Additional Comments from Ms Allegra Spender MP
A dynamic economy is one where every Australian can fulfil their potential; where life is rich with opportunity; where our society is diverse, cohesive, and fair; and where every Australian enjoys a high standard of living and can access the world-class services they need.
The significant decline in long-term labour productivity growth over the last decade[1], demonstrates that dynamism is the critical ingredient which has been missing from Australia’s economic environment. I therefore welcomed the Committee’s decision to embark on a serious, long-form inquiry into what is an essential policy issue. The majority report makes a number of useful, practical contributions and recommendations, particularly in relation to competition.
But it does not go far enough.
Australia can and must do better to unleash the creative opportunities in our economy and amongst our people. As a Parliament, we need to raise our ambitions and work together to make Australia the best place in the world to start and grow a business, as well as a beacon of effective government services. Realising that ambition will require broader action than that proposed by this report.
My comments build on the opportunities to enhance dynamism where either the majority report was mainly silent or where it did not go far enough, including innovation, taxation, industrials relations, regulation, the performance of government and climate action. As the main report covered a lot of ground in competition, my focus is more on dynamism.
Policy areas of taxation and industrial relations are highly political and so it is unsurprising that there are not recommendations in a majority report. However, their impact on economic dynamism is far too significant to be ignored. As well as suggesting specific changes in tax and industrial relations policy, my recommendations focus on what institutional changes could be made to improve the evidence base and debate in these areas.
I have made additional recommendations on improving government regulation, including the appointment of a Minister for Better Regulation because while the main report addressed regulation, the recommendations were too incremental. Every government tries to cut red tape, and most fail, so we need a much stronger approach.
In the area of innovation, my recommendations are particularly around knowledge diffusion, where work from the Productivity Commission could be built on.
But a particular focus of my additional comments and recommendations is on the performance of government and the public sector. Let me explain why.
In any report on competition and dynamism, it is easy to focus on the changes we want to see in business – to stop rent-seeking, stop anti-competitive conduct, be more innovative and improve the behaviour of corporations as stakeholders in our society. These things are absolutely necessary and some key levers are addressed in the Committee Report.
But it is also necessary for government to focus on itself and the changes to both how government operates in the economy, and what changes are needed internally if we are to unleash dynamism and competition. Businesses and citizens have too much experience of government action which is not evidence-based, which is not accountable or high-quality, which does not deliver value for money, and which does not enhance living standards. Government is a significant part of our economy, and there is too little time spent looking into the mirror of how government can innovate and improve its operations. Bad business practices should be competed or regulated out of the marketplace, but bad government policies, services and regulation have few natural predators. It falls to the Government and the Parliament to supervise itself and we need to be much better at this work.
In the section on public sector administration my focus is on improving the quality of government investment decisions in infrastructure, but also services, increasing the accountability of public sector services and decision-making, and ensuring that Government responds to the inquiries and reports it commissions. Culture change is critical here and I am recommending, among other things, to appoint a Minister for Customer Service.
Finally, the climate transition will have profound implications for the economy and dynamism. For that reason, it is included below.
1: The Government should convene a national taxation summit, bringing together stakeholders across business, the social sector, unions, government to kick-start reform dialogues.
2: The Government should establish an independent Tax Reform Commission as a statutory, parliamentary body.
3: The Government should provide federal financial support for state governments which undertake a transition from stamp duty to land tax.
4: The Treasurer should direct the Productivity Commission to review Australia’s workplace relations system, with a particular focus on innovation and growth.
5: The Government should adopt a new objective which explicitly establishes productivity and wages as primary outcomes sought through workplace relations reforms.
6: The Government should genuinely commit to an award review process that urgently delivers shorter, simpler workplace awards.
7: The Government commission the Productivity Commission, or another body, to develop and oversee a whole-of-government regulatory framework, including the impact of regulation on competition and dynamism and regulatory consistency between jurisdictions
8: The Government commission the Productivity Commission, or another body, to identify priority sectors for review of the burden of regulation. Once the sectors are identified, the body should then undertake these reviews to reduce the compliance burden on the prioritised sector, without material negative impacts on the lives and protections of Australians.
9: The Government should assign deregulatory oversight functions to an executive-level official at every regulatory agency and require regular reviews of the regulatory burden imposed by the agency, plans for burden reduction where appropriate, and appropriate performance reporting.
10: The Government appoint a Minister for Better Regulation
11: The Government should introduce a reform fund to incentivise state government reforms that would accelerate economic growth and dynamism
12: The Treasurer to provide a formal public response to the Productivity Commission ‘Advancing Prosperity’ report within 3 months.
13: As part of its response to the Advancing Prosperity report, the Government should commit to the swift implementation of recommendations 5.1, 5.2, 5.3, 5.4, and 5.13.
14: The Government agree not to consider any major infrastructure projects for public funding until a credible cost-benefit analysis has been published and approved by Infrastructure Australia.
15: The Government collect post-completion project cost data and use this data to undertake reference class forecasts for infrastructure investment proposals.
