Enhancing Australia’s
prosperity
“In short, we confront two interacting problems: a global economy failing to
restore growth and the absence of any credible policy response. Too many
countries seem to be focused more on political outcomes than on economic
performance. Markets are simply holding up a mirror to these flaws and risks.”
– Michael Spence, American economist and recipient of the 2001 Nobel Memorial Prize in Economic Sciences,
Australian Financial Review, 16 August 2011
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Contents
Executive summary
2
Introduction3
Key points
4
Why is productivity so important?
5
Recent performance of the Australian economy
6
Future growth opportunities for the Australian economy
10
Issues in Australia’s economic management
11
Policy considerations and reform options
12
Tax reform
12
Regulatory reform
12
Savings policy reform
12
Infrastructure reform
13
The knowledge economy
13
Workplace relations
13
Transparency in reporting
13
Summary and next steps
14
Attachment 1
15
Extract from the CPA Australia Federal Budget member poll, May 2011
15
1
Executive summary
Australia’s future economic prosperity is not assured.
While the mining sector is expected to continue to thrive for
the foreseeable future, many other sectors are struggling in
tougher economic circumstances. This economic imbalance
has fuelled political and public debate for the past 12 months
and has resulted in no real answers as to what is the best
way forward.
CPA Australia believes a lack of policy focused on
productivity growth is helping to perpetuate Australia’s
patchwork economy and, as a result, is hindering the
opportunity for long-term economic advancement. Credible
policy is essential to ensure Australia’s economy can better
take advantage of the significant growth in its region, while
ensuring it is less exposed to external shocks.
We see a future for Australia that is vibrant, but volatile.
Australians can reasonably expect to prosper in that
environment, but to do so requires policy settings that
engage with the issues and enable the community to meet
its challenges with flexibility and cohesion.
The specific regulatory areas that need to be addressed are
broader than Australia’s industrial relations regime. These
areas include:
• Tax: Australia’s current tax system is a serious
impediment to productivity growth. Proposals that
would remove or reduce such handicaps have not been
embraced and need to be addressed
• Infrastructure: There is a major and entrenched
disconnect between the state governments that are
largely responsible for the delivery of infrastructure, and
the Australian Government that collects the bulk of tax
revenue to pay for such infrastructure. This vertical fiscal
imbalance handicaps states in their obligation to provide
effective infrastructure and must be addressed if Australia
is to address its infrastructure shortfall
2
• Retirement savings: The now 20-year history of the
compulsory superannuation guarantee savings policy has
generated a strong response in the community and is a
fundamental plank for economic performance. However,
there is clear evidence that savings at the household level
have taken a troubling course, while at the same time,
businesses are experiencing frequent disruptions in their
access to capital
• Improving transparency and reporting: Australia’s
capital markets are at a substantial competitive
advantage. We must ensure that their governance and
transparency are consistent with our aspiration to be a
leading market for securities and liquidity.
This paper, Enhancing Australia’s prosperity, formally
introduces CPA Australia’s position that the future of
Australia’s economic prosperity lies in improving productivity.
Introduction
There is now widespread evidence that while the Australian
economy has enjoyed strong growth since the early 1990s,
many sectors of the Australian economy are actually slowing
down or struggling in tougher economic conditions. This
slowdown puts Australian’s high standards of living at risk.
While the macroeconomic picture looks robust, particularly
when compared to other Organisation for Economic
Co-operation and Development (OECD) nations,
CPA Australia is concerned that Australia’s economy
beyond the resources sector is largely not engaged in the
economic performance of the region. With the Australian
economy becoming increasingly integrated with Asia,
Australian policymakers must look beyond their traditional
points of comparison, and increasingly compare Australian
economic performance and policies with the economies of
the Asian region.
