Home' Charter : 1011 Charter Contents October 2011 I Charter 33
tax rates particularly at the higher levels, so
people are caught in many tax and welfare
traps where moving to earn more income
sees welfare or family entitlements reduced
and there are disincentives to do more
productive work and earn more.
Yasser El-Ansary CA also believes tax
reform is crucial to boosting productivity in
Australia. And this month’s Tax Forum in
Canberra is an excellent opportunity (see our
business story on page 16).
“To me, October is all about commencing
a community-wide discussion about tax
reform, not necessarily about commencing
and concluding a debate about what should
happen in the next two or three years,” says
El-Ansary, the tax counsel with the Institute of
Chartered Accountants in Australia. “I think
that’s unrealistic. Clearly with a major piece of
work such as the Henry tax review to consider
(more fully), there is a wide spectrum of
debate that can take place.
“If we approach each part of the tax and
transfer system sequentially, maybe this
debate about where we go with our tax
system should continue on an annual or two-
yearly basis. We should not see October as
the frst and last opportunity to talk about tax
reform in Australia.”
Chris Caton thinks there might be a simple
reason why Australia’s productivity growth
has slipped as much as it has.
“I think the frst thing you have to do is
understand why it’s been abysmal. Some
of it might just be mismeasurement,” says
Caton, the chief economist with BT Australia.
Mind you, it was always going to be hard
to stay on top of things.
“In a sense we’re victims of our own
success,” he says. “The unemployment rate
has come down sharply in the past decade.
As the economy generates more and more
jobs, you eventually get to a stage where you
employ less productive people which you
want to do, because it’s better for them to
be in employment than not in employment.
But as the unemployment rate gets lower,
you would expect the average productivity of
labour to go down.”
Caton says we need to look hard for initiatives
to improve Australia’s productivity since much
of the obvious stuff has been done.
“If you were to ask, how can we improve
productivity, the knee-jerk reaction is to say
more economic reform because it is quite
clear that past economic reforms have
contributed to productivity,” he says.
“If there is some glaringly obvious
economic reform, then we should do it.
My suspicion is that there is stuff we can
do in the areas of health and education
spending which have been held back for
all kinds of fiscal conservatism reasons.
Reform of the tax system would also
probably stimulate productivity growth.”
Innovation and technology often lead to
increased productivity, so are we set for
a productivity windfall when the National
Broadband Network is up and running?
The federal government thinks so. The
Minister Assisting the Prime Minister on
Digital Productivity, Stephen Conroy, believes
the National Broadband Network (NBN)
will help Australia become a leading digital
economy within the next nine years.
“I fnd the NBN diffcult to fgure out. To
be honest, I don’t know,” Caton says. “It
might be the smartest thing we’ve ever
done, just as building the Sydney Harbour
Bridge as wide as it is in the 1930s was a
very clever and forward-thinking thing to
do. But it might be superseded by some
new technology eventually, so I don’t
know. The issue with computing power –
whether it’s the internet or something else
– as a wiser economist than I am once said
is that in the US you can see the infuence
of computers everywhere except in the
“You’d have to think this stuff must be
contributing to productivity growth but just
as we’ve had this surge to more online
stuff, productivity growth slowed down.
That, to me, comes back to the possible
Digital productivity may not be the only
area difficult to measure. “My suspicion is
the fetish we’ve had about public debt in
Australia in the recent decade or so has
led to a significant underinvestment in
infrastructure. That could be health and
education, but it could also be roads and
so on,” he says. “My suspicion is that
one thing that’s holding back productivity
growth in the private sector might well be
the inadequacy of public infrastructure.
But I would not even know how to begin
to quantify that. ”
The US economist Paul Krugman says
“productivity isn’t everything, but in the long
run it’s nearly everything.” Caton says that
indicates we perhaps need to think just how
productivity should ft in with our other goals.
He says Australia has lagged the United
States in productivity for the past decade
but, considering the economic woes facing
the US, we probably wouldn’t want to be in
“What that tells us is maybe you shouldn’t
focus too much on productivity growth,
maybe you should focus on keeping your
workforce employed,” he says. “Productivity
growth – by any measure – has progressed
faster in the US than it has here. Yet they’ve
got more unemployment and they’ve got
greater income inequality.
“If that were the price of higher productivity
growth in Australia, you wouldn’t want to pay
it, would you?”
Microeconomic reform is the
most sure-fire way to lift our
Links Archive 0911 Charter Sept 1111 Charter Navigation Previous Page Next Page