16: The government to appropriately resource a body, potentially the Auditor-General or the Office of Impact Analysis or the Productivity Commission, to develop an effective evaluation methodology across an entire agency. This approach could then be refined and applied to larger agencies.
17: The Government appoint a Minister for Customer Service, whose responsibility is to ensure that the Federal Government delivers effective customer services to citizens, not-for-profits and businesses
18: The Government commits to Ministers making a statement in Parliament when portfolio agencies fail to meet performance targets, and a review process so that community stakeholders identify the performance targets that are most important to the community
19: The Government should introduce a Federal Small Business and Codes List into the Federal Circuit Court of Australia.
20: The Government should commit to publicly responding to all inquiries and reports, commissioned by ministers, agencies, and the Parliament, within 6 months, and Ministers should appear before Parliament to explain when they fail to comply with this commitment and how they intend to become compliant.
21: The Government should enhance competition policy to support economic dynamism and should ensure its climate policies are supportive of market competition and innovation.
Despite agreement from a range of think tanks and stakeholders on the need for broad based tax reform, and evidence to this effect from bodies who presented to the Committee, deficiencies with the tax system was not addressed in the Committee’s Main Report. For example, the Business Council of Australia submitted that:
Heavy tax and regulatory burdens have been handbrakes on investment and productivity. The problems with the tax system have been shown in multiple reviews. Tax is a major lever for governments to promote productivity growth.
Addressing issues such as the over reliance on direct taxation, the mismatch between federal and state taxes and spending, the volatile and inefficient state tax base, a globally uncompetitive tax rate for companies with turnover above $50 million, and fragmented payroll tax regimes all need to be on the table for reform. So too should be the heavy tax burden on incomes (both personal and business). There should be a coordinated approach by governments to reducing regulation and duplication.[2]
And Mr Brendan Coates of the Grattan Institute said:
[Australia’s] tax system is a mishmash of taxes, some of which are less costly than others. We certainly think that there are big opportunities to probably increase the rate of taxation on various forms of savings that are taxed very concessionally at the moment. The most obvious one is superannuation. Others include housing. Obviously, Danielle Wood, our CEO, published a report a couple of weeks ago on how that's necessary to support the budget position. It's also necessary to support tax mix switch.
Finally, we massively under-tax resource rents in Australia compared to what would be ideal, be it land or the resources themselves, as Danielle has pointed out in her recent report with the petroleum resource rent tax. They [are] areas that are ripe for reform. Irrespective of whether it's about dynamism or just purely capturing the static gains from a one-off shift in the tax system, the huge static gains are there if we did tax rents more and we taxed the savings of some vehicles more. It would open up big opportunities to reduce income tax and reduce effective marginal tax rates, particularly for secondary income earners and women. That would be a big step forward.[3]
There is now broad agreement that Australia’s tax system is not fit for purpose. Witnesses who contributed to this inquiry, including the Business Council of Australia, the Grattan Institute, the Organisation for Economic Co-operation and Development, and the Productivity Commission, all referred to their previous work citing the need for broad-based tax reform – calls which have not been heeded by successive Australian governments.
Australia’s tax system significantly inhibits intergenerational equity and economic efficiency, and its over-reliance on income tax makes it unsustainable given our ageing population. Successive governments, formed by both major parties, have failed to implement the reforms necessary to address these challenges, exacerbating the harms from existing policy settings and increasing the political difficulty of future action.
Tax settings can be a critical driver or obstacle for growth in investment, innovation, and productivity. Australia’s rates (including effective marginal rates) of personal and company tax are high relative to international comparators and there is evidence this is creating a disincentive to investment in physical and human capital, impeding the country’s economic dynamism. This is compounded by the high degree of complexity in Australia’s tax system which imposes substantial costs on taxpayers and is demonstrated by the fact more than 70% of Australian taxpayers require professional assistance in submitting individual tax returns.
The Productivity Commission’s Advancing Prosperity report advocated, in Recommendation 3.4, that ‘governments should, including through the Council on Federal Financial Relations, systematically transition the tax system to be supportive of productivity growth through tax arrangement that:
To achieve this, we should build on the lessons of previous governments in driving tax reform through broad stakeholder engagement.
Recommendation 1
The Government should convene a national taxation summit, bringing together stakeholders across business, the social sector, unions, government to kick-start reform dialogues.
Over the last decade, a number of policy experts and stakeholders – including the Tax Institute, have endorsed the need for an independent tax reform commission to proactively propose reform options, to undertake detailed consultation on tax proposals, and to act as a source of independent expertise for the Parliament.
Such a body should have the independence of a parliamentary agencies, such as the Australian National Audit Office or the Parliamentary Budget Office, and the credibility and expertise of agencies such as the Australian Law Reform Commission or the Productivity Commission. Each of these agencies makes a meaningful contribution to the formation of government policy and it is appropriate for tax policy to benefit from the same independent advice, rigour, and scrutiny.