There is evidence that many sectors of the Australian
economy are at a crossroads. While there are a number
of factors contributing to this, including the high Australian
dollar, it is Australia’s poor productivity growth over the last
decade that is the major deciding factor. Poor productivity
growth not only impacts the ability of Australian businesses
to compete internationally, but it also impacts those same
businesses’ ability to compete with businesses in the
Australian resources sector for capital and labour.
Such policies could include:
• proposals that would remove the handicaps inherent in
the existing tax system that have not been embraced
and need to be addressed
• improving public governance. Notably, the inherent
flaws created by vertical fiscal imbalance (VFI) that
handicap states in their obligations to provide effective
infrastructure have been ignored for so long that this
failing is now an entrenched and serious problem. In fact,
the OECD1 has stated that Australia has “an important
infrastructure deficit”
• savings policies that improve household savings rates
and business access to credit
• transparency and governance standards to assist
Australia’s capital markets acquire a leading competitive
position and continue to grow.
This document, Enhancing Australia’s prosperity, introduces
CPA Australia’s views on enhancing prosperity by improving
productivity in Australia. It is also one of a series of papers
CPA Australia proposes to release over the next 12 months
that will consider a number of areas CPA Australia believes
need reform to improve Australia’s productivity and to
achieve sustainable economic growth.
Australia’s future economic prosperity is not assured. While
the mining sector is expected to continue to thrive for the
foreseeable future, many other sectors are struggling.
CPA Australia is of the view that if Australia is to maintain
and enhance its high standards of living then economic
and social policies that drive accelerated rates of
productivity growth must be implemented. In order for this
to be achieved, governments need to invest in policies
that enhance productivity, and remove impediments to
productivity improvement.
1
OECD Economic Surveys: Australia, November 2010, http://www.oecd.org/dataoecd/24/27/46467368.pdf
3
Key points
The following is a summary of the key points from the paper:
• CPA Australia believes that productivity should be the
critical policy focus now because the economic outlook
has changed so dramatically in recent years.
• Australia is not immune to global economic events – this
was demonstrated by both the global financial crisis and
more recent events, including the downgrading of the
US credit rating and the evolving European sovereign
debt crisis.
• At the macro level, Australia’s economic performance
over the last decade has been very strong, however it
is CPA Australia’s belief that that performance is hiding
significant structural issues, particularly poor productivity
growth. Given the conditions that underpinned Australia’s
strong economic performance over the past decade
are unlikely to be repeated in the current decade, these
structural issues are likely to become more prominent.
Having a greater focus on improving productivity now
while the mining boom is still in progress will minimise the
negative impact of these structural issues over the next
few years.
• Australia’s past policy efforts were effective in sustaining
good economic performance. New policy initiatives with
a focus on productivity are essential to the further good
performance of the broader Australian economy as the
continuing growth of our near neighbours proceeds.
• For CPA Australia, Australia’s poor productivity
performance and the current and future risks to Australian
prosperity present a number of key policy considerations
and reform options. The key policy areas are:
–– tax reform
–– regulatory reform
–– savings policy reform
–– infrastructure reform
–– the knowledge economy
–– workplace relations
–– transparency and reporting.
4
Why is productivity so important?
The importance of productivity to economic growth has
been reflected in many prominent commentaries and
public reports, such as The 2010 Intergenerational Report2,
produced by the Australian Government, and the more
recent House of Representatives’ Standing Committee on
Economics’ Inquiry into raising the productivity growth rate
in the Australian economy3.
