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NSW Productivity Commission White Paper – Rebooting the Economy

31 May 2021

Let me begin by congratulating the Commissioner – this is a huge body of work, and an important body of work. 

So thank you to Peter, your team and the team at NSW Treasury for the effort you have put in. 

When I first became Treasurer I attended a meeting of the Council on Federal Financial Relations. 

All the Treasurers were there – it was very exciting. 

We had a presentation from the Commonwealth Productivity Commission. 

What became clear to me that day was that over the previous few decades, federal governments had done a huge amount of work on productivity reform. 

Hawke, Keating, Howard, Costello – they had done just about all the heavy lifting on productivity that was in the federal space. 

And it wasn’t easy – it was hard slog politics. 

But they took on those politically challenging reforms – and even took them to elections – and won! – because they were the right things to do. 

What was clear from Peter Harris’s report was that the real opportunities for productivity reform were largely in the jurisdiction of the states. 

It was time for the states to step up and take on the politically difficult productivity polices to take our nation to where it needs to be. 

That is why we established the role of NSW Productivity Commissioner in the first place – and that is why Peter’s report today is so important. 

And it’s important not just for “the nation” in an abstract way – but for every working Australian trying to get ahead. 

This month’s federal budget continued the important work of rebuilding the national economy and restoring jobs. 

But it also contained some sobering news for those working Australians. 

Next financial year the cost of living – measured by CPI – is expected to rise faster than wages. 

For the two years beyond that – real wage growth is forecast to be flat. 

And that is despite the national unemployment rate being predicted to fall to as low as 4.75 per cent by mid-2023. 

Once upon a time that would have been considered well below “full employment” – when wages naturally start to rise. 

But the RBA Governor has recently suggested full employment may be even below 4 per cent unemployment. 

In the wake of a major economic crisis, low wage growth is hardly unexpected. 

But the forecast has important implications for governments and our post-COVID mission: that is that getting back to square one is simply not enough. 

If we just get back to pre-COVID levels of unemployment, living standards will go backwards. 

So we cannot allow the pandemic – and recovery from the pandemic – to obscure the task at hand. 

The fundamental goal of our economic system must be to increase the living standards of the Australian people. 

If that requires driving unemployment to record lows and below 4 per cent, then that must be our ambition. 

So even if unemployment is low, GDP and GSP growth are strong, investment is high, construction is strong, and so on – these indicators don’t mean much if working Australians aren’t any better off. 

Now the challenge of stagnating wage growth predates the pandemic. 

It is a structural one. 

And it requires governments at all levels – to look beyond recovery – to the deeper transformation necessary to spur the next phase of economic growth in Australia. 

That means finding ways to lift productivity. 

If Australian workers can generate more value for the same amount of effort, our living standards will rise. 

So productivity growth is central to our core mission. 

Productivity is one of the three Ps that economists frequently say are essential for economic growth.  

The other two are population and participation. 

When fertility rates are at historic lows, it’s not easy to grow your population. 

In Australia we rely on immigration for growth – but in a post-COVID world that poses real challenges.  

The other issue with relying on population for economic growth is that the gains for individuals and households are marginal. 

The economy gets bigger when you add more people, but that doesn’t guarantee people are individually better off. 

 And with respect to my Treasury friends who are here – and the federal Treasury – when Treasuries look at economic growth, population seems to be the go-to. 

Perhaps this is because they don’t have a choice. 

If you don’t have a political class that has the courage to take on the political challenges of productivity reform – then the economists in Treasury will say: the only way to hit our targets is to add more people. 

It’s a similar story for participation – yes, it is important to get as many people into the productive workforce as possible. 

But sometimes increased participation is artificial if you are just moving people out of valuable unpaid work – like volunteering or working in the home – and into paid work. 

So if we really want to improve the quality of life Australians enjoy, productivity growth is it. 

But there’s a catch. 

Increasing productivity is hard. 

Harder than just inviting more migrants into the state, or transferring hidden workers on to the scoresheet. 

Improving productivity means devising better ways of doing things. 

It means branching out into industries that have more valuable output. 

It means honestly examining the economic structures that are in place – like the tax system – and if they are no longer fit for purpose – then daring to create new ones. 

Increasing productivity means disrupting the status quo. 

That all adds up to political risk  

And that’s why, time and again, real productivity reform gets put on the backburner. 

So in launching this paper today I want to talk about three Ps – but not the ones you usually hear about. 

  • The first one is productivity. 
  • The second is politics. 
  • And the third is pragmatism. 

 If we want to grow our economy in ways that lift people’s living standards – they are the three Ps that really matter. 

Productivity

First – productivity. 

I have already covered why it’s important. 

And Peter will tell you more shortly, when he delves into the detail of the many productivity enhancing ideas he has covered in his White Paper. 

Some of them are simple, sensible and achievable. 

Others – like his proposal for nuclear energy – are more “explosive”. 

But progress is never made by keeping ideas off the table. 

Often reports like this one will be stripped back or dumbed down by Ministers worried about the media they could generate. 

If we are going to succeed as a nation, we need to be mature enough not just in politics – but in the media – to say “let’s have a genuine discussion”, and not go straight to the beat up or the scare campaign.  

An idea may or may not succeed – but to refuse to have the debate is to surrender to mediocrity. 

That’s why it is important that these ideas come from an independent perspective, precisely because they are challenging. 

Peter doesn’t have to take these ideas to an election. 

He can look at the economy objectively and tell us frankly where the best opportunities for productivity growth will be. 

The challenge for government is to find ways to turn the best ideas into policies that work. 

 

Politics 

That brings me to politics 

Politics and productivity are not natural allies. 