Recommendation 2
The Government should establish an independent Tax Reform Commission as a statutory, parliamentary body.
The impact of stamp duty on economic dynamism was raised repeatedly in evidence to the Committee. The Commonwealth Productivity Commission recommended ‘moving away from taxes that discourage the efficient use transfer of assets and capital allocation, such as stamp duty on property transactions’.[5] Brendan Coates of the Grattan Institute described it as ‘probably [the] number one [tax holding back economic dynamism] because it is the one affecting at the household level where people choose to live and, therefore, where they can work’.[6] And the Business Council of Australia (BCA) noted the lack of plentiful and affordable housing is ‘a drag on national economic performance as it constraints productive capacity of some of Australia’s most highly productive areas’ and further noted that stamp duties ‘are inefficient taxes that impede labour mobility’.[7]
If anything, these comments understate the concern which many experts have with stamp duty, which has been called the worst tax currently imposed on Australians.
The e61 Institute has estimated that stamp duty costs the average metropolitan home-buyer five months of take-home income, increasing to six months for residents of Sydney and Melbourne.[8] Their research has also demonstrated that Australians have delayed job changes, family formation, and moving houses because of housing costs. NSW Treasury has estimated that a stamp duty to land tax transition would produce a long-run increase in home ownership of 6.6% in that state, equal to 130,000 households or 345,000 people.[9]
Commonwealth Treasury has demonstrated the inefficiency of relying on stamp duty instead of efficient alternatives, such as land taxes.[10] That research estimates stamp duty imposes a marginal cost of around 70 cents per dollar of revenue raised while land tax, along the lines of existing council rates, imposes a marginal economic benefit of around 10 cents per dollar of revenue raised. If a stamp duty transition led to an average reduction in the deadweight loss of 35 cents, this would increase the size of the Australian economy by $4.5 billion (2015 dollars).
Although a transition from stamp duty to land tax is economically desirable, state governments have generally not proceeded with this change. This is partly explained by the impact of such a transition on state budgets from the loss of stamp duty revenue and the impact of a smaller GST distribution. Research by Prosper Australia has modelled a transition for Victoria, which would be cost-neutral in the medium-term, would have a net cost of $8 billion over the forward estimates. Research by NSW Treasury has estimated the annual GST impact would be around $1 billion. These impacts are a significant disincentive for state governments which might otherwise support a transition.
There is a strong case for federal financial support, given the transition will have a substantial and permanent impact on the size of state economies. A significant share of this growth will be captured by the Commonwealth in higher personal and corporate tax revenue. Given this, it is appropriate the Commonwealth estimate the financial benefits of state reforms and offer to temporarily share these proceeds with reforming states, to offset the budget impacts of the transition.
Recommendation 3
The Government should provide federal financial support for state governments which undertake a transition from stamp duty to land tax.
Evidence provided to the Committee demonstrated that there is serious concern about the impact of industrial relations on economic dynamism. However, the Committee’s report is largely silent on industrial relations and the impact on dynamism.
In its Advancing Prosperity report, the Productivity Commission devoted Volume 7 to improving labour market productivity, and said:
The workplace relations system has a fundamental role in driving productivity and wages, but needs repair to achieve those outcomes, including a greater emphasis on co-operation between parties.
The award system has grown in significance as enterprise bargaining has shrunk, but needs to become more efficient and flexible, in part because they set a floor on conditions in enterprise agreements. […]
Enterprise bargaining needs reform to provide the mutual benefits and productivity gains that were its original intent.[11]
This was echoed by Mr Dylan Broomfield, General Manager, Policy and Advocacy, at the Victorian Chamber of Commerce and Industry:
… competition could be further boosted by allowing businesses to get more access into markets through improved regulation, improved access to capital, greater availability of labour and more fluid industrial relations reforms.[12]
Industrial relations policies have impacts in capital markets as well as labour markets, as outlined by Ms Tania Constable, CEO of the Minerals Council of Australia:
Workplace or industrial relations is exactly the same sort of policy that deeply concerns investors at a global level.
Time and time again, we've heard companies saying, 'These policies are going to be killers for our industry.' When they sit in boardrooms at an international level, they consider all the investments that they can make around the world and prioritise those investments based on taxation, workplace relations and, next, environment, and then everything else will be prioritised based on whether they can get the skills et cetera to be able to make those decisions. That's how a company makes its decisions.
The head or CEO of BHP has already said that he will not be investing in Queensland, because of taxation settings. He has made comments about these workplace relations being a retrograde step for Australia; the heads of some of the oil and gas companies have said exactly the same thing. We will see more companies and more jurisdictions around the world making these comments about why they should invest in Australia.[13]
Dr Alex Robson, Deputy Chair of the Productivity Commission, told the Committee:
In a service based economy, fit-for-purpose labour market regulation is key, particularly in relation to the gig economy, which can be an important source of market entry, innovation and dynamism.
