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Monday, October 5, 2015

Treasury officials' blinkered view of innovation

"Australia's Economic Policy Challenges"

as seen through the eyes of

John Fraser | Secretary to the Treasury | 27 February 2015

I will spend a few minutes reflecting on the trends that we're seeing in the three drivers of long term economic growth — population, participation and productivity — and the implications for policy.

...the first key driver of economic growth in the medium term is population.

In recent years, Australia's population growth has been amongst the fastest in the developed world, driven by migration.

A growing population can be a source of dynamism for the economy.
The blinkered leading the blinkered
The blinkered leading the blinkered

It provides a larger domestic market for business, increases the size of the labour force and facilitates the injection of new ideas.

But it also places additional demands on government budgets in areas such as infrastructure, health and education.

The Government has commissioned a number of policy reviews that will recommend ways to enhance Australia's economic prosperity.

Making the most of these reform opportunities is essential, where three areas stand out as priorities for raising Australia's productivity performance.

The first is tax reform.

Studies have consistently shown that tax reform offers one of the largest policy opportunities to increase incomes and living standards.
Tax reform can promote strong investment and encourage workforce participation.

Our company tax rate is high by international standards.
A second priority is continuing to modernise the workplace relations system.

Workplace regulation has been progressively and substantially reformed in recent decades.

A more flexible workplace relations system that supports the economy will help Australia respond to the challenge of lifting productivity growth.
A third priority area for structural reform is driving greater competition in goods and services markets.

Ian Harper proposes that we apply competition law and a new set of competition principles to all purchasing activities of government such as health, education and aged care.

Even small improvements here, where government has a large footprint and where Australia's population will impose greater demands on health and aged care, can deliver big benefits over time.

Beyond the blinkered economics policy advice from Treasury - that must surely be overdue for a dose of its own advice on the value of fresh ideas inside Treasury itself - "a growing population can be a source of dynamism" - there are of course other places to look  for policy ideas for growing an economy.
For instance:
  1. "The effect of our poorly planned mental health system is a massive drain on the wellbeing of people and families, and on Australia’s productivity and economic growth. The economic cost of mental ill-health is enormous. Estimates range up to $28.6 billion a year in direct and indirect costs, with lost productivity and job turnover costing a further $12 billion a year - collectively $40 billion a year or more than two per cent of GDP,” Prof. Fels said. (See National Review of Mental Health Programmes and Services Report released, 16 April 2015)
  2. "The use of Information Technology in the production of goods and services has had a strong influence on productivity and economic growth in industrial and in newly industrialized countries... Information communications technology (ICT) is not only one of the fastest growing industries – directly creating millions of jobs – but it is also an important enabler of innovation and development." (See  Five ways technology can help the economy , 11 April 2013)
  3. "The International Energy Agency (the IEA) believes that the world needs a clean energy revolution in order to break dependence on fossil fuels. Such a revolution would enhance global energy security, promote enduring economic growth and tackle environmental challenges such as climate change. It would break the long-standing link between economic growth and carbon dioxide (CO2) emissions." (See  Clean Energy Technologies )