Be bold in May budget, roundtable guests urge Chalmers

It’s been six months since Chancellor Jim Chalmers’ productivity roundtable, and the economists, business leaders and union leaders who attended are cautiously optimistic.

But this is not due to any measured increase in Australia’s anemic productivity growth rate.

In fact, the country’s supply constraints are more serious than ever, as the recent resurgence in inflation shows.

Australia’s economy is no more productive than it was seven years ago, and workers’ living standards are correspondingly poor.

Grattan Institute president Aruna Sathanapally, who gave a presentation on tax reform at the meeting in August, says the social contract is at risk.

In seven wide-ranging AAP interviews, participants asked Dr. They applauded Chalmers for his ambition and initiative in organizing the event.

But they say much still needs to be done and that decades of short-term political opportunism have trumped long-term public interests, making it easy to be skeptical about the progress that has been made since then.

Productivity Commission chair Danielle Wood agrees the government has already taken some important steps.

Overhauling environmental approvals will help speed up the supply of housing and renewable energy, while pausing changes to building regulations will also go a long way in improving construction efficiency.

“These are real productivity reforms,” he adds.

Ms. Wood says productivity is a game of inches. Even major reforms, such as changes to corporate taxes, would only produce a 0.5 percentage point improvement in insulation.

He hopes the roundtable will lay the groundwork for a broader set of changes to the budget and beyond.

According to ANU Crawford School of Economics and Government research fellow Shiro Armstrong, Dr. Chalmers did a “fantastic job” of bringing together different views, building consensus in the room and communicating it to the public.

Ms. Sathanapally says the budget should build on the momentum of the roundtable and result in a set of recommendations that will eventually be taken to the next election.

Refusing to be interviewed, Dr. Chalmers said in his statement that the budget will be the “main game” of economic reform.

The timing of the budget is ripe for real reform, according to Independent MP Allegra Harcama, following a landslide election victory for Labor and a maximum window of time left for voters to return to the polls.

“If you’re going to do something meaningful, this is the budget you need to do it, because that’s the budget you can take the biggest risk on,” he says.

Much of what the government has already implemented falls broadly into the category of regulatory or competition reform.

Andrew McKellar, chief executive of employers’ group the Australian Chamber of Commerce and Industry, said the roundtable was a “very good initiative” and had helped set the narrative needed to deliver priority reforms.

But he says Labor is missing an opportunity for a pro-business outcome that would provide greater certainty and investment by siding with the Greens to pass long-overdue environmental legislation.

ACCI wants the government to go further in cutting red tape to reduce the regulatory burden by a quarter by 2030.

Mr McKellar and Ms Spending were disappointed that the impact of industrial relations environments on productivity was not taken into account.

“Workplace flexibility and workplace adjustments are fundamentally important,” he says.

But Sally McManus, secretary of the Australian Council of Trade Unions, argues that the reason productivity is stagnant is because businesses have stopped investing in skills.

He says protecting workers doesn’t hinder productivity growth, but is a tool through which they can reap the benefits.

Speaking at the end of the round table meeting, Dr. Chalmers has also promised action on tax reform, with guiding principles of making the system fairer for younger generations and encouraging businesses to invest more.

The government has so far been tight-lipped about what tax changes will be included in the budget, but the Treasury is reportedly exploring reducing the 50 per cent capital gains tax cut.

Robert Breunig, director of the ANU’s Tax and Transfer Policy Institute, says going back to the pre-1999 regime where relief was indexed to inflation would be a sensible change, but he wants to see it in the context of wider tax reform.

But he says major tax reform is unlikely to make it into the budget because history shows it often takes decades to achieve and requires bipartisan support or broad coalitions.

The fundamental review of the tax system carried out by Ken Henry during the Gillard government is still collecting dust on Treasury shelves.

Mr Breunig said the government should build on this and create a panel to conduct a review of the practice and recommend concrete changes to the system.

What might wholesale tax reform look like?

Mr. Breunig advocates the Scandinavian dual-income model, in which income from assets is taxed at the same rate as income from labor.

This would reduce counterproductive incentives for investors, such as parking their money in properties to avoid taxes.

Meanwhile, getting businesses to invest more should be the focus of corporate tax reform.

Mr Breunig thinks a corporate capital allowance, which allows firms to reduce the cost of equity capital they put into a business, is a better way to encourage investment than the hybrid cash flow tax proposed by the Productivity Commission, which business has rejected as too complex.

Ms. Wood disagrees.

Ms Spending argues that reining in out-of-control spending should also be part of the discussion.

Dr Chalmers says programs such as the NDIS should revive the budget honesty requirement and impose fiscal guardrails to prevent them from ballooning further.

In addition to placing an additional burden on future generations, increasing public demand crowds out the private sector and limits productivity growth.

For those hoping to take immediate action, the iterative nature of the reform process and consensus building can be frustrating.

Lacking a bold agenda at the last election, the mooted capital gains tax changes have led the opposition to criticize the government for pursuing an unauthorized “cash grab”.

But Ms. Sathanapally says the mandate for economic reform need not come through elections.

Since then, he says, the process of roundtables and public debate has laid the groundwork for real reform.

If Dr Chalmers delivers on the promise he made in the May budget, future generations will reap the rewards.

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