Economic reform back on the agenda as momentum builds

Boards may see a clearer path to govern for growth following Treasurer Jim Chalmers’ recent productivity forum in Canberra, according to AICD CEO and managing director Mark Rigotti.

The three-day Economic Reform Roundtable brought together business organisations, unions and political leaders to discuss the biggest challenges facing the Australian economy, including stagnating productivity growth. The AICD was part of an alliance of industry associations represented at the event and provided a submission in response to the Productivity Commission’s consultation on the five pillars of productivity.

“We’ve been an active participant in the consultations to bring the director voice into the national conversation,” said Rigotti. “We’re heartened to see the momentum that has come out of the Treasurer’s roundtable, including a commitment to take action in key areas. Many of the points we’ve raised in recent months have been endorsed by the Treasurer.”

AICD members had raised concerns that regulatory complexity and long delays to project approvals have been an economic handbrake. The organisation is calling for a 25 per cent reduction in red tape by 2030.

In recent months, the AICD organised three roundtable events to discuss the crisis, with 30 senior board members from a variety of sectors including financial services, construction, energy, manufacturing, healthcare and higher education.

The key themes have included the need for a nationwide approach to better regulation, more investment in innovation and accelerating major infrastructure projects.

Productivity in Australia has fallen behind that of many other nations, with zero growth since 2016 and negative growth since 2022 and the country now ranks a lowly 18th according to the IMD World Competitiveness Yearbook.

So there was a lot riding on Chalmers’ gathering of the great and the good. 

Initial reactions were mixed, with commentators praising the intent but remaining sceptical about tangible change. The summit ended with broad agreement on the need to fast-track reforms to simplify regulation and a laundry list of “quick wins” to expedite environmental approvals and overhaul the National Construction Code. 

Less clutter, better policy

“We’re very pleased to see the government prioritising reform and pledging to tackle regulatory clutter as part of a recalibration process,” said Rigotti. “Productivity is a critical issue for Australia’s governance professionals and we’ll continue to advocate for better policymaking processes so boards can get on with the job of governing for growth to support the best outcomes for Australia, rather than getting bogged down in compliance conversations.”

A joint statement from the Australian Chamber of Commerce and Industry, Australian Industry Group, Business Council of Australia and Council of Small Business Organisations of Australia said the roundtable provided an important and constructive process for some priority areas for reform, including proposals on investment, cutting red tape, trade, housing, faster approvals and skills. 

However, the groups said, “…any proposal must lift business investment across the economy to boost productivity and drive higher living standards for all Australians…”. Higher taxes and levies on all businesses were “roundly rejected”.

Speaking to Company Director magazine outside the roundtable, Innes Willox AM, CEO of the Australian Industry Group, said, “This is a key opportunity to reset Australia’s economic trajectory in the face of some strong headwinds.”

Reaching for the playbook that has served us well for the past 40 years “simply won’t cut it” at a time when China is becoming less of a certain market for Australian commodities, said Willox. The rules of global trade and geo-economics are shifting rapidly and technological change is accelerating. 

“We need to be smarter, swifter and more nimble as a nation to create the conditions for private sector productivity and investment growth,” he said. “Right now, we appear slow, bureaucratic, risk-averse and, at times, unwelcome when it comes to competing for global capital or driving local investment.”

Urgent tax reform

Australia’s lacklustre productivity has been attributed to falling business investment over the past decade. The draft recommendations from the Productivity Commission (PC) include lowering the company tax rate from 30 per cent to 20 per cent for businesses with revenue under $1 billion, while introducing a new five per cent net cashflow tax that allows companies to immediately deduct capital expenditure costs. Modelling suggests these changes could increase investment by $7.4 billion (1.6 per cent), GDP by $14.6 billion (0.5 per cent) and labour productivity by 0.4 per cent.

Andrew McKellar, CEO of the Australian Chamber of Commerce and Industry, notes it is difficult to get meaningful productivity outcomes without addressing corporate tax, with the interaction between the business tax system and business investment of key importance. He suggests the current proposals lack “a spirit of adventurism” required for viable reform, while the broadly revenue neutral way the net cashflow tax is configured will create “winners and losers”.

The PC shines a spotlight on Australia’s growing regulatory burden. It proposes adopting a whole-of-government commitment to drive regulation supporting economic dynamism. It also recommends strengthening Cabinet scrutiny of regulatory proposals (by applying similar methods used to scrutinise budget proposals) and enhancing expectations placed on public servants, making them accountable for delivering growth, competition and innovation.

McKellar agrees that reducing red tape by addressing the compliance burden for businesses of all sizes — in areas as diverse as retail, healthcare and housing — can only help. 

“If we’ve got dual themes of productivity and housing affordability, then a lot of things can be done to streamline the process for how you get a house approved, constructed and occupied,” he says. McKellar adds that building standards that align with the National Construction Code, planning approval processes and occupational licensing are among issues that may benefit from an overhaul focused on reducing red tape.

Market-based incentives

Achieving net zero emissions was positioned as a national priority. The PC noted associated economic costs could be minimised via careful policy design, while building resilience to unavoidable climate impacts could lower the costs of disaster recovery.

Other key recommendations include reducing the costs of meeting the emissions targets by implementing comprehensive market-based incentives across sectors. 

These include cutting emissions in the electricity sector by 2030, with incentives for lowest-cost clean energy, lowering the Safeguard Mechanism threshold so it covers more industrial facilities and introducing technology-neutral emissions reduction incentives for heavy vehicles.

Accelerating approvals for new energy infrastructure was also highlighted. 

Environmental law reforms and the establishment of national environmental standards were proposed, along with forming a specialist “strike team” to tackle priority renewable energy projects and developing a national climate risk database.

Harnessing data 

The PC estimates that artificial intelligence (AI) could deliver productivity gains exceeding 2.3 per cent over the next decade, translating to around 4.3 per cent labour productivity growth. 

The PC proposes comprehensive analyses to spot potential gaps in the regulatory framework posed by AI. It advocates for an outcomes-based approach to regulation, recommending Australia build on existing legal frameworks, and argues that AI-specific regulations should be viewed as a “last resort”. 

The PC estimates up to $10 billion annually could accrue from improved data-sharing regimes. An amendment of the Privacy Act 1988 to introduce alternative compliance pathways focused on outcomes rather than prescriptive controls was also mooted.

AI regulation is set to be a key policy battleground, with strongly divergent views held by unions and business groups.

Building an adaptable workforce

The PC argues the current, overwhelming focus on boosting skills quantity and quality has come at the detriment of workforce adaptability — which is problematic, given that workers will change occupations two or three times over the next two decades.

The report recommends comprehensive reforms, with an overarching goal to create smoother pathways for workers to upskill and shift between occupations. 

Other recommendations include creating a single national platform for lesson-planning materials. Better credit transfer systems and recognition of prior learning, along with targeted training incentives for SMEs are also proposed.

The PC also addresses occupational entry requirements, such as the need to hold a particular licence or degree, which applies to one in five Australian workers. Echoing the broader drive to scale back regulation, the report calls for the removal of occupational entry requirements that offer limited benefits and the expansion of entry pathways.

Scrutiny on healthcare

Successive royal commissions into aged care, disability services and child protection have placed the Australian care sector under intense scrutiny. 

Overall, reforms outlined in the PC’s interim report aim to break down silos between care sectors, improve service integration and create more sustainable funding approaches that prioritise prevention over costly reactive care.

The report recommends greater alignment of safety and quality regulation across care sectors and proposes unified screening processes, standardised quality reporting frameworks and a single regulator across the aged care, NDIS and veterans’ care sectors.

Additonal author: Elise Shaw