Tackling Australia’s productivity problem | 7.30

Key Concepts

• Technology adoption in business (AI)
• Industrial Relations (IR) policies and productivity
• Regulatory burden and economic growth
• Energy transition and carbon reduction policies
• Impact of AI on the labor market
• Corporate tax rates and investment incentives
• Tax mix switch

Technology Adoption and AI

Danielle Wood acknowledges a shift in mindset within businesses towards adopting new technologies, particularly AI, although the pace is slower than desired. She references her statement from November 2023 about the need for faster technology adoption and appropriate policy settings.

• AI Impact on Jobs: Wood addresses concerns about AI potentially eliminating jobs, referencing a prediction that AI could wipe out half of entry-level white-collar jobs within 5 years. She considers this an extreme projection, stating that most analyses suggest AI will automate routine tasks, freeing up workers for uniquely human aspects of their jobs.
• AI Opportunities: Wood emphasizes the immense opportunities AI presents for productivity gains and improved living standards, aligning it with other "general purpose" technologies that have historically driven economic growth. She highlights that many people are already using AI to improve their jobs.

Industrial Relations (IR) Policies and Productivity

The Prime Minister's unwillingness to consider changes to the government's industrial relations policies at the upcoming summit is discussed.

• Evaluation Period: Wood suggests a two-to-three-year period for evaluating the effects of recent IR changes before undertaking a deep dive analysis.
• Balancing Act: She reiterates that IR is a balancing act between supporting fair terms and conditions for workers and maintaining the flexibility that businesses need.
• Multi-Employer Bargaining: While the Productivity Commission previously warned about the dangers of multi-employer bargaining, Wood states that they haven't conducted an analysis to determine if those fears have materialized.

Regulatory Burden and Economic Growth

Wood identifies regulatory reform as a potential area for agreement at the summit.

• Stifling Projects: She points to housing and renewable energy as sectors where regulatory burdens are stifling projects.
• National Competition Policy: Wood mentions national competition policy, involving collaboration between the federal government and states, as another area for potential agreement. This includes initiatives like national licenses for trades and removing restrictions on modular building.

Energy Transition and Carbon Reduction Policies

Wood advocates for scaling back high-cost carbon reduction policies in favor of lower-cost climate programs.

• Cost per Ton of Abatement: She explains that various carbon reduction policies have different implicit costs per ton of abatement.
• Policy Examples: She cites fringe benefit tax subsidies for EVs as a high-cost policy and the renewable energy target and safeguard mechanism as lower-cost alternatives.
• Net Zero Goal: Wood emphasizes the importance of achieving net zero emissions in the least costly way.

Corporate Tax and Investment

The possibility of lowering the corporate tax rate to boost investment is discussed.

• Productivity Review: Wood states that the Productivity Commission is currently examining the issue of corporate tax as part of its productivity review.
• Investment Incentives: The argument for lowering the corporate tax rate is to create more incentives for investment.
• Revenue Offset: Wood acknowledges the budgetary impact of lowering the corporate tax rate and mentions exploring ways to offset the revenue loss within the corporate tax system, suggesting a "tax mix switch."

Conclusion

The interview covers a range of issues related to productivity in Australia, including technology adoption, industrial relations, regulation, energy policy, and taxation. Danielle Wood emphasizes the need for a balanced approach that promotes economic growth while also considering social and environmental factors. She highlights the importance of evidence-based policymaking and the need to carefully evaluate the impacts of policy changes. The concept of a "tax mix switch" is introduced as a potential solution to incentivize investment while maintaining fiscal responsibility.