Morrison finds his productivity report is useful for Labor too


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Treasurer Scott Morrison on Tuesday said reform was harder now than in the 1990s.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

Just as the government hopes it is making progress on the energy conundrum, it finds itself struggling on another front of deep public disgruntlement – the NBN.

The rollout of what’s generally considered a second rate model is producing a high level of complaints. Monday’s ABC Four Corners program showed how customers in Australia are getting an inferior service compared with New Zealanders.

The government predictably is blaming Labor, though much of the trouble stems from scaling back to a cheaper version than the one it inherited. Malcolm Turnbull, who oversaw the NBN as communications minister, argues it’s obvious that as more houses are connected, the number of complaints rises. That logic only goes so far.

Faults with household and business internet services are sensitive consumer issues. The blame game only increases people’s irritation. It’s been the same for months with electricity, as the government lambasted Labor while trying to get together its own energy policy, which it released last week.

Essential polling released on Tuesday indicates that at this early stage people are not hostile to that policy, but many are confused.

More than a third (35%) approved the proposed National Energy Guarantee, with only 18% opposed. But the “don’t know” category is 47%.

People divided fairly evenly when asked whether they approve the government’s decision not to include a Clean Energy Target in the new plan – 35% approved, 32% disapproved, and 33% were “don’t knows”.

But many people retain their strong attachment to renewables. Asked whether they approved the government decision to phase out subsidies for these, 41% disapproved, 32% approved.

This result shows that in political terms, it could be sensible for Labor to accept the basic structure of the government’s scheme – and promise to improve on it. At Tuesday’s Coalition party room, Turnbull predicted Labor would propose a higher level of renewables within the Coalition’s policy framework.

If so, that would provide a measure of bipartisanship, which would at least encourage investment.

As the government and opposition argue over the claim the new policy could bring down prices by a small amount – a proposition to be tested by the modelling the government commissioned last week – the Essential polling showed the public are healthily sceptical. Only 16% think it will; 31% believe it will increase prices.

The grim reality faced by the government is that it is hard to get any messages through the high level of public distrust, and this is exacerbated when the messages chop and change.

It’s not just in the energy area where this has happened. Since the Coalition won office in 2013 it has had to alter course on many policies and much of its initial ambition.

The early attempts of the Abbott government at swingeing changes quickly collided with the realities of an angry public and a truculent Senate.

Releasing a report on Tuesday from the Productivity Commission (PC) on Australia’s productivity performance, Treasurer Scott Morrison said reform was harder now than in the 1990s, when there was “a lot of low hanging fruit” and “the burning platform” of recession “focused the debate and compelled greater bipartisanship”.

These days, he said “reform comes more stubbornly and incrementally”.

“We also need to understand that many Australians are now far more sceptical of change. Whenever governments mention the word ‘reform’ or ‘productivity’, they get nervous. They’ve seen this movie before.

“Unlike last time when economic reform was a mystery to most, this time around Australians are more alive to the costs of change as well as the benefits.

“Plus, the economic and political bandwidth available for change is narrower than it once was, made more difficult by the binary way change is viewed and exploited. Who are the winners and who are the losers? Where is the conflict?” Morrison said.

While his argument is right, other factors were also important to achieving reform in the 1980s and early 1990s under the Hawke-Keating government. Some of the change involved trade offs, under the accord with the trade union movement. And reform was better sold by the political leadership than today.

The PC report promotes a reform agenda focused on individuals, “involving the non-market economy (mainly education and healthcare), the innovation system, using data, creating well-functioning cities, and re-building confidence in institutions”.

The recommendations are a mixed bag of old and new, the sensible and – as happens with the PC – the near impossible, either politically or practically (such as automatic dispensing of medicines).

The report’s language is redolent of that used by Labor, notably when it says that “a key issue will be to ensure that future economic, social and environmental policies sustain inclusive growth — by no means guaranteed given current policy settings, and prospective technological and labour market pressures.

“Productivity growth provides a capacity for higher incomes and poverty alleviation — either directly through higher wages or indirectly by increasing the capacity for funding transfers to lower-income households.

“The motivation for limiting inequality extends beyond its intrinsic value to the desirability of avoiding too great a dispersion in incomes, given evidence that this can, in its own right, adversely affect productivity growth. Public support is also more likely for reforms that offer benefits to the bulk of people.”

Shadow treasurer Chris Bowen said: “The Productivity Commission has pointed out that investment in our human capital is the key to economic growth. Well we agree, we agree strongly.”

Morrison is alert to this possible political crossover.

“I haven’t got up here today to talk about a new inclusion agenda”, he told a CEDA function. “I’m talking about a productivity agenda”.

“From a Liberal-National perspective, we’re coming at this quite differently from our political opponents. This isn’t about social justice. This is about more and better paid jobs, because I think that’s the best justice for anyone. … This is about lifting living standards.

“I’m not trying to settle scores in health and education as some sort of social justice wars. I’m just trying to lift people’s wages.

“This is not the product of ideology, it’s the product of economics and the economics say pretty clearly that people [who] are healthier and better equipped through the education system are going to do better.”

