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Wednesday, 22 August 2012
Page: 6083


Senator RONALDSON (Victoria) (13:44): As a matter of public interest, I wish to talk about Australia's productivity—or lack of it. This is the most pressing issue facing this country. Why? Because the prosperity and wellbeing of every Australian rests on Australia's productivity. Unfortunately our productivity withers as Labor focuses on small issues, builds up debt, introduces job and economy-destroying new taxes such as the carbon and mining taxes and responds to the hot issues of the day while relying on the resources boom for economic growth.

All Australians will one day rue Labor's neglect of productivity reform when our vast mineral resources, our trade with China and our ability to service huge debt can no longer be relied on.

I address three topics today. The first is Australia's current productivity. The second is the Labor government's record in productivity reform. The third is the action required for growth. Australia is experiencing a growing productivity decline outside of resources, with many industries, such as retail, experiencing tough times. Productivity is averaged at 0.9 per cent in annual decline under Labor, whereas productivity averaged 0.9 per cent annual growth under the coalition. Australia's recent productivity and competitiveness has also declined compared with other nations. For example, Australia is falling behind in the World Bank's Doing Business 2012 rankings, dropping four places in the past 12 months. Australian productivity against the US is also now at the same level as in the mid-1970s.

This productivity decline would normally mean declining living standards. However, the resources boom has masked Australia's fall, with Australia's terms of trade rising dramatically over the last decade, due mainly to China's rise and the demand for our resources. Between 1991 and 2003, labour productivity constituted over three quarters of gross national income growth. Labour productivity is now less than one-quarter of this growth, cloaked by the terms of trade.

However, experts point to a peak in the terms of trade. Indeed, former BHP Billiton Chairman Don Argus states that Australia's terms of trade appears to have peaked, with the nation needing to 'prepare for a long period of slow global economic growth'. The Governor of the Reserve Bank, Glenn Stevens, agreed, saying:

Australia's terms of trade peaked nearly a year ago, though they remain historically high.

This peak is related to weakening commodity prices as global supply increases, Australia's ageing population, the slowdown in China's growth and the demand for our resources. Treasury's head of macroeconomics, Dr David Gruen, indicates that the terms of trade could eventually work against Australia, meaning productivity gains would need to become the main economic driver.

I turn now to the Labor government's record in productivity reform, and poor it is. Labor's focus should be on improving Australia's productivity, but they have used the high terms of trade to become complacent about reform. Labor are even reducing productivity by raising taxes such as the carbon tax and the mining tax. Labor have, regrettably, ignored the experts. The Business Council of Australia head, Jennifer Westacott, states:

… we want to be … a high wage, high productivity economy, but what we are at the moment is a high cost, low productivity economy and that will kill our competitiveness.

There is a business lesson about an elephant owner which parallels Labor's approach. Business for the elephant owner was tough; not enough clients were riding his elephants to cover expenses, so he thought, 'I'll increase the price of rides and then I'll have enough money.' He did so, but business suddenly dropped off. As he was wondering why, the market owner approached him and said, 'Perhaps if you had reduced your prices you would've increased your income to cover expenses.' The elephant owner thought this was illogical, but gave it a go. All of a sudden, business was booming and he now had enough not only to cover his expenses but also to purchase another elephant. Labor's approach to productivity is equivalent. It is raising prices and reducing productivity rather than reducing prices and encouraging growth. Productivity is the elephant in the room that has not been addressed by Labor.

The consequences of Labor's failures are that the lack of productivity reforms, a foreign capital dependency and a deficit have all exacerbated the risk as trade growth slows. Australians should be extremely concerned if this productivity decline shows its true face.

What has happened under the Labor government? Labor has increased government debt, tripling Commonwealth, state and local government debt and moving Australia from an approximate $19 billion surplus to an approximate $44 billion deficit, with about $7 billion in interest this year alone. Labor has promised to present a surplus but, as Don Argus has pointed out, even a five per cent fall in the terms of trade would eliminate Labor's $1.5 billion budget surplus twice over. Labor has taken insufficient action to reduce household debt, which is already at 110 per cent of GDP. The Bank for International Settlements states that gross economic household debt above 85 per cent of GDP becomes a drag on economic growth. Labor's actions are hurting the economy, as households have no ability to drive economic growth.

Labor has also made a mess of public finances, with growth and expenses under Labor outpacing income. For example, welfare is fast-growing and there is a huge pressure on state finances, resulting in larger state debts and a lower ability for state infrastructure investment. Labor has invented new taxes, such as the carbon tax and the mining tax, which do not work, cost businesses and ordinary Australians, and reduce Australia's global competitiveness. For example, the carbon tax is fixed at $23 per tonne regardless of business conditions, and at least three times the cost of those in Europe. China, of course, is already moving to other markets.

Labor is wasting funds through its top down, government run NBN, which never received a productivity assessment and has already seen delays, inefficiencies and increasing costs. Surely a productivity assessment should have been the first priority in a project costing more than $40 billion. That is why the Liberals say that government should never do those things that the private sector can do better. In five years Labor has added or amended over 18,000 regulations while repealing only 86. Labor renamed the department as the Department of Finance and Deregulation, but as Sir Humphrey Appleby said in Yes Minister, it's always best to 'dispose of the difficult bit in the title; it does less harm there than in the text.'