For the most part, as our research released today shows, real wages and productivity move together. Finding productivity improvements leads to increases in real wages, so labour market settings need to facilitate matching between workers and businesses and maximise cooperation between parties. They need to encourage innovation, reward skills, aspiration and effort, and preserve fairness. Shoehorning platform work into other employment categories would put at risk its productivity impacts and its benefits for gig workers.
On the other hand, as our report discussed, gig workers have genuine concerns that need to be taken very seriously—in particular, in relation to improved safety protection and access to dispute resolution. We think that reform in those areas is warranted.[14]
These concerns have been reinforced by the Government’s recent changes to industrial relations laws. For example, the Business Council of Australia said in its submission:
The labour market has become more regulated, with more restrictions and legislated barriers. Recent changes to industrial relations, including the restoration of multiemployer bargaining could lead to increased disruption and a less innovative and dynamic economy. Reforms to the Better Off Overall Test are welcome and will reduce the complexity of getting agreements that pay Australians more.[15]
And an Australian tech success story, Mable, provided evidence of how its services provide the opportunity for substantial productivity gains to be realised in the care sector in a way which benefits both service providers and recipients.[16] The care sector is one where productivity is poorly understood and so opportunities to grow productivity have not been realised historically. Digital technology offers one way to realise those opportunities but, in the case of Mable, the Commonwealth Government has actively sought to undermine and neuter its business model through its recent industrial relations reforms.
The impact of such interventions on productivity-enhancing investments in other parts of the economy cannot be understated. As Dr Robson, Deputy Chair of the Productivity Commission, told the Committee:
In particular, in relation to the gig economy, in Advancing Prosperity, we said, 'This is a key source of dynamism and innovation and entry, so, if that's what you're worried about, then you may want to treat it differently.'
The point we were making in Advancing Prosperity is that we don't want to cut off this emerging way of doing things, because, if we think it does produce productivity benefits and efficiency benefits, then we don't want to shoehorn it into overt regulatory arrangements.[17]
Unfortunately, this is likely to have been the impact of the three tranches of industrial relations reforms agreed by the Parliament since the 2022 election. What Andrew McKellar, CEO of the Australian Chamber of Commerce and Industry, has described as the ‘ideological pendulum’ may swing back with the next change of government, imposing further adjustment costs and uncertainty on businesses and undermining confidence amongst international capital markets and investors.
For that reason, it is appropriate to reevaluate the industrial relations framework as it now stands, and determine whether it is supportive of growth in productivity and real wages, and whether opportunities exist to raise productivity and dynamism with a new and more enduring framework.
Recommendation 4
The Treasurer should direct the Productivity Commission to review Australia’s workplace relations system, with a particular focus on innovation and growth.
In conjunction with the review of the industrial relations framework, it is appropriate that the objective of the industrial relations system needs to be reconsidered to ensure that productivity and dynamism is an ongoing focus for government action.
The Tech Council of Australia have put forward a simple objective which should guide future workplace reforms:
An industrial relations system that upholds the rights of workers while enabling flexible forms of employment that can deliver better productivity and wage outcomes, and that do not prevent workplaces from innovating and adopting new forms of technology.[18]
Recommendation 5
The Government should adopt a new objective which explicitly establishes productivity and wages as primary outcomes sought through workplace relations reforms.
There is also a clear need for simplifying the complexity and administrative burden of workplace agreements where complexity does not obviously benefit employees or employers.
For example, Mr Paul Harker, Chief Commercial Officer for Woolworths, told the Committee the business had ‘156,000 people employed across 28 separate EA agreements, using 13 different awards’.[19] Ms Vittoria Bon, Government and Industry Relations Manager for Coles Group, told the committee that although the business had negotiated ‘12 or 13’ awards and EAs since 2020 and ‘around 14’ different enterprise bargaining agreements.[20] The complexity imposed by the range of these agreements – and the much wider range of potential interpretations of the interactions of different clauses – doubtless creates unnecessary confusion and cost for businesses without necessarily benefiting workers. Both witnesses agreed they would welcome simplification of the award system.
While the Minister for Workplace Relations announced a review of the award system in September 2023[21], based on a commitment made in 2022, little progress has been made to date and some stakeholders are concerned the review lacks the resources or institutional support to have an impact. There is an urgent need for the Government to commission a new process, with appropriate resourcing and urgency, which brings employer and employee representatives together to develop simplified modern awards. This would benefit employees in creating more opportunities for additional shifts or responsibilities, and employers through simpler workplace arrangements and reduced legal risks and uncertainty.
Recommendation 6
The Government should genuinely commit to an award review process that urgently delivers shorter, simpler workplace awards.
As with any economic policy tool, regulation can be an enabler of competition and dynamism or a barrier to it. While we ought to look at opportunities to strengthen regulation where it can enable more competition, we must also look at where regulation has become an obstacle to dynamism. While recommendations 16 to 18 in the Committee’s report address the potential for regulation to reduce dynamism, they are couched in terms of incremental reform. In fact, a much more ambitious and deliberate approach is required.
