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00:00We've seen, you know, all of the signs that have been building up for the past, well, you know, decade really or more, right?
00:06But we're seeing living standards really flatline, we're seeing real wages really failing to make any traction for about six years now.
00:13What do you think are the key priorities that the government should be focusing on in terms of implementation to be able to steer this idea of a lost decade around?
00:22Yeah, so the government, thanks for asking me to join the interview, Heidi.
00:27The government has asked the Productivity Commission to look at five broad areas, skills and adaptable workforce is one of them, dynamic and resilient economy is another, the care economy, which is becoming an increasingly important part of Australia's economy and efficiency in that sector, the transition to net zero, and then, of course, data and digital is another key area where we're looking for productivity improvements.
00:52So those are the five areas and the priority areas that have been identified in some work that we released last week.
01:00And we'll be looking for input from stakeholders and all Australians on those areas for improvement in productivity across the board.
01:09What does the labour market tell you, though, about the dynamics?
01:14Because so much reliance has been on to try and get productivity growth from immigration.
01:19Does that continue to be an area of importance, do you think, despite, of course, coming with its own challenges, you know, spreading to the likes of the property sector, for example?
01:29Yeah, so we're not looking specifically at migration settings in this inquiry.
01:36We have looked at that before and there has been some reforms put in by government.
01:41But it's suffice to say migration settings and particularly the composition of Australia's skilled migration policies are a key factor in productivity, but it's one of many factors.
01:52The key for Australia in the last decade has been there's no real silver bullet to productivity performance and improving that performance.
02:02We put out a report a couple of years ago identifying 71 possible recommendations across 39 areas.
02:08And that tells you that, look, there's no single thing you can point to, such as migration or anything else that would tell you that, oh, that's where you need to focus on.
02:17It's a range of areas that you need to focus on.
02:19And that's what we're looking at in these five inquiries.
02:22Alex, as Heidi mentioned there, the Albanese government's been re-elected with an enormous majority, but it didn't go to the election campaigning on reform.
02:35So is the political will there to adopt some of these reforms you're talking about?
02:39And what are the consequences if they don't?
02:43Well, I'm not going to comment on government policy and the election.
02:48We were given this inquiry in December by the government.
02:51We've been working away at it.
02:52We asked Australians for their ideas in the productivity pitch earlier in the year.
02:57We got 500, more than 500 responses to that.
03:01We've called for submissions recently, last week.
03:05So we're keen to hear from all Australians about ways in which to improve productivity.
03:11We'll do our own analysis and then give an interim reports to government in the middle of the year.
03:16And then final reports to government at the end of the year.
03:21You also had some thoughts on a generative AI as well and its potential to ignite productivity.
03:26It also has the potential to put a lot of people out of work as well.
03:30So how do you predict potential outcomes around the use of AI?
03:33Yeah, so, I mean, we think Australia is a services-based economy.
03:4080% of GDP is in services.
03:43So that's everything except agriculture, mining and manufacturing.
03:4690% of employment is in services.
03:49And the promise of AI is, in terms of productivity performance, is really in terms of those services sectors.
03:57So we think there is a big upside to productivity gains due to AI.
04:03The key is to get the regulation settings right.
04:06And we're interested in hearing from Australians about those regulatory issues.
04:11And also, we're also interested in hearing about ways in which access to data can be improved
04:17because data is one of the key inputs into the performance of AI and its improvements over time.
04:23How much have we seen, really, the masking of this ongoing productivity problem as a result
04:31of sort of, you know, the good data coming through still from commodities exports, right?
04:37And does that mean the sort of energy transition, clean energy space is low-hanging fruit when
04:43it comes to being able to boost productivity?
04:47Well, during COVID, our productivity performance actually increased.
04:52And that was a bit of a measurement issue and a bit of an anomaly.
04:59We call it the productivity bubble as certain industries that had relatively low levels of
05:03productivity were shut down and then opened up again.
05:07So over that decade that you spoke about, Heidi, there has been this bubble during the middle
05:12of COVID.
05:13And that might have provided some false sense of security to governments that, well, productivity
05:18was increasing and therefore it's not a problem.
05:20But actually now it's come back down and it's at the level it was in 2016.
05:25So there are industries you can point to that say, you know, you can say, well, you know,
05:29productivity might be doing well in those sectors.
05:32But overall in Australia, it hasn't been a great performance over the last decade.
05:37Well, no, the last six decades, according to your report as well, you say productivity has
05:42been stagnating now for 60 years.
05:44I mean, how did we get here?
05:47Well, it's not quite right, Paul.