The ConversationSharing ground with Labor can be uncomfortable.

https://www.podbean.com/media/player/k27zv-7889f2?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.

What would it take to raise Australian productivity growth?


Roy Green, University of Technology Sydney

While productivity is once again growing in Australia, we face a big challenge in getting it to a level that would restore the rate of improvement in our living standards of the last few decades.

Yet the measures required to meet this challenge may not be the ones usually promoted by economists and editorial writers. We need innovation not just in the technologies we use but in our business models and management practices as well.

The problem, according to new Treasury research, is that national income growth can no longer be propped up by the favourable terms of trade associated with our once-in-a-generation mining boom.

Does this mean we are back to the hard grind of productivity-enhancing reform? There are (at least) two opposing schools of thought on this. Some believe reform is needed, but mainly corporate tax cuts and labour market deregulation. Others deny any such reform is even necessary.

What has happened to productivity?

Productivity is a complex issue, but may be simply defined as output produced per worker, measured by the number of hours worked. On this basis we have seen a modest spike in productivity growth over the last five years to 1.8% per year.

This is primarily due to “capital deepening”, an increase in the ratio of capital to labour. Contemporary examples include driverless trucks in iron ore mines, advanced robotics in manufacturing and ATMs in banking.

Before this five-year period, productivity growth was much lower, even negative. This was especially the case during the mining boom itself when capital investment was taking place but had not yet translated into increased output.

The Treasury paper argues that to achieve our long-run trend rate of growth in living standards of 2% a year, measured as per capita income, we now need to increase average annual productivity growth to around 2.5%.

This will require not just capital deepening, but also improvements in the efficiency with which labour and capital inputs are used, otherwise known as “multifactor productivity”.

The hype cycle

Australia is not alone in facing this productivity challenge. Globally, amidst what would appear to be an unprecedented wave of technological change and innovation, developed economies are experiencing a productivity slowdown.

Again, explanations for this vary. Some economists question whether the current wave of innovation is really as transformative as earlier ones involving urban sanitation, telecommunications and commercial flight.

Others have wondered whether it is still feasible to measure productivity at all when innovation comprises such intangible factors as cloud computing, artificial intelligence and machine learning, let alone widespread application of the “internet of things”.

However, there is an emerging consensus that we are merely in the “installation” phase of these innovations, and the “deployment” phase will be played out over coming decades.

This has also been called the “hype cycle”. New technologies move from a “peak of inflated expectations” to a “trough of disillusionment” and then only after much prototyping and experimentation to the “plateau of productivity”. Think blockchain in financial transactions and augmented reality for consumer products.


Read more: A guide to deconstructing the battery hype cycle


The world is bifurcating between “frontier firms”, whose ready adoption of digital technologies and skills is reflected in superior productivity, and the “laggards”, which are seemingly unable to benefit from technology diffusion.

These latter firms drag down average productivity growth and, lacking competitiveness, they inevitably find it more difficult to access global markets and value chains.

The increasing gap between high- and low-productivity firms is less a matter of technology as such than the capacity for non-technology innovation. In particular, this encompasses the development of new business models, systems integration and high-performance work and management practices.

Many of the world’s most successful companies, such as Apple, gained market leadership not by inventing new technologies but by embedding them in new products, whose value is driven by service design and customer experience.

Engaging our creativity

Recent international studies have shown that a major explanatory variable for productivity differences between firms, and between countries, is management capability.

It is noteworthy that Australian managers lag most behind world-best practice in a survey category titled “instilling a talent mindset”. In other words, how well they engage talent and creativity in the workplace.

Most organisations today would claim that “people are our greatest asset”, but much fewer provide genuine opportunities for participation in the decisions that affect them and the future of the business. Those that do are generally better positioned to outperform competitors and demonstrate greater capacity for change.

More survey work on this issue is under way.

A more inclusive approach

Wages are also related to productivity but not always in the way that is commonly assumed. It is said that productivity performance determines the wages a company can afford to pay, with gains shared among stakeholders, including the workforce.

But evidence is emerging that causation might equally run in the reverse direction, with wage increases driving capital investment and efficiency.

This casts the current debate on productivity-enhancing reform in a very different light. It may now be a stretch to argue that corporate tax cuts will be much of a game-changer in the absence of any incentive to invest in new technologies and skills. The same may be said about the ideological insistence on labour market deregulation, if all that results is a low-wage, low-productivity economy.

The populist revolt against technological change and globalisation has its roots not just in the failure to distribute fairly the gains from productivity growth, but in a longstanding effort in some countries to fragment the structures of wage bargaining and to exclude workers from any strategic role in business transformation. This has assigned the costs of change to those least able to resist, let alone benefit from it.

The next wave of productivity improvement, if it is to succeed, must be based on a more “inclusive” approach to innovation policy and management.

The ConversationAs jobs change or disappear altogether, Australia’s workforce can make a positive contribution. But workers will only be able to do so if they have the skills and confidence to take advantage of new jobs and new opportunities in a high-wage, high-productivity economy.