The Committee heard considerable evidence on the impact of regulation on dynamism and competition. Where the costs of complying with regulation are large, it can inhibit investment in other parts of a business and can be a deterrent to potential new competitions. As Mr Shayne Elliott, CEO of the ANZ Bank, told the Committee:
So almost five per cent of our revenue today we are investing just to comply with new stuff [regulation]. You can imagine—you can do the maths—it's getting close to a billion dollars. […] In addition to that there is the day-to-day cost of managing scams and managing compliance with all the old regulations—just doing basic day-to-day risk management. This is just the investment required for new regulations that come along, so things like the BEAR [Banking Executive Accountability] regime.[22]
In the financial sector and across the economy, there are regulations that create value for society and regulations that destroy value. Despite attempts in recent years to estimate and report the expected regulatory burden imposed by new legislation and regulations, as part of the Impact Analysis framework, proposals routinely lack credible quantification of costs and benefits. There is no clear evidence this work is yielding higher-quality policy proposals or lower-cost regulation to the community.
Therefore, the Government should impose additional obligations on regulators to proactively review the existing and potential new burdens the agency imposes on individuals or organisations and either reconfigure its regulatory framework to reduce the burden or to remove regulations which fail to create value.
Recommendation 7
The Government commission the Productivity Commission, or another body, to develop and oversee a whole-of-government regulatory framework, including the impact of regulation on competition and dynamism and regulatory consistency between jurisdictions.
Recommendation 8
The Government commission the Productivity Commission, or another body, to identify priority sectors for review of the burden of regulation. Once the sectors are identified, the body should then undertake these reviews to reduce the compliance burden on the prioritised sector, without material negative impacts on the lives and protections of Australians.
Recommendation 9
The Government should assign deregulatory oversight functions to an executive-level official at every regulatory agency and require regular reviews of the regulatory burden imposed by the agency, plans for burden reduction where appropriate, and appropriate performance reporting.
Recommendation 10
The Government appoint a Minister for Better Regulation.
A number of recommendations in the committee report require action by state governments, including changes to non-compete clauses, housing policies, support for start-ups, and procurement processes. Past recommendations of Commonwealth parliamentary inquiries and agency reports to state governments have not generally proven effective, except in some cases where the Commonwealth has provided financial incentives.
An example of this is National Competition Policy payments made by the Commonwealth to the States as part of the implementation of the Hilmer Review.
Recommendation 11
The Government should introduce a reform fund to incentivise state government reforms that would accelerate economic growth and dynamism.
Innovation is the beating heart of economic dynamism. It is fed by public sector research, both basic and applied, and by private sector research and development, and free market competition providing the impetus for firms to invest, change, and growth. Innovation can partly be targeted directly in government policy, but can also significantly targeted indirectly targeted through a wide range of policies in competition regulation, education, procurement, tax, and other policy spaces.
In their appearance before the Committee, members of the Productivity Commission discussed their most recent five-yearly review of productivity, the seven volume Advancing Prosperity report.[23] The Government has not provided a formal response to the review, though government has acknowledged areas where they are taking action on findings. If we are truly to address productivity, we should at a minimum respond to the recommendations of the major productivity review. This applies to other government reviews, many of which reports are not made public and a further recommendation is:
Recommendation 12
The Treasurer to provide a formal public response to the Productivity Commission ‘Advancing Prosperity’ report within 3 months.
Volume 5 of Advancing Prosperity is dedicated to the diffusion of innovation and knowledge in the Australian economy. Five particularly relevant recommendations of the report are:
5.1: An enabling environment for small business access to finance
The Australian Government should monitor the effects of APRA’s changes to capital requirements and risk weights for loans to small and medium enterprises (SMEs) that are not secured by property, and the activities of the Australian Business Securitisation Fund, to understand whether they are having the desired impacts on SME lending. Adjustments or further responses could be required if barriers to SMEs accessing finance remain. APRA may need to collect more detailed data about business lending to enable the government to undertake this monitoring.
5.2: An industry-agnostic approach to the National Industry PhD Program
The Australian Government should actively promote innovation diffusion across a range of industries as part of its role in capability building. By adjusting the National Industry PhD Program so that it is industry ‘agnostic’ and does not preference applications aligned with the National Manufacturing Priorities, the Government could encourage diffusion of new knowledge and best practice into the services and social sciences.
5.3: Improving collaborative networks and knowledge transfer
Governments could strengthen collaborative networks for diffusion and facilitate knowledge transfer through:
5.4: Reducing administrative barriers to academic consulting
The Australian Government should reserve the right to facilitate more consulting by university academics, should universities be unable or unwilling to lower unnecessary administrative barriers that disincentivise academics from undertaking consulting. This could be incorporated into the Australian Universities Accord, with the government setting guiding principles to govern universities’ approaches to academic consulting and standardised processes and fee requirements.