In more recent statements, the Secretary of the Department
of the Treasury of Australia, Dr Martin Parkinson, made the
observation at an event sponsored by CPA Australia that
“living standards are ultimately about productivity – how
much individuals, businesses and governments produce for
each unit of labour and capital. In the long run, productivity
growth – producing more from the same inputs – is the
only sustainable way for future generations to enjoy higher
living standards”.4
The Reserve Bank of Australia also noted: “With the terms
of trade expected to decline somewhat over the next few
years as additional global commodity supply comes on
line, a return to faster rates of productivity growth is likely to
be required if living standards are to continue to rise at the
average rate of the past two decades.”5
CPA Australia believes that productivity should be the
critical policy focus now because the economic outlook
has changed so dramatically in recent years. Australia’s
geographic location lends itself to the trade that is
already evident. However, to take advantage of the wider
opportunities, Australia must be effective in all factors of
growth. This includes:
• value creation, which is important across the economy,
whether that be in processing minerals or the intellectual
property of highly educated specialists
• flexibility, which is critical in dealing with both growth
and volatility
• capital, which must be both utilised and directed to best
outcomes. Choices need to be well informed and robust
in allocation.
2 The 2010 Intergenerational Report, 2010, http://www.treasury.gov.au/igr/igr2010/
3 Inquiry into raising the productivity growth rate in the Australian economy, 2010 http://www.aph.gov.au/house/committee/economics/productivity/Report/Final%20Report.pdf
4 Dr Martin Parkinson, Gala address to the Melbourne Institute Economic and Global Outlook Conference, June 2011
http://www.treasury.gov.au/documents/2077/HTML/docshell.asp?URL=sustaining_growth_20110630.htm
5 Minutes of the Monetary Policy Meeting of the Reserve Bank of Australia Board, August 2011, http://www.rba.gov.au/publications/smp/2011/aug/pdf/overview.pdf
5
Recent performance of the
Australian economy
Given the importance of productivity to improving living standards, it is important to examine how the Australian economy has
been faring. At a macro level and when compared to other OECD countries, Australia’s economy has showed remarkable
resilience to date, and is no doubt the envy of most developed nations in this regard, even though productivity growth, as
reflected in Figure 1, has been poor.
Productivity growth in Australia has slowed over the past decade, and as Figure 1 below shows, Australia’s rate of
productivity growth is not only below OECD averages, it is one of the lowest rates in the OECD. This, combined with the
increase in the real exchange rate and other pressures created by the mining boom, is generating pressure for efficiency
improvements, particularly in the non-mining export sector.
Figure 1: Average annual growth in productivity 2001 to 2008 for OECD nations6
Average annual productivity growth 2001 to 2008 for OECD nations
6
5
Percentage
4
3
2
1
0
Slovak Republic
Korea
Estonia
Slovenia
Czech Republic
Poland
Iceland
Ireland
Greece
Hungary
Sweden
United States
Finland
United Kingdom
Japan
OECD total
Luxembourg
Austria
Major seven
Chile
Israel
France
Germany
Belgium
Netherlands
New Zealand
Australia
Switzerland
Spain
Portugal
Norway
Canada
Denmark
Italy
Mexico
-1
(Source: OECD data, chart by CPA Australia)
According to the Australian Bureau of Statistics, during the period from 1998-99 to 2003-04, Australia’s average annual
productivity improved by 1.1 per cent, being the difference between input growth and output growth. During the period from
2003-04 to 2007-08, average annual productivity actually declined by 0.2 per cent.7
6
OECD Factbook 2010: Economic, Environmental and Social Statistics – Production and income – Productivity – Labour productivity growth – Growth in GDP per hour worked
7 Measures of Australia’s progress, 2010 – Australian Bureau of Statistics Cat. No. 1370.0,
http://www.abs.gov.au/ausstats/[email protected]/Lookup/by%20Subject/1370.0~2010~Chapter~Productivity%20(5.5.2)
6
As both Figure 1 and the ABS statistics discussed above show, Australia’s productivity growth is anaemic, and this needs to
be addressed.
The following chart (Figure 2) gives a comparison of Australia’s GDP growth against a mix of both developed and developing
economies over the last decade. Given our geopolitical and economic ties it is imperative that Australia compares its
performance not only with other developed nations, but also with the re-emerging nations of Asia.