05:48So what we say is that the last decade has been the worst performance in 60 years.
05:54So during the 80s and 90s, actually, Australia's productivity performance was, in terms of growth,
05:59was very good.
06:01And the concern is over the last decade, it hasn't been that good.
06:04And that's due to, you know, a lack of reform.
06:09And we've recommended reforms and we'll continue to do so with this latest inquiry and make
06:13recommendations to government.
06:15As I think Paul alluded to, a three-year government term is not exactly conducive to making sometimes
06:24unpopular reforms that might only pay dividends decades down the track, right?
06:28With that being the reality, do you think there needs to be more focus in garnering support
06:32from the private sector, given that corporate leaders and private sector leaders have been
06:36most vocal about the need for these reforms?
06:40I'm not quite.
06:41I don't quite agree with you, Heidi, that the three-year terms is necessarily interesting.
06:44We've had three-year terms in Australia at the federal level for decades, and we had
06:49significant reforms, you know, in terms of floating the dollar, freeing up capital markets,
06:56product market reform, labour market reform with three-year terms.
07:00So I'm not sure that's something you can point to as a barrier to reform.
07:06I think it's identifying those reforms and then getting the conditions right and implementing
07:11them in the right way that is an issue in Australia more recently.
07:15And the fact that there's no silver bullets.
07:17Productivity gains and securing those gains in an era where services economy dominates is
07:23hard.
07:25It's not easy.
07:26And that needs to be explained to people and implemented well by government.
07:31So those are the challenges that we face.
07:33In terms of the private sector, productivity growth has got to come from the private sector.
07:38And so that's, you know, all businesses across Australia have got to find ways in which to
07:44improve their productivity, whether that's by investment or putting workers and capital together
07:50in more efficient ways, educating workers on the job.
07:54All of those things, those are the things that are kind of, those are the things we're looking
07:57at in these inquiries.
08:00How big a role will something like significant tax reform play in the broader productivity
08:06picture here?
08:08Well, we've asked for people's input on that, in particular on corporate tax reform.
08:14And the reason we're interested in that is because in a dynamic economy, investment is important
08:19and capital deepening is important for securing productivity growth.
08:22And investment as a share of GDP in Australia has been declining and is at very low levels
08:29historically.
08:30And one of the key policy levers in improving investment is corporate tax.
08:36And so we are looking at that issue quite closely.
08:40And so I think it's very important, along with a range of other factors, including the burden
08:45of regulation, duplication and overlap and those sorts of issues.
08:50But corporate tax reform is a key issue that we're looking at.
08:55Just referring back to Heidi's earlier point about the need for some policy consistency over
09:00a long period of time.
09:02Would it be a hope that your recommendations get accepted by other parties in Australia as
09:07well?
09:08We make recommendations to government.
09:11That's our job.
09:12And we hope that they're implemented by governments.
09:15And so whether they're supported by others, I mean, we seek broad support across the community.
09:20But ultimately, we make recommendations to government.
09:24And we hope that they're implemented by the government of the day.
09:31It's interesting looking at the global rankings on productivity.
09:34And I think last year, Australia came in around 13th, which was actually a move up.
09:40But if you take a look at the countries that are consistently in the top echelons, the likes
09:44of Singapore, Switzerland, for example, are there lessons learned from some of their models,
09:49do you think?
09:51It's hard to get general lessons from other OECD countries or indeed countries like Singapore
09:58because the economies are so different.
10:01So the Australian economy is very different from those economies.
10:05I think the key is to have broad productivity enhancing policies in place.
10:12And what those look like across different countries can be very different.
10:15And so that's why we're looking at these five broad areas.
10:20We do take lessons from other countries if there's obvious ones that are available.
10:25But some of them are not so obvious and some of them are very country specific.
10:28But I think the broad lesson across economies is that you want productivity enhancing policies,
10:35things like appropriate regulation, good tax settings, good labour market settings, good
10:41product market settings.
10:43But there's always lessons to be learned from other countries about what to do and importantly,
10:48what not to do in different circumstances.
10:53Alex Robson, really great to have you with us and best of luck with the rest of those reform
10:58recommendations.
10:59He's a deputy chair at Australia's Productivity Commission.
11:03We do have more on Australia Ahead every Tuesday at 10.40am if you're watching here in Sydney,
11:088.40am.
11:08If you're watching out of Hong Kong, you can also tune into the Bloomberg Australia podcast,
11:13which delves into the biggest stories shaping the country's role in global business.
11:17You can find it on Apple, Spotify or Bloomberg.com.
11:19You can find it on Apple, Spotify or Google.com.
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