The Australian: Deregulation key to lifting services sector

WE hear a lot from the Gillard government about manufacturing, with summits, and policy statements and taskforces.

Manufacturing is of course vitally important, but it is odd that we hear much less about services, even though it is a substantially bigger sector. In 2010-11 services constituted $923 billion, or 77.6 per cent of industry output (compared with mining at 10.3 per cent and manufacturing at 9.1 per cent).

Because the services sector is labour-intensive, its share of employment is even higher than its share of economic output. On the latest numbers, there are 9.9 million people employed in the services sector, making up 86.3 per cent of total employment.

So there are a host of public policy reasons the services sector is important. It is a very large employer. It generates export earnings: education for example was Australia's third-highest export earner in 2010-11, bringing in more than $15bn.

In many parts of the services sector, Australian companies are world-class performers. International law firms, for example, are merging with our law firms in a recognition of their skills and market position.

But with much of the services sector lightly unionised, it is not very visible to the Rudd and Gillard governments. In professional, scientific and technical services, only 2.8 per cent of employees are trade union members; in financial and insurance services industry it is 10.9 per cent. By contrast, unions covering manufacturing workers such as the AWU and the AMWU get a very good hearing from the government as they press for ever more public assistance. Of course, there is already extensive assistance to manufacturing. According to the Productivity Commission, in 2010-11 manufacturing received 77 per cent of the estimated $9.8bn of assistance to industry from government. The services sector by contrast received "negative assistance" of $2.3bn, primarily through paying tariffs.

Despite the government's selective vision, there are real opportunities to pursue policies that will stimulate the services sector -- and employment and growth. Since the 1980s the sector has grown more rapidly than the overall economy, and the signs look good for this to continue. As the Australian Services Roundtable notes in a recent report, there are several favourable factors. One is the growth of emerging economies and the associated growth of the middle class; another is the ageing population, which is driving growth in healthcare and aged-care sectors. The third favourable trend is technological change.

What should government do to best position the services sector to capture these opportunities? The first priority is winding back regulation. For a quarter century from the early 80s the bipartisan commitment to deregulation and liberalisation of the economy brought strong growth in key services sectors including finance, transport and communications.

For example, the contribution to GDP from the financial and insurance sector rose from 6.6 per cent in 1990 to 11.5 per cent in 2011, while relative prices of financial services have fallen about 40 per cent since 1993-94.

Under the Rudd and Gillard governments, we have gone from deregulation to reregulation -- for example, legislating to bar companies offering high-speed broadband services in competition against the National Broadband Network. If we are to unleash the potential of the services sector, we need to get back on a path of deregulation. The Coalition has made key commitments in this area, including spending two days a year of parliamentary sitting time to repeal unnecessary regulation.

A second priority is stimulating the export of services in sectors such as education, financial services and legal and consultancy services. Services exports rose strongly for many years, peaking in 2000, but have now dropped off as a percentage of total exports.

One important goal is establishing Australia as an Asia-Pacific financial centre. Unfortunately, the government has made little progress due to factors including complex and increasingly uncompetitive tax arrangements and regulatory structures.

The third priority is policy settings that are neutral between sectors rather than favouring one over another. Industry policy decisions should be based on rational criteria -- such as maximising employment or maximising economic growth -- rather than on the number of delegates particular unions send to the ALP National Conference. That is how we will get the best from all sectors and the best value for the taxpayer's dollar.

Paul Fletcher is a Liberal MP.