Figure 2: Total GDP growth from 2000 to 2009 (as measured in national currencies at constant price)8
GDP growth from 2000 to 2009 for selected countries
160%
145%
140%
117%
120%
100%
89% 87%
80%
42% 41% 39% 37% 34% 33% 32% 32% 32%
15% 15% 14% 12% 12% 11%
France
Mexico
Netherlands
United Kingdom
Switzerland
United States
Norway
Canada
Spain
New Zealand
Australia
Taiwan Province of China
Brazil
Saudi Arabia
Turkey
South Africa
Hong Kong SAR
Korea
Thailand
Malaysia
Philippines
Singapore
Russia
Indonesia
India
Vietnam
Nigeria
China
0%
5% 3% 1%
Italy
23% 23% 17% 16%
20%
Japan
47% 46%
40%
Germany
57% 53% 50%
60%
(Source: IMF data, chart by CPA Australia)
This chart reveals that Australia’s performance against advanced economies has been quite strong, but when compared to
developing and re-emerging economies its GDP growth rate over the period is either on a par with some countries but well
and truly surpassed by many others.
8
International Monetary Fund World Economic Outlook, April 2011, http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx
7
Figure 3 below shows how economic growth translated through to employment growth in the last decade for advanced
economies. It is interesting to note that typically, those advanced economies which enjoyed high employment growth over the
last decade have generally had productivity growth below the OECD average (see Figure 1). This could be attributed in part
to those economies relying more on the greater supply of labour to increase output rather than improving output from existing
resources. Due to demographic changes and lower migration, it is very unlikely that the supply of new labour to the Australian
economy over the current decade is going to be as strong as it was for the last decade, hence the Australian economy must
get more out of its existing workforce to remain competitive and to enhance prosperity.
Figure 3: Total employment growth for advanced economies between 2000 and 20099
Total employment growth from 2000 to 2009 for advanced economies
35%
29%
30%
22%
20%
20%
14%
14%
10%
6%
10% 9%
8%
5%
5%
5% 5% 3%
11%
9%
17%
13%
13%
11%
7%
10% 8%
7%
6%
5%
4%
2%
0%
0%
United Kingdom
Taiwan Province of China
Switzerland
Sweden
Spain
Slovenia
Slovak Republic
Singapore
Norway
New Zealand
Netherlands
Malta
Luxembourg
Korea
Japan
Italy
Israel
Ireland
Iceland
Greece
Hong Kong SAR
Germany
France
-3%
Finland
Czech Republic
Cyprus
Canada
Belgium
Austria
Australia
Denmark
-1%
-5%
United States
15%
17%
Portugal
25%
28%
28%
(Source: IMF data, chart by CPA Australia)
Australia is not immune to global economic events – this was demonstrated by both the global financial crisis and more
recent events, including the downgrading of the US credit rating and the evolving European sovereign debt crisis.10
In addition, we cannot reasonably expect that the circumstances that led to Australia achieving strong economic growth,
without comparable improvements in productivity over the past decade, will continue indefinitely. Australia must therefore
seek to improve productivity to provide long-term sustainable economic growth.
Modelling conducted using the International Monetary Fund’s Global Economic Model12 suggests that a sizeable portion of
Australia’s growth over the last decade can be explained by its trading relationship with emerging Asia, or more accurately
re-emerging Asia. Over the last decade, increasing commodity prices and cheaper goods from emerging Asia has, according
to International Monetary Fund (IMF) modelling, contributed 11 per cent to Australia’s GDP, or 25 per cent of Australia’s GDP
growth from 1997 to 2007 (Australia’s GDP grew about 43 per cent over that period). This emerging Asia impact on the
Australian economy is several times larger than the impact on the US (2 per cent) and other countries (4 per cent).
9Ibid.
