Coalition Policies Will Not Improve Productivity According to Treasury

New analysis of the Intergenerational Report reveals Treasury does not believe that any of the policies introduced by the Coalition Government in the last six years will have any measurable impact on Australia’s productivity growth in the coming decades.

Key Findings:

  • The latest Intergenerational Report (IGR 2021) reveals that the Treasury Department is more pessimistic about the medium-term outlook for productivity growth in 2021 than when they released the 2015 IGR.
  • In fact, the IGR 2021 reveals Treasury currently believes that none of the Coalition Government’s major reforms introduced since 2015 have had any impact on the likely rate of long-run productivity growth.
  • This is despite the pursuit of productivity growth appears to be central to the Coalition Government’s rationale for most of its policy announcements, as demonstrated in the Australia Institute’s analysis of media statements made by Ministers (list of quotations contained in report).
  • The figure below compares actual productivity growth in Australia with the projections from both the 2015 and 2021 IGRs. Three observations stand out:
    • The forecast bounce in the productivity growth rate for 2016 that was included in the 2015 IGR did not eventuate. Instead, productivity growth fell to zero by 2018/19 and is currently 0.5 percent, one-third of the rate of growth forecast in 2015 and one-fifth of the 2.5 percent goal that Scott Morrison set for himself in 2017.
    • The 1.5 percent medium and long-term rate of productivity growth forecast by Treasury in 2015 is very low by modern standards.
    • None of the policies implemented since 2015 has persuaded Treasury to increase their long-run forecast for productivity growth in the 2021 IGR. On the contrary, whereas Treasury believed in 2015 that the productivity growth rate could increase by around 0.5 percent in 3 years they now believe it will take 11 years to grow by 1 percent
Figure: Comparison of productivity growth projections, 2021 and 2015 IGR
Figure: Comparison of productivity growth projections, 2021 and 2015 IGR

“The Prime Minister, the Treasurer and virtually all senior ministers regularly make claims that their changes to tax, industrial relations, and infrastructure policies will boost productivity, but it’s clear that Treasury does not believe this is the case,” said Dr Richard Denniss, chief economist at the Australia Institute.

“When we compare the productivity forecasts in the 2015 Intergenerational Report with the most recent forecasts it’s clear that Treasury does not believe that any of the policies introduced in the last 6 years have made any difference to productivity growth.

“If Treasury’s long-run forecasts for productivity are correct, then this Government’s whole reform agenda has been poorly designed and poorly implemented. However, if Treasury is wrong, and the Government believes productivity growth will rise in the coming decades, then the forecasts of debt and deficit in the IGR will not eventuate. Either the Government needs to radically change its policy agenda or stop worrying so much about the future.”

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