The Australian: Rudd in Reverse on Productivity

IN his National Press Club speech last month, Kevin Rudd told Australians that when he became Prime Minister in 2007, he aimed to "lift our national productivity" -- and he has never changed his view.

Everybody agrees productivity growth is crucial. Think about it this way: each year we put certain inputs of labour and capital into our "national economic machine" and we get a certain output.

In the 1990s, Australia enjoyed strong productivity growth of 1.6 per cent a year, which equates to 17 per cent over a decade.

In other words, if our inputs in 1990 gave us 100 units of output, by the year 2000 we were getting 117 units of output for the same amount of inputs.

Unfortunately, since the year 2000 the story has been much bleaker.

According to a recent paper by economist Saul Eslake, in the 10 years to 2010, Australia's productivity hardly grew at all.

Nobel Prize-winning US economist Paul Krugman famously said: "Productivity isn't everything, but in the long run it is almost everything."

For the past few years in Australia we have been able to forget that essential truth -- thanks to a free kick from the mining boom and a jump in our terms of trade.

RBA governor Glenn Stevens gave a good illustration of the terms of trade jump: in 2005 one shipload of iron ore from Australia was worth 2200 imported flat-screen TVs; but by 2010 it was worth 22,000 flat-screen TVs.

Consulting firm McKinsey points out in a recent paper that between 2005 and 2011 Australia's "gross domestic income" rose from $815 billion to $1042bn.

Of this, 38 per cent was due to our improved terms of trade.

The contribution from improved labour productivity was only 8 per cent and capital productivity was actually -19 per cent.

If we have a productivity problem, as the PM says, what should we do about it?

A good answer lies in a speech from then Productivity Commission chairman Gary Banks in 2010.

He called for reforms to "reduce business costs and enhance the economy's supply-side responsiveness", and he wanted government to be "fiscally parsimonious".

Banks also wanted a crackdown on "infrastructure projects that do not yield a net social benefit"; reduced regulatory compliance burdens; and a removal of constraints on the flexibility and adaptability of enterprises.

The Rudd-Gillard-Rudd government has done pretty much the opposite of what Banks recommended.

Labor has greatly increased business costs through more taxes (carbon tax, mining tax) and more regulation.

To take just one example, the new national childcare law is almost 180 pages, with a further 345 pages of regulations and 1149 pages of guidelines.

Childcare providers told the Coalition's deregulation taskforce that medium-sized centres were devoting one full-time position to office administration, and staff were often taking work home.

Far from being "fiscally parsimonious", the Rudd -Gillard-Rudd government has produced five huge budget deficits in a row; government spending has exploded from $253bn in the 2006-07 to $391bn this year.

Rudd committed to the National Broadband Network -- estimated now to cost taxpayers more than $90bn due to its extravagantly over-engineered network -- without a cost-benefit study and hence without having any idea if it yielded a "net social benefit".

Rather than regulatory compliance burdens falling, they have jumped under Labor.

The Rudd-Gillard-Rudd government has added more than 21,000 new regulations -- and repealed a mere 105.

The Rudd-Gillard-Rudd government has increased the size of the public sector, with commonwealth staff numbers up by nearly 20,000. Rudd may say that he cares about productivity but his actions have seriously harmed productivity.

By contrast, the Coalition has well developed plans to improve productivity and reduce the regulatory burden on business -- with measures including linking senior public servants' pay to meeting regulation reduction targets; dedicating two parliamentary days a year to repealing unnecessary laws; and streamlining commonwealth procurement processes to address high compliance costs.

Rudd is right that restoring productivity growth is vital. Unfortunately, his party has delivered the opposite result.

Paul Fletcher is a federal Liberal MP.