10 Australia has however been shielded to a large degree from the worst of the global financial crisis.
11 IMF Working Paper, Emerging Asia’s Impact on Australian, November 2011, p.3, http://www.imf.org/external/pubs/ft/wp/2010/wp10262.pdf
8
The increase in the prices paid for Australia’s commodities
was driven in large part by emerging Asia’s rapid
growth over the last decade, which, in turn, was driven
by emerging Asia’s export sector. In return, emerging
Asia contributed to Australia’s generally low inflationary
environment over the last decade by exporting competitively
priced goods, particularly consumer goods to Australia. This
mix of higher prices for commodities and cheaper imports
has raised Australia’s terms of trade to record highs.
A consequence of this strong growth, strong terms of
trade and low inflationary environment is that it has acted
to hide, to some degree, the underlying weaknesses in the
Australian economy, particularly Australia’s low levels of
productivity growth.
In fact, The Grattan Institute’s Productivity Growth Program
recently described Australia’s economic performance as
follows; “Although Australia’s economic performance during
the 2000s has been impressive on many dimensions,
especially by comparison with that of other ‘advanced’
economies, productivity is not among them. Australia’s
productivity performance over the past decade has been,
to put it mildly, poor − both by Australia’s own historical
standards, and by contemporary international standards.”12
At a macro level, Australia’s economic performance over
the last decade has been very strong, however it is
CPA Australia’s belief that that performance is hiding
significant structural issues, particularly poor productivity
growth. Given the conditions that underpinned Australia’s
strong economic performance over the past decade
are unlikely to be repeated in the current decade, these
structural issues are likely to become more prominent.
Having a greater focus on improving productivity now
while the mining boom is still in progress will minimise the
negative impact of these structural issues over the next
few years.
12 Eslake, S, Productivity, Paper presented to the annual conference of the Reserve Bank of Australia, August 2011, p.24,
http://www.rba.gov.au/publications/confs/2011/eslake.pdf
9
Future growth opportunities for the
Australian economy
The global financial crisis and the slow recovery in Europe and the US has exposed emerging Asia to the risk of being too reliant
on exporting. Most emerging Asian nations (particularly China), have responded to this risk by pursuing economic and social
policies that seek to develop their domestic economy, in order to reduce their exposure to such external shocks. Given this, it is
unlikely that emerging Asian nations will grow in the same way over the current decade as they did over the past decade.
Looking ahead, should emerging Asia continue to grow in a similar fashion (by being focused on improving productivity in its
export sector at the expense of the domestic sector), IMF modelling suggests that this would raise Australia’s GDP by around
18 per cent in the current decade. As with the last decade, this emerging Asian growth dividend is larger for Australia than
the US (3.5 per cent) or other countries (7 per cent).13
However, should emerging Asia continue to grow strongly but do so in a more balanced way (by focusing equally on
improving the domestic sector as well as the export/trade sector), then IMF modelling14 predicts that the impact on Australia’s
GDP growth of emerging Asia over the current decade is significantly reduced to 9 per cent, which is still higher than the US
(2 per cent) and other countries (4 per cent).
In other words, it is possible that Australia could still record relatively strong GDP growth over the next decade but with
relatively low productivity growth. However, this is largely dependent on the economic and social policies of emerging Asian
nations and whether they seek to continue to grow as they have done (and continue to overly expose themselves to external
shocks) or seek a more balanced approach to growth, as many have advised such nations to do.
The IMF World Economic Outlook for April 2011 estimates that Australia’s GDP will grow by about 17.6 per cent between
2011 and 2016. This is a strong figure by OECD standards, however while it is difficult to compare Australia with developing
economies, Figure 4 following puts that growth figure in a different context.
Figure 4: Total GDP growth forecasts by the IMF from 2011 to 2016 (as measured in national currencies at
constant price)15
IMF growth forecasts 2011 to 2016
70%
57.4%
60%
47.5%
50%
39.2%
40%
42.1%
30%
20%
17.6%
10%
0%
Australia
China
India
Indonesia
13 IMF Working Paper, Emerging Asia’s Impact on Australian, November 2010, Hunt, B, pg 3
14 Ibid p. 4
15 2011, International Monetary Fund World Economic Outlook, April, http://www.imf.org/external/pubs/ft/weo/2011/01/weodata/index.aspx
10
Vietnam
Issues in Australia’s
economic management
Many leading international organisations including the
IMF and the OECD have made observations on the issues
that may impact Australia’s future economic growth.