Bismarck famously said, “Politics is the art of the possible”. 

That means sometimes great ideas cannot be implemented, because the political reality is people won’t accept them. 

The job of politicians is to make the case. 

To forge a pathway. 

To bring people on the journey. 

And at the very least, plant the seeds for future growth. 

That way, even if an idea is too difficult to implement now – its time may come. 

But to make any kind of progress, you have to do the policy thinking – and that is what Peter has done. 

Our Government has embarked on a range of challenging reforms so far – and every single one has been met with a scare campaign. 

Asset recycling to build new infrastructure. 

Council reform for more efficient and accountable local government. 

Planning reform, to cut the time and cost of getting things built. 

When I was Minister for Finance, we began the Digital Drivers Licence project. 

I still remember when I walked into Mike Pratt – who wasn’t the Treasury Secretary, he was the Customer Service Commissioner 

And I said, “Mike – I want digital drivers licences in NSW. Can we do it?” 

And Mike said, “Absolutely we can – we just have to work out how.” 

Later I went to Premier Mike Baird and he said “go for it”. 

We announced it in the lead up to the 2015 election campaign – and it was completely panned. 

In interview after interview, everyone said – this is the most ridiculous idea I’ve ever heard. 

I’d be on talkback radio, and the questions I would get would be like “what if your phone goes dead?” 

And I’d think – what if you lose your wallet?  

People would say “I’ve got a Nokia 3210 with snake on it – it won’t work.” 

They said it was a stunt. 

They said it’s never going to happen. 

Fast forward to today, and around half of all drivers licences in NSW are already digital. 

I wanted it – and Mike Pratt delivered it. 

And that’s why I was so keen to appoint Mike as Treasury Secretary – because he is a guy with a can do attitude who gets things done. 

We gave people the option, and they are choosing it by the millions – because it makes their life just a little bit better (and we’ve got rid of wallets on the way through). 

There are dozens of stories like this – Uber is another one. 

It was illegal in NSW, and I made the mistake of suggesting maybe it shouldn’t be. 

I didn’t think it was that controversial. 

But Alan Jones got so angry on the radio he called me a left-winger masquerading in the Liberal Party. 

It’s the first time I’ve ever been called a left winger – and it probably wasn’t bad for my public profile. 

But when you see how millions of people couldn’t imagine life without services like Uber today – it’s hard to believe the outrage just a few years ago was real. 

These examples show the importance of governments looking beyond the curve – and trying to get ahead of it. 

Because despite the political difficulty – you can make changes that make people’s lives better. 

And our Government is determined to find ways to lift productivity through reform. 

Right now we are developing a range of reform proposals – like property tax reform. 

But on every front lies political risk. 

Oppositions will be opportunistic. 

They will drum up scare campaigns and shoot ideas down – even when they know the ideas are good for the people of our state. 

But if they succeed, our state and our nation will make no progress at all. 

 We will continue to meander and accept the status quo. 

So my message to the politicians of every creed and party who sit in the NSW parliament – whoever your leader may end up being: 

If you want greater prosperity for the people you represent 

If you want higher living standards and better opportunities for the working families of this state 

Don’t be part of the problem – be part of the solution. 

Assess reform proposals on their merits 

Resist the temptation to shut them down just for the sake of it.  

And have the courage to have a genuine debate and back in good reform when the opportunity arises. 

 

Pragmatism 

Now look, it would be naïve to think our political opponents are going to listen my pleas. 

And in any case, the people of NSW have elected a state parliament with representatives from a range of parties representing a breadth of views. 

In practical terms, we need their support to get legislation through. 

So the political reality for reformist governments is this:  

If you want progress you must be willing to compromise. 

And that brings me to the third P – which is pragmatism. 

When John Howard and Peter Costello proposed the GST – they made major concessions. 

If they hadn’t, the reform would have been dead in the water, and we’d still have a raft of inefficient state taxes in place. 

The concessions they made may be causing challenges for us today – but those are our challenges to overcome, not theirs. 

They did the hard yards of making major structural changes to our tax system – and the fact they had to compromise does not diminish the achievement. 

And today the commentariat – who once opposed the GST – are now calling for it to be raised and expanded. 

That is the reality of what happens when good governments take on reform. 

The naysayers of today end up being the prosecutors of the cause down the track. 

That is a lesson for us today. 

When it comes to productivity reform, we can’t afford to allow the perfect to be the enemy of the good. 

What Peter’s white paper gives us is a smorgasbord of ideas to explore. 

I want the community to look at these ideas – debate them robustly – and see where the opportunities lie. 

By the same token, our Government will carefully consider the ideas in this report – and our challenge is to find the practical pathways to make real progress. 

That won’t always look pretty. 

There will be scare campaigns. 

There will be compromise. 

Shots will be fired and political injury is inevitable. 

But that is the job we have signed up for as politicians. 

Failure to take on the challenge is an abdication of our responsibility as elected representatives. 

If we are not here to do the hard work of making our state a better place, we shouldn’t be here at all. 

 

So I want to congratulate and thank Peter again for the work he has done. 

You have thrown down the gauntlet – and as difficult as your task has been, now comes the truly hard part: getting reform done. 

I can’t promise we will succeed on every front. 

In fact I can tell you flat out – some of the ideas you have canvassed will be criticised – and there will be no practical pathway forward. 

But all ideas should face scrutiny and generate debate.  

And your work is paving the way for reform – and a better quality of life for Australians. 

That is your goal – that is our goal – and we will continue to pursue it for the benefit of the people of this great state. 

Read the NSW Productivity Commission White Paper here.

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