5.13: No-cost or low-cost access to ideas that have large public good value
To support the diffusion of best practice and knowledge that has already been generated by innovative businesses, not-for-profits and government organisations, the Australian Government should:
These are sensible, considered recommendations that would collectively help to stimulate more investment in private sector innovation. 5.1 may be partly addressed by recommendation 38 in the Committee’s report but others are not significantly addressed. If the Government has concerns with the recommendations, it should say so publicly and outline its preferred alternative approach to supporting innovation diffusion. If it does not have such concerns, the Government should accept the recommendations and announce a timetable for implement.
Recommendation 13
As part of its response to the Advancing Prosperity report, the Government should commit to the swift implementation of recommendations 5.1, 5.2, 5.3, 5.4, and 5.13.
With the public sector comprising around 40% of the Australian economy, too little attention in general is paid to how government’s own actions and dynamism affect the broader dynamism of the economy. The Committee’s report acknowledged the role that government plays in dynamism – as a regulator and market steward, as a provider of services, sometimes in a monopolistic way, and sometimes in competition with private and non-profit providers, as a procurer of services, and as the owner of physical and virtual assets.
The Committee identified recommendations in the government’s role as a procurer of services, as a service provider, as a regulator, and as a custodian of data. I support these recommendations but believe we need to go further and fundamentally challenge the complacency with which government can at times view its responsibility to its citizens and the economy. We have separately provided additional recommendations in relation to government’s role as a regulator.
Government’s spending and investment decisions make a profound impact on the dynamism of the economy.
One obvious area of this is public infrastructure. A number of submissions to the inquiry proposed greater public investment in infrastructure. Such investments are one way for governments to unlock opportunities to grow innovation and economic dynamism. To that end, the Commonwealth Government has a 10-year, $120 billion infrastructure program.
The challenge with infrastructure investment is that realising economic benefits depends on effective project selection, design, and oversight. There is persuasive evidence that the Commonwealth routinely selects projects for funding in which the project costs exceed benefits – let alone failing to provide the maximum-possible net benefits to the community.
There is no justification for the current processes where the Commonwealth agrees to project funding with state governments, often prior to any cost-benefit analysis being undertaken, and without any public scrutiny of funding proposals. It is also not justifiable that the Commonwealth fails to collect cost data following project completion to inform cost estimates for future projects.
In the “Advancing Prosperity” report of the Productivity Commission, one of the few reform directives identified as having a high impact on growth, and a short timeframe under which the benefits could be realised was Reform Directive 22 – “Implement best practice resource allocation when funding public infrastructure.” I concur with this recommendation and have tried to address this previously in amendments to government legislation, including with amendments that the Prime Minister previously put forward when in opposition, but so far these have been rejected by government and the opposition. These are the basis of my next 2 recommendations:
Recommendation 14
The Government agree not to consider any major infrastructure projects for public funding until a credible cost-benefit analysis has been published and approved by Infrastructure Australia.
Recommendation 15
The Government collect post-completion project cost data and use this data to undertake reference class forecasts for infrastructure investment proposals.
There are significant parallels between the government’s role in investing in infrastructure, and its role in investing in other services in the economy, such as education and healthcare services. In both cases, investments are made, without adequate evaluation of the impact of the investment.
One example of this is the major increase in schools funding from 2018, generally known as Gonski 2.0. The actual funding envelope for this program is not known – the stated cost, $319 billion, is total federal expenditure on education rather than the marginal cost of the program – but it was a multi-billion dollar program. A Productivity Commission review of the reform after five years found that the reforms ‘have done little, so far, to improve student outcomes’.[24]
Good evaluation in government services is difficult, time-consuming and expensive, and there are the political challenges of government’s not wishing to acknowledge when money has not been effectively spent and the legitimate concern that any poor evaluation impacts government’s appetite for appropriate risk and experimentation in the delivery of services. Nevertheless, the current level of evaluation and accountability of government spending is inadequate. I acknowledge the work the government has done in establishing the Australian Centre for Evaluation but, the small scale of that body – $10 million over four years – and it’s very broad remit, suggests that it will not be enough to drive the still much more focus needs to be placed on this work across government.
We need to have regular, transparent evaluation of existing spending programs. This would allow policymakers to assess whether policies continue to create value, and so should continue to receive funding, or whether alternative policies might be more effective. This would also improve decision-making about whether an agency should receive new funding to pursue new policies or whether resources should be reallocated form within.
In addition to enabling enhanced, data-driven decision-making by policymakers, valuation transparency would enable more informed public policy debate.
Recommendation 16
The Government to appropriately resource a body, potentially the Auditor-General or the Office of Impact Analysis or the Productivity Commission, to develop an effective evaluation methodology across an entire agency. This approach could then be refined and applied to larger agencies.
Government decision-making practices can have a significant impact on the dynamism of the economy. This can be at the individual level, where delay on decisions on say visas, impact individual’s ability to make an economic contribution. This can affect small and medium businesses and not-for-profits, where delays on government contracts, or slow resolution of disputes, can significantly affect business decisions, and in some cases the entire viability of some organisations. And this can affect large enterprises, where delays in approvals can fundamentally change whether investments worth billions of dollars are made. There was evidence provided at different firm levels of the challenges with interactions with government in relation to decision-making.