Both individually and collectively they support the urgent
need for appropriate policymaking to enhance productivity.
CPA Australia wishes to emphasise the following issues:
• Policymaking is conflicted by political agendas which lack
a focus on core economic issues
• Household debt and savings are compounding the weak
performance in the non-mining sectors
• Infrastructure is not adequate to meet export demands
and labour force flexibility and participation
• Exposure to commodity price volatility is a constant
• Capital and credit generally appear to be inconsistent in
supporting emerging growth businesses
• Vertical fiscal imbalance will continue to be a major issue
“I don’t want to sugar coat the current situation, if the global
economy were to weaken materially, that would obviously
have an impact here. But our fundamentals are strong,
and we have a government with a proven track record of
dealing with global instability and that is getting on with
the job of rolling out a reform agenda to further strengthen
our economy. This reform agenda cannot wait for the
uncertainties in Europe and the US to play out.
“Building skills and productivity, investing in technology,
cutting our pollution, reforming the tax system – all of
these plans are just too important for our future economy
to be put on the never-never as suggested by those who
underestimate our capacity as a country.”16
Australia’s past policy efforts were effective in sustaining
good economic performance. New policy initiatives with
a focus on productivity are essential to the further strong
performance of the broader Australian economy as the
continuing growth of our near neighbours continues.
• The reallocation of labour and capital towards
expanding sectors
• The level of the real exchange rate could remain high.
CPA Australia notes that the Australian Government has
also acknowledged many of these risks. For example in
the Federal Treasurer’s recent Ministerial Statement to
Commonwealth Parliament he stated: “But with around
70 per cent of our economy driven by industries other
than mining, the future is not without challenges. I know
that some parts of our economy are doing it tough at
the moment. This is particularly the case for businesses
and people working in the trade exposed sectors of our
economy facing sustained pressure from the high dollar,
such as manufacturing and tourism, or in sectors which
are still struggling to regain traction after the global financial
crisis. The lingering effects of that crisis have meant that
credit is a bit tighter and tougher to get, sentiment is more
fragile and consumers are more cautious.
“At a time of low unemployment and good income growth,
consumers are opting to rebuild their balance sheets after a
long period of rising debt levels. While this has put pressure
on our retailers, it does make Australian households more
resilient in these uncertain times.
16 Ministerial Statement on the Global Economy, Federal Treasurer, 16 August 2011,
http://www.dpm.gov.au/DisplayDocs.aspx?doc=speeches/2011/027.htm&pageID=005&min=wms&Year=&DocType=1
11
Policy considerations and
reform options
To provide the opportunities necessary to enable the private
sector to improve productivity requires, among other things,
government action to remove impediments on productivity.
• workplace relations
In this regard CPA Australia acknowledges that the
Australian Government has commenced or undertaken
a number of initiatives that are critical to enhancing
productivity, for example:
Tax reform
• investing in its skills agenda
• reducing regulatory burden (such as the ongoing Council
of Australian Governments (COAG) regulatory reform
agenda, including introducing the Standard Business
Reporting initiative)
• improving infrastructure, such as the National Broadband
Network rollout
• a number of tax changes as outlined in the government’s
recent media release relating to the Tax Forum17, such
as personal tax cuts, a lower corporate tax rate, and
reducing effective marginal tax rates as part of the Clean
Energy Future plan.
However there is much more that needs to be done.
