Executive summary

Opportunities for reform are rare, yet fundamental economic principles have remained largely unchanged despite events like the global financial crisis and the pandemic. The Centre for Policy Development (CPD) argues for “productivity with purpose,” suggesting that productivity should serve people and the planet rather than being a narrow measure of output. The report recommends a broad-based approach to reform, including a package of tax reforms shifting away from income towards rents, wealth, and consumption, and the development of productivity metrics in the care economy that align with social value and quality.

Connecting productivity to purpose

The document highlights that additional economic activity is not always unambiguously good for society. Productivity growth can reduce material footprints, but under certain conditions, it can also lead to Jevon’s paradox, where increased efficiency makes it profitable to use more materials. For instance, productivity improvements in mining can make new coal mines profitable, potentially worsening climate change. CPD suggests that if gains from new technologies are not shared broadly, they may result in concentrated profit growth and increased inequality rather than benefits like a 4-day work week.

Expanding the path to a dynamic and more resilient economy

A resilient economy requires policies that support full employment and economic complexity. Australia’s economic complexity has declined over the past two decades, and the nation is currently ranked 105th out of 145 countries. The report urges the government to set clear directions for economic development through frameworks like Future Made in Australia. It also suggests that tight labour markets incentivise productivity growth as businesses are pushed to use labour more efficiently and adopt new technologies.

A fairer, more efficient and sustainable tax system

Australia faces growing fiscal pressures from demographic changes and sustained demand for public services like the NDIS and Medicare. The report recommends land tax reform, specifically replacing conveyancing stamp duties with an annual land tax. It further proposes adopting the Henry Review model for a uniform national resource rent tax. Other recommendations include broadening the GST base and removing regressive tax exemptions related to superannuation and investment housing to ensure a more sustainable revenue base.

Improving measurement, funding, and prevention in the care economy

Current productivity measurements often misrepresent the care sector. While measured labour productivity in the care economy has remained relatively flat, pilot efforts to quality-adjust data suggest that healthcare productivity grew by approximately 3% per year compared to 0.8% in the market sector. The report advocates for 10-year funding cycles and relational contracting to reduce administrative burdens. The ACCC Childcare Inquiry 2023 showed that costs in this sector are not necessarily correlated with quality, highlighting the need for better government understanding of service drivers.

Prioritising prevention in government investment

Investing in prevention reduces “failure demand.” The Australian Institute of Health and Welfare estimated that government health spending attributable to avoidable risk factors was $24 billion in 2018-19. Successful models like the Wigan Deal in the United Kingdom saved £134 million between 2011-12 and 2018-19. CPD recommends establishing an Avoidable Costs Unit within the Commonwealth Treasury to model the long-term savings of early intervention, particularly in areas like universal early childhood education and care (ECEC).

A cost-effective, efficient, and community-centred net zero transformation

While the $22.7 billion Future Made in Australia agenda is welcome, investment closer to $60-100 billion is likely needed for the net zero transition. The report suggests expanding the Safeguard Mechanism to facilities emitting less than 100,000 tonnes of CO2 equivalent per year. It also recommends amending the return mandates of the Clean Energy Finance Corporation (CEFC) and National Reconstruction Fund (NRF) to a target of 0-3% above the cost of capital to encourage investment in earlier stages of innovation.

Streamlining approval processes

Planning processes for large energy projects are currently complicated, with wind farms taking approximately 53 months and solar projects taking 41 months to complete. CPD points to South Australia’s Hydrogen and Renewable Energy Act, which merged six Acts into one, as a model for cutting red tape. The report also recommends amending the EPBC Act to allow decision-makers to place greater weight on climate impacts, as the Act currently makes it impossible to approve projects solely on the basis that they lower emissions.

Encouraging community engagement

Building social license is critical for the success of energy projects. Research shows 70% of people in renewable energy zones support projects on farms when they perceive benefits like local investment. The report cites Denmark, where government-supported projects had to offer a minimum of 20% equity to local residents, as a model for direct community ownership. Such engagement ensures that the benefits of the net zero transition are fairly distributed.

Productivity with purpose

Ultimately, productivity growth should be viewed as the economy’s engine, with the government serving as its navigation system. Without a clear purpose, there is a risk of exacerbating inequality and ecological breakdown. Defining and measuring productivity with a focus on equity and sustainability is essential for Australia’s future prosperity.