Roy Green, Dean of UTS Business School, University of Technology Sydney

This article was originally published on The Conversation. Read the original article.

Taxing sugary drinks would boost productivity, not just health



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Taxing sugary drinks to tackle obesity would lead to a stronger economy, new research shows.
from www.shutterstock.com

Lennert Veerman, Cancer Council NSW

Many studies have looked at the potential benefits of a sugar tax in
terms of the longer, healthier lives and reduced health expenditure associated with tackling obesity.

But our new study goes one step further. It predicts that higher taxes on sugar-sweetened drinks will benefit the wider economy through increased economic productivity, by having more, healthier people in paid and unpaid work.

Obesity delivers a double whammy

A total of 63% Australian adults and one in four children are overweight or obese, making this both a health and an economic problem.

Obesity increases the risk of diseases including cancer, diabetes, heart disease and stroke. Obesity has also been estimated to cost Australia about A$8.6 billion a year or more. Not only does obesity drive up health-care costs, by causing illness and premature death, it also reduces people’s ability to work and contribute to the economy.

Added sugar contributes energy to the diet, but no useful nutrients. Increasingly, health experts suggest we should be treating sugar, and in particular sugar in soft drinks, as we do tobacco or alcohol, by taxing it to reduce consumption and so reduce obesity rates.

Taxing sugar is not a new concept. In the 1700s, Scottish economist Adam Smith wrote in An Inquiry into the Nature and Causes of the Wealth of Nations:

Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life, which are become objects of almost universal consumption, and which are therefore extremely proper subjects of taxation.

Smith’s proposal to tax sugar was not aimed at improving health, as it is today. Now organisations like the World Health Organisation, the Australian Medical Association and many non-governmental organisations are advocating a tax on drinks with added sugar, as part of wider efforts to tackle obesity.

What we did and what we found

Until our study, few worldwide had looked at the wider economic effects of taxing sugary drinks.

We modelled the Australian adult population as it was in 2010, in terms of consumption of sugar-sweetened drinks, body mass, obesity-related diseases, death rates, and the amount of paid or unpaid work people were likely to do.

We compared a scenario in which the prices of sugared drinks went up by 20%, compared to business-as-usual, and estimated what difference this would make for the number of obese people, the number of years lived, and for overall economic production.


Further reading: Dietary guidelines don’t work. Here’s how to fix them


We used data from the 2011-12 Australian Health Survey and found that obese people aged 15-64 had a lower chance of being in a paid job, compared to people whose weight was normal. We assumed this was related to illness.

Of people in work, obese workers needed more sick leave, but only about an hour a year.

We also looked at unpaid work (like cooking, cleaning and caring, and volunteer work). We included gains due to more people surviving for longer due to lower body weight. We assumed that if work was not done as unpaid work, somebody would have to be hired to do it (so there would be a replacement cost).

Our results show that a 20% sugar tax would mean about 400,000 fewer people would be obese. Three-quarters of these would be in the workforce, so that about 300,000 fewer employed people would be obese.


Further reading: Australian sugary drinks tax could prevent thousands of heart attacks and strokes and save 1,600 lives


Over the lifetime of the adult population of Australia in 2010, this would add about A$750 million to the formal, paid economy, due to more, healthier people producing more goods and services.

The gains in unpaid work were even larger at A$1.17 billion. Fewer obese people means more healthy people, who have a greater likelihood to do unpaid work, in the household or as volunteers.

These indirect economic benefits from increased employment in the workforce and from greater participation in unpaid work were larger than the savings in health care costs, which we estimated at about A$425 million over the lifetime of the adult population.

In all, the tax could deliver over A$2 billion in economic benefits in indirect economic benefits plus health care savings. And that does not even include the value of the gains in people’s quality of life and how long they lived.


Further reading: Fat nation: the rise and fall of obesity on the political agenda


The exact size of the benefits depend on assumptions about what people would drink (and eat) if they drink fewer sugared drinks. In this study, we used Australian evidence that found an increase only for diet drinks, which contain virtually no energy.

Other evidence finds a sugar tax reduces the consumption of sugar and energy-rich foods, but may also lead to people eating fewer fruit and vegetables and more salt. This would reduce the health benefit, and that study suggests it would be even better to tax all sugar instead of only sugared drinks.

Nevertheless, the available evidence shows health benefits of increased taxation of sugared drinks.

What’s happening overseas?

Studies in other countries have predicted similar effects of a sugar tax on the proportion of obese people. For example, a 20% tax is expected to reduce the number of obese people by about 1.3% in the UK and 2-4% in South Africa.

And an increasing number of countries, including the UK, France, Denmark, Finland, Hungary and recently Estonia and Saudi Arabia, have already announced or have implemented a tax on drinks with added sugar.

If Australia introduces a 20% tax on sugar-sweetened drinks, as many health advocates and economists have called for, that would not only improve health, our results predict it would also promote economic growth.


The ConversationThe author of this article will be available for a live Q&A today 1-2pm. Please post your questions in the comments below.

Lennert Veerman, Senior health economist, Cancer Council NSW

This article was originally published on The Conversation. Read the original article.