The Committee Report acknowledged the need for greater transparency in the effectiveness of government services in its recommendations:
Recommendation 30: That the Government develop a dashboard that outlines in an accessible way key performance indicators. This could be started with pilots by Services Australia and the Australian Securities and Investments Commission.
I strongly support this recommendation as a way of increasing transparency and accountability in government. However, we need to go much, much further.
There needs to be a fundamental culture shift in government and its agencies perception of their roles, and the expectation of accountability of what they provide. In the world of professional services, if a service provider fails to provide a service within the contracted time, the provider may have to pay penalties or forego payments. However, for many areas where government is a monopoly provider of services, there is very little recourse when government does not meet its own performance benchmarks, or indeed, doesn’t even have them, particularly for individuals and for small and medium-sized businesses and not-for-profits.
For example, the submission from the Australian Competition and Consumer Commission (ACCC) rightly highlights the work the agency is undertaking to prevent unfair conduct including disruption of anti-competitive mergers and acquisitions, regulation of monopoly operators, oversight of digital platform conduct, and studies of market competition.[25] This work is appropriate to ensuring a free and competitive marketplace, which supports Australia’s economic dynamism.
However, the value of this work is diminished where the ACCC fails to conduct its work in a timely and effective way. It’s own annual report notes that the ACCC consistently fails to meet its performance targets of completing 60% of initial investigations within three months, and 70% of in-depth investigations within 12 months.[26] In the past financial year, just 34% of initial investigations were completed on time – less than half of its target – and 42% of in-depth investigations were completed on time. In the past five years, the ACCC has only managed to achieve either of these performance targets on one occasion.
The ACCC is not alone in consistently not meeting its benchmarks, and in this case at least the benchmarks are relatively transparent. Government will argue that it is taking steps to improve services – and certainly there is a commitment to invest more into Services Australia and marked improvement in the processing times of visas, both of which are very welcome and valuable. However, we are missing a culture within government of accountability of prompt and effective service delivery.
Recommendation 17
The Government appoint a Minister for Customer Service, whose responsibility is to ensure that the Federal Government delivers effective customer services to citizens, not-for-profits and businesses.
Recommendation 18
The Government commits to Ministers making a statement in Parliament when portfolio agencies fail to meet performance targets, and a review process so that community stakeholders identify the performance targets that are most important to the community.
A specific example of the challenges smaller operators have in achieving outcomes influenced by government, was provided by the Australian Small Business and Family Enterprise Ombudsman (ASBFEO). They have highlighted some of the challenges of small businesses accessing timely, low-cost redress for misconduct by larger businesses, who in some cases, can engage in unfair practices without consequences. While the government is not itself engaging in unfair practices, the paucity of options that the government controls in ensuring these unfair practices are dealt with, is an illustration of the need for a change in culture in public service provision. ASBFEO make a specific recommendation in relation to how this could be addressed which I believe is worth pursuing.
Recommendation 19
The Government should introduce a Federal Small Business and Codes List into the Federal Circuit Court of Australia.
A basic aspect of public sector administration should be responding to official inquiries, reports, and other reviews, particularly those commissioned by the Government. But, as of 31 December 2023, more than 100 Senate inquiry reports had not received any response from the Government and more than 330 inquiries had only received interim responses.[27]There is, however, no source of data for estimating how many House inquiries or agency reports are yet to receive a response from Government.
Commissioning research and failing to respond – let alone implement change – has become business as usual in Parliament but it ought to be an unacceptable practice. It not only misses the opportunity to implement important policy changes but wastes public resources on those who undertake unnecessary work and the resources of those who give freely of their time and expertise to aid the work of the Government and the Parliament.
Other jurisdictions in the country have better standards in relation to responses to inquiries, and it is time the Federal Government caught up.
Recommendation 20
The Government should commit to publicly responding to all inquiries and reports, commissioned by ministers, agencies, and the Parliament, within 6 months, and Ministers should appear before Parliament to explain when they fail to comply with this commitment and how they intend to become compliant.
Climate change was a recurring theme throughout the evidence received by the committee but was not addressed at length by the majority report. The Productivity Commission outlined the interaction between climate change and economic dynamism:
Decarbonisation will have fundamental effects on industry structures and technologies, and must rely on a high level of dynamism to achieve governments’ goals efficiently. While some measures will require strong levels of government direction, the growing evidence on economic dynamism gives substantial weight to giving people and firms incentives to innovate and change.
Three reforms themes have been identified as the most-valuable in responding to addressing climate change (efficient greenhouse gas abatement through an enhanced safeguards mechanism, adaptation in building to avoid costly adjustments in the future, and developing an updated electricity system). [28]
The Productivity Commission’s views were further explored in Volume 6 of its Advancing Prosperity report, which made the following points:
Climate change looms large over Australia’s productivity performance. Its potential physical impacts, and the policy steps taken in response, will affect Australia’s productivity growth over coming decades.