Clearly, Labor has broken its promise of one-in one-out with this regulatory proliferation and, as my colleague Bruce Billson has pointed out, it is immensely harming for small business, who are already spending about $28,000 and nearly 500 hours a year on red tape.

Challenging business conditions are also associated with a 95 per cent reduction in new business start-ups in the last 12 months. The Productivity Commission estimates that reducing red tape could increase the economy by $12 billion. However, Labor remains committed to regulations and new taxes while ignoring the resulting productivity decline.

What needs to occur to increase productivity growth in Australia? Strong leadership is required now to take action to make significant productivity gains that will ensure Australia's productivity. Government action must focus on the key elements of economic growth: population, participation in the workforce and productivity. I will now turn to population. This is essential to productivity growth. However, with our rapidly ageing population, workforce participation is falling. This means lower government revenue and increases to expenditure such as health and pension costs. Australia's population policies must, therefore, increase the working age population percentage. This can be achieved through policies to increase birthrates, such as through the coalition's parental leave policy, and to increase immigration, particularly of skilled immigrants who can immediately contribute economically.

The second element is participation in the workforce. Government policies must increase the workforce participation of the working age population. This means getting people into the workforce and out of welfare, taxation reforms and cutting red tape.

In relation to productivity, we need a relentless focus on productivity-enhancing policies. This means government spending must be reduced while productivity increases so that borrowing reduces, interest rate pressure subsides and taxes can responsibly come down. We need lower taxes, competitive interest rates, a user-friendly government and affordable First World infrastructure to enable business to flourish. We also need regulatory certainty through limited, uniform and efficient regulation, not ad hoc, productivity-hindering regulations.

The coalition's plan to achieve economic growth and to boost productivity has been outlined by my colleagues Joe Hockey and the Leader of the Opposition, Tony Abbott. It involves, firstly, improving public finance. We need to ensure sustainable public finances by reducing our operating leverage. The coalition will eliminate Labor's debt and achieve a surplus in our first year and a surplus in every year of our first term. The coalition will be more accountable than Labor by releasing all of our costs and verified policies and savings prior to the election. Action on finance will include, for example, reviewing the real commercial value of the NBN and meeting with the states and territories to resolve expenditure such as infrastructure funding. On this topic, revenue must be sufficient for the states to reduce debts and to enable infrastructure investment, particularly in regional areas forgotten by the Labor Party such as, in my home state, Ballarat, Bendigo and Geelong.

The second element of the plan is lower and simpler taxation. World Bank data already shows that Australian companies are making an average of 11 tax payments per year, taking an average of 109 hours. The coalition will thus get rid of unnecessary and burdensome taxes such as the carbon and minerals taxes. We will offer cuts of today's personal tax rates and offer a modest cut in company taxes achieved through prudent savings.

In relation to productivity gains, the coalition will initiate the following: welfare reform to lift participation in work, including Work for the Dole and our Green Army plan; public sector reform to deliver better and more cost-effective services—this includes repairing the Commonwealth-state reform process and financial incentives for states to reduce costs; red and green tape reform to cut $1 billion worth of red tape out of the economy in our first term and a new one-stop shop for environmental approvals for major construction projects; competition reform to ensure that large and small businesses are competing on a level playing field; and, finally, infrastructure reform to ensure best value from spending, including mandatory cost-benefit analysis for projects over $100 million.

Fourthly, we plan labour market reform to encourage higher pay for better work, including a reinstatement of the Australian Building and Construction Commission. Policies must ensure business flexibility while also protecting workers' rights. Getting this balance right is essential. Finally, we intend closer engagement with Asia. The coalition will initiate broader trade links with Asia in services such as tourism, education, health and financial services to reduce risk.

In conclusion, our nation's wellbeing rests on productivity growth being a key government priority, which economists have recognised as the only sustainable source of improved living standards. Ensuring productivity and prosperity is a key plank of the coalition's platform, not just a sideshow, as with Labor. We must act now and not accept the status quo and must ensure that productivity growth is the No. 1 priority to ensure hope, opportunity and reward for all Australians.

In the very brief time left to me, I refer to the disgraceful behaviour in the other place of the Labor members, two of the Independents and the Greens in relation to fair indexation. As honourable senators will know, 57,000 Australians and their families do not receive fair indexation. Indeed, the Minister for Finance and Deregulation has been proved absolutely wrong by the Government Actuary and others in relation to this matter. You sit back and you allow that group of Australians, who have served this country, to have a different method of indexation than those on service and age pensions. You do not care about them. You had the opportunity today to do something about it; you did nothing about it. You have not, on any occasion offered to you, taken the opportunity to provide fair indexation. You stand utterly condemned in relation to this matter. The coalition will continue to pursue this from now until the next election. Every day we will remind those service families what you have not done for them, what you have refused to do and what the opportunities are for you to address it. You could have done it today. You could have done it in this place last year. You have chosen not to do so. We will pursue you in relation to this matter every single day between now and the next election. If you will not do it, I can assure you we will.

Debate interrupted.