While the last decade has been an excellent example that
productivity growth is not essential to achieving economic
growth, this is unsustainable. It is unlikely that the set of
external factors that drove Australia’s growth in the last
decade, particularly emerging Asia pursuing growth based
significantly on their export sector, will continue in the longterm. It is therefore incumbent on policymakers to pursue
policies and reforms that reduce Australia’s exposure to
such external risks. A key policy initiative to address this
risk must be to improve the rate of Australia’s productivity
growth. Such productivity growth can also help Australia
broaden its economy and reduce the extent to which it is
reliant on emerging Asia.
For CPA Australia, Australia’s poor productivity performance
and the current and future risks to the Australian prosperity
present a number of key policy considerations and reform
options. The key policy areas are:
• tax reform
• regulatory reform
• savings policy reform
• infrastructure reform
• the knowledge economy
• transparency and reporting.
If Australia is to achieve significant reform in the tax arena, the
issue of Commonwealth and state taxes and revenue sharing
arrangements must be addressed. While CPA Australia
appreciates the difficulties associated with this challenge
including the intergovernmental processes it involves such
as COAG, the multiple taxes levied at federal and state levels
continue to act as a major handbrake on productivity.
Further, we note that the proposed revenue to come from
both the minerals tax and the carbon taxes is earmarked
for other government requirements. In the absence of some
new revenue stream that would have broad electorate
appeal the debate about possible revenue sources available
that could be used to retire some of the multiple taxes that
currently exist in Australia is inevitably brought back to other
possible options, including considering base broadening
or increasing the rate of the GST. Further, reform should be
aimed at the competition for capital and flexibility. These
issues need to be part of the agenda at the Tax Forum.
Regulatory reform
The dead weight of regulation is a major drag on productivity
performance. All levels of government, including local
government, need to remained focused on reducing
regulatory burden through the COAG regulatory reform
agenda and subjecting proposed regulation to stringent
tests on its necessity and design.
Savings policy reform
Savings policy reform is necessary to increase capital
formation by encouraging higher levels of household
savings. Higher levels of household savings is essential
to fund the infrastructure Australia needs to improve
productivity. Improved levels of domestic savings is also
essential to reduce the need of Australian banks and large
corporations to raise funding offshore, and thus reduce
Australia’s exposure to external shocks such as the global
financial crisis. While superannuation is key to such reform,
it should not be seen as the only savings mechanism.
17http://www.treasurer.gov.au/DisplayDocs.aspx?doc=pressreleases/2011/089.htm&pageID=003&min=wms&Year=&DocType=0
12
Infrastructure reform
Transparency in reporting
The so-called 10-year infrastructure deficit needs to be
addressed if productivity is to be improved. CPA Australia
acknowledges the work in the pipeline. But given cities
remain Australia’s principal centres of economic activity,
accounting for about 80 per cent of GDP and employing
three out of every four Australians, more must be done
to address congestion and its impact on productivity.
CPA Australia’s 2010 member poll rated fixing public
transport as the most important area of infrastructure
reform. A major contributor to the inertia in this area are
governance and vertical fiscal imbalance (VFI) issues.
CPA Australia intends to engage with relevant stakeholders
to consider how productivity could be improved in this regard.
Australia has a highly liquid and deep capital market,
supported by a sound regulatory regime. Continuing to
improve on Australia’s already high standards of reporting
can lead to greater efficiency in the allocation of capital and
enhance Australia’s reputation as an investment destination.
The knowledge economy
It is acknowledged by many, but not all, that Australia
is unable to compete with not only the cheaper labour
available in many other countries in our region, but also
the scale that such countries can bring to a process.
CPA Australia agrees with the following statement in a
press release by Universities Australia: “It is time to build our
national capability to compete and to work smarter through
investing in the Australian people. Knowledge investment
and infrastructure renewal can be the core of a new reform
era for the twenty-first century.”18
Workplace relations
Some sectors of the Australian economy are experiencing
strong capacity restraints. Policies need to create incentives
for the reallocation of labour and capital to growing
sectors of the economy, particularly the resource sector.