A key productivity challenge will be achieving our 2030 and 2050 emissions reduction targets as efficiently as possible. Continued reliance on a suite of ad hoc sectoral policy measures will unnecessarily reduce productivity growth and living standards. Economy-wide settings that create enduring incentives for credible abatement could achieve our emissions targets at lower cost.[29]
The report made a number of recommendations in relation to this. However, the Government has yet to respond to these recommendations but should do so as a priority.
Mr Jason McDonald, of the Commonwealth Treasury, also raised the interaction of climate and competition policies:
The reason why we're involved is that climate change is the biggest market failure; it's the most significant market failure. There's spillover on everybody who may or may not have actually emitted the carbon to begin with, both today's generation and future generations.
You can clearly see it's a spillover on future generations. What we're particularly interested in is helping the transition to net zero, to making sure the right workers and the right businesses can get into the right fields easily without barriers to competition to help the necessary transition of the economy.[30]
Mr McDonald also explained to the Committee why Treasury’s Competition Taskforce had a focus on climate change:
Competition is also critical for ensuring the [emissions abatement] path we choose is least cost, which means high innovation and opportunity for Australian businesses and workers.
There are barriers to competition that can impede businesses adopting and deploying the latest technologies, such as different regulatory standards across jurisdictions. Competitive processes for reducing emissions are essential to ensuring resources flow to more innovative businesses that can thrive in the new, clean economy.
Businesses also need confidence that they won't fall foul of competition rules when cooperating to address climate change.[31]
There is a clear argument that competition policy should be maintained even for climate and environmental policies.
Recommendation 21
The Government should enhance competition policy to support economic dynamism and should ensure its climate policies are supportive of market competition and innovation.
Ms Allegra Spender MP
Independent Member for Wentworth
Footnotes
[1]Labour productivity growth was 1.1% per year between 2010 and 2020, compared with an average of 1.8% between 1960 and 2020.
[2]Business Council of Australia, Submission 3, p.13.
[3]Mr Brendan Coates, Committee Hansard, 2 May 2023, p.16.
[4]Productivity Commission (2024). ‘Advancing Prosperity’, Volume 3, p.51.
[5]Dr Alex Robson, Committee Hansard, 15 September 2023, p.57.
[6]Brendan Coates, Committee Hansard, 2 May 2023, p.16.
[7]Business Council of Australia. Submission 3, p.12.
[8]Garvin, N. et al (2024). ‘Stepped on by Stamp Duty’, e61 Micro Note, Number 20.
[9]Warlters, M. (2022). ‘Property Tax Reform and Home Ownership’, Technical Research Paper, TRP22-18.
[10]Cao, L. et al (2015) ‘Understanding the economy-wide efficiency and incidence of major Australian taxes’, Treasury Working Papers, 2015-01.
[11]Productivity Commission, Advancing Prosperity, Volume 7, p.93.
[12]Mr Dylan Broomfield, Committee Hansard, 4 July 2023, p.30.
[13]Ms Tania Constable, Committee Hansard, 31 August 2023, p.5.
[14]Dr Alex Robson, Committee Hansard, 15 September 2023, p.54.
[15]Business Council of Australia. Submission 3, p.10.
[16]Mable, Submission 44.
[17]Dr Alex Robson, Committee Hansard, 15 September 2023, p.63.
[18]Tech Council of Australia, Submission 32, p.13.
[19]Mr Paul Harker, Committee Hansard, 25 July 2023, p.11.
[20]Ms Vittoria Bon, Committee Hansard, 25 July 2023, p.4.
[21]Letter from the Minister for Employment and Workplace Relations to the President of the Fair Work Commission, 12 September 2023, Reference MS23-000485, https://www.fwc.gov.au/documents/consultation/letter-from-minister-2023-09-12.pdf
[22]Mr Shayne Elliott, Committee Hansard, 12 July 2023, p.21.
[23]Committee Hansard, 15 September 2023, pp.54-71.
[24]Productivity Commission (2022). ‘Study Report: Review of the National School Reform Agreement’, p.2.
[25]Australian Competition and Consumer Commission, Submission 34.
[26]Australian Competition and Consumer Commission, Annual Report 2022-23, p.47.
[27]President of the Senate. ‘President’s Report to the Senate on the Status of Government Responses to Parliamentary Committee Reports as at 31 December 2023’. Senate Tabled Papers Register.
[28]Productivity Commission, Submission 1, p.38.
[29]Productivity Commission (2023). ‘Advancing Prosperity’, Volume 6, p.1.
[30]Mr Jason McDonald, Committee Hansard, 15 September 2023, p.34.
[31]Mr Jason McDonald, Committee Hansard, 15 September 2023, p.20.
The House of Representatives Standing Committee on Economics will inquire into promoting economic dynamism, competition and business formation.
Senate
House of Representatives
Get informed
Bills
Committees
Get involved
Visit Parliament
Website features
Parliamentary Departments