

It was music to economic ears on Sunday when the Treasurer said the focus of the second term of the Albanese Government would be productivity with an eye on inflation. Robust productivity growth usually takes care of inflation, but nevertheless: damn straight!

It was brave because it’s a hard sell for a Labor government. To many, it means longer hours at work while the boss takes home the extra profit. I’m the daughter of a fitter. At the end of a day in a dirty workshop, I know my dad couldn’t have worked harder and he certainly didn’t believe that if he had, his pay cheque would have been bigger. In other words, productivity is often associated with industrial relations changes. Remember WorkChoices?

For the Australian Labor Party, the challenge is to change the electorate’s perception of productivity reform from something that sucks the life out of them, to something that’s just about finding better ways of doing things. Great Labor leaders of the past have done it and Treasurer Chalmers and Assistant Minister for Competition, Charities, Treasury and Employment Andrew Leigh have already started, having asked the Productivity Commission to develop the five pillars of its productivity agenda, which includes more effective regulatory settings. They are also moving forward with competition policy reforms.

In a second term with a significantly increased majority, voters are more likely to listen, especially if the Treasurer can explain why productivity reforms are so important. They give us better incomes and better standards of living. The Treasurer could also fairly argue that they can pay for more houses and universal high-quality childcare.

If the business sector wants to be a productivity partner and inspire, guide and counsel the Albanese Government, it must accept that red productivity reforms look a bit different to blue ones. They will have to stand alongside government support services, work from home rights, switching off after hours and a fair go. And they will have to somewhat compensate for the difficult circumstances that shroud the economy at the moment, and which actually make them more essential.

But red-tinted productivity reforms are no less able to bring home higher profits, wages and living standards.

Here is an example. The 2025-26 Budget included a plan to incorporate a national licensing scheme for electrical occupations. This is good for workers and employers and if extended further, could boost GDP by $10 billion annually according to Treasury. The business sector should be falling over itself to help make this happen.

There are changes big and small that can boost economic output without requiring any more hard yakka. Businesses are rapidly deploying cheap and ready to use AI tools every day to do things better. But is government? Since late 2019, non-market labour productivity (which encompasses the education, health and public sectors) has fallen. It is down 5.7 per cent since December 2019, compared to productivity growth of 6.8 per cent in the private sector (excluding the volatile mining industry). Recent results are pandemic-affected, but could part of the difference between the two sectors be their different use of AI?

There are many use cases. For example, could longitudinal, anonymised data sets of children – analysed with AI assistance – identify indicators associated with poor wellbeing and attach a probability to such outcomes? Could triggers from these data then alert government to the need for prevention services at just the right time to lower the chances of life changing events. Could these then eliminate the need for significant government help, such as emergency housing and also improve fiscal outcomes?

Could technology solutions that allow clinicians to make earlier and more accurate diagnoses of breast cancer result in better health outcomes for patients and lower treatment costs for Government?

These may sound fanciful, but the EY organisation has been working on such child-centred technology with the New Zealand Government and on breast cancer diagnoses with the Spanish Government.

This is just a start.

A serious tax reform agenda could do so much for the economy by switching the incentives inherent within government revenue collection from avoiding earning to avoiding consumption. If consumption was taxed relatively more and income less, would working overtime to get to a home deposit faster seem more attractive than giving up and blowing the week’s wage on frivolities to make the rental feel nicer? Tax reform is a big and complicated task but done well could help the government achieve so many of its other aims.

Bold reform comes with a heavy price tag and is harder when economic circumstances also command big spending: geopolitical frictions mean more defence spending, climate change means incentivising lower energy consumption and an ageing population means more medical and care services.

The Commonwealth’s budget is not in good shape. Deficits in the vicinity of $30-40 billion are forecast over the coming four years and the structural budget deficit is expected to continue for another decade. Productivity reform is an important way to close the gap and strengthen the economy, and business can be a pivotal partner for government. The time to start cooperating is now.