Conversely, such policy should not create disincentives to
the flow of labour and capital to such sectors. For example,
CPA Australia sees the need for training programs that aim
to improve skills that are transferable through the economy,
rather than training programs that lock labour into a
particular industry or state.
Australia’s economic fortunes over the next decade will be
increasingly tied to emerging Asia. This increasingly exposes
Australia to potential shocks from that region. Australian
policy will need to be flexible to respond to such threats.
To give policymakers such flexibility, fiscal policy needs to
be sound. This could mean using periods of growth to build
significant surpluses and allow greater deficits during times
of uncertainty. The IMF recommends that medium-term
fiscal policy should be to target a budget surplus of more
than 1 per cent of GDP on average for the period beyond
2013-14, while the mining boom continues to support growth.
And what is also now very clear is that to be fully
successful, many initiatives that will enhance Australia’s
productivity prospects require support from all levels of
government. For example, tax reform in a holistic sense
remains a major challenge because of our federal model
of government. Appropriate infrastructure development
and implementation also remains a significant challenge
because while the states remain primarily responsible for
the delivery of most large-scale infrastructure projects, the
funding is often controlled by the Australian Government.19
Over the coming 12 months, CPA Australia will release
a series of short papers considering the key challenges
to Australia’s future prosperity and possible solutions to
enhance our productivity and international competitiveness.
These papers take into account, among other things, the
top three economic issues identified by members in
CPA Australia’s May 2011 member poll, see Attachment 1.
18 Universities Australia press release ‘A Productive Country’ 5 September 2011
http://www.universitiesaustralia.edu.au/page/media-centre/2011-media-releases/a-productive-country/
19 CPA Australia notes that Infrastructure Australia recently released an issues paper on infrastructure finance reform.
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Summary and next steps
Australia is a wealthy country but its constituents remain
uncertain and concerned about their future livelihoods
against a backdrop of the global financial crisis and
consequent aftershocks, the weak recovery of most of the
developed world from the crisis and the European sovereign
debt crisis. Stronger productivity growth that exceeds
the OECD average is essential for the success of sectors
outside of the mining sector. This will strengthen and
broaden the Australian economy so that it is better placed
to manage future volatility in emerging Asian nations, and
enable the economy to continue to grow strongly after the
current mining boom ends and our terms of trade return to
more “normal” levels.
In summary, improving Australia’s productivity is core to its
social and economic wellbeing.
Over the coming 12 months, CPA Australia will release
a series of short papers considering the key challenges
to Australia’s future prosperity, and possible solutions to
enhance our productivity and international competitiveness.
The papers will consider:
• tax reform and productivity
• improving Australia’s infrastructure
• savings policy reform
• regulatory reform
• improving transparency and reporting.
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Attachment 1
Extract from the CPA Australia Federal Budget member poll,
May 2011.
Which of the following do you see as the most important business issues in the forthcoming Australian
Federal Budget? (multiple choice allowed)
Most important business issues
Reducing the inefficiency and duplication in Commonwealth/state tax systems
71.7%
59.3%
Increasing the level of investment in large scale infrastructure (road, rail and ports)
48.8%
Restoring the higher supperannuation contribution limits
Reducing the regulatory burden on business
48.4%
41.9%
Addressing the skills shortage
Increasing the level of investment in higher education
36.0%
Reducing government spending to help curb inflation
35.7%
Increase incentives for research and development
35.3%
32.9%
Reducing personal income tax rates
Putting a price on carbon emissions (e.g. via a carbon tax and/or ETS)
28.7%
The proposed Minerals Resource Rent Tax (MRRT)
27.1%
Addressing access to and the cost of finance
26.7%
Reducing the company tax rate
21.3%
Returning the federal budget to surplus by 2013
20.9%
14.3%
Contractors and employment law
Other
12.4%
0%
20%
40%
60%
80%
20 2011 CPA Australia Federal Budget poll, May http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/Australian-Federal-Budget-survey-results.pdf
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CPA214501 10/2011
CPA123208 10/2011