Whether Treasurer Jim Chalmers reforms, restructures, or simply removes the Productivity Commission is, like the commission itself, largely irrelevant.
The advisory body that once sat at the vanguard of Australia’s failed experiment with neoliberalism now sits impotently on the sidelines of Australian policy debate.
Bizarrely, in rejecting calls for the abolition of the PC this week some of its defenders actually argued that it was unfair to criticise the body because, wait for it, all of its recent recommendations had been ignored in recent years.
Australia’s productivity growth has declined since the Productivity Commission was created back in 1998. While it’s true productivity growth has slowed in some other countries, it’s also true that the countries who most effectively ignored the PC’s obsession with neoliberalism, particularly China and the Nordic countries, have significantly outpaced Australia’s productivity growth.
More nonsense is spruiked about productivity than any other economic concept. According to the previous government everything from building car parks in marginal electorates, building enormous dams in National Party seats, and giving inequitable tax cuts to the richest Australians were all essential to boosting productivity growth.
In Australian public debate, the easiest way to dress up self-interest as national interest is to simply claim that a boondoggle or handout will boost productivity. It was all nonsense of course, but the Productivity Commission knew better than to pick a fight with powerful forces.
To an economist, productivity refers to how much output is produced from each unit of input. For example, the labour productivity of a barista can be measured in terms of the number of coffees they can make each hour.
And because productivity revolves around output, not prices, reducing wages, scrapping penalty rates, shifting people to casual contracts or gouging customers all have no direct impact on productivity.
While ripping off workers or customers is definitely a good way to boost profits, such measures simply redistribute the economic pie, they don’t help grow it. But you’d be forgiven for having missed that fact if you had been relying on the loud voices of the business community for your economic analysis.
Which brings me back to the pointlessness of the Productivity Commission.
Who better to call bullshit on the nonsense spouted by big business and conservative politicians about what does, and doesn’t, drive productivity growth than the statutory authority tasked with driving productivity growth?
What better time for the stalwart neoliberals at the Productivity Commission to speak with a loud clear voice about the wastefulness of Coalition spending on boondoggles and the danger to the economy of subsidising fossil fuels while running dead on climate action than during the last term of office?
But instead of defending the meaning of the word productivity from abuse by the powerful, the commission instead chose to publish a major report diminishing the significance of rising income inequality in Australia before releasing a subsequent report entitled Why did young people’s incomes decline? Which literally made no mention of unions or cuts to penalty rates.
According to those defending the current workings of the PC, its ability to initiate their own inquiries is essential if it is to provide frank advice to government, a view with which I agree. But with the freedom to choose their own agenda comes the responsibility to make good choices.
And a quick look at their website makes clear how narrow and ideological the range of issues of interest to the PC leadership really is.
With no hint or irony, one of the PC’s most recent reports highlights all of the ideological, structural, and cultural problems that have led to its long-term irrelevance and current vulnerability.
In The Nuisance Costs of Tariffs the Productivity Commission takes 78 pages, and who knows how many taxpayers’ dollars, to tell us that import tariffs don’t apply to 90 per cent of goods imported to Australia, that the tariff on the remaining 10 per cent of imports is only 5 per cent, and that the administrative cost of collecting tariffs is a meagre 0.7 per cent.
And while they cite evidence from the Henry Tax Review that tariffs are one of the most efficient forms of tax, and while they include their own modelling that finds that small tariffs are actually good for economic efficiency, the overall conclusion of the report jams a rhetorical storm into an economic teacup and suggests we’d be better off if we scrapped all tariffs. What a waste of everybody’s time.
As the royal commission into robodebt shows, there is no doubt that government regulation and onerous reporting obligations can and do create a lot more nuisance for vulnerable Australians with nowhere else to turn, than tariffs create for a few importers who make a profit selling the stuff they import. But the PC didn’t do a report into that.
And if the Productivity Commission was really worried about things that distort economic activity then you’d think they would be far more concerned with the $11 billion per year we spend subsidising the fossil fuels that cause climate change than with the $1.5 billion per year we collect on socks and underpants. But no, there’s no sign of that report on their website either.
Finally, if the PC were paying attention to what is going on in the world around them they might have noticed that trade is being used as a weapon, COVID has made long international supply chains risky, and that governments and businesses are looking for good ideas on how to bring the manufacture of strategically important products back onshore.
But rather than help decision-makers with the big problems they face today, the PC decided to write a paper about small problems no-one but they are interested in. It’s not a new problem.
Australia does have a productivity problem, and it’s got worse the whole time the Productivity Commission has been around to advise us on it. The tens of billions of dollars we spend each year subsidising fossil fuels, private schools, private hospitals and large four-wheel-drive utes do nothing to boost the skills of our workforce, private investment in new technology, or to improve the quality of our creaking infrastructure.
There is no link between the number of swimming pool cleaners or groundskeepers our wealthy private schools employ and the productivity of our workforce.
Likewise, using tax laws to encourage small business to drive big trucks around our city does nothing to drive innovation.
But while the PC finds time to look at the trivially small nuisance costs of tariffs it sits impotently by as tens of billions of dollars are wasted on unproductive subsidies to the products that wealthy Australians are most likely to buy. Whoops.
Back in 1990, GDP per hour worked in Australia was about the same as that of the Nordic counties, but since we embraced the neoliberal obsessions of tax cuts, spending cuts, wage cuts, and privatisation, productivity in the Nordic countries has steadily outpaced our anaemic performance.
If the Productivity Commission was serious about reform it would take a good hard look at its back catalogue of bad advice, admit it made some big errors and missed some of our biggest problems completely.
But I doubt they will find the time to learn from their mistakes, which is why it’s high time the Treasurer aimed his reform agenda at institutions like the PC who have spent decades telling everybody else they need to change with the times while showing no enthusiasm to do so themselves.
Richard Denniss is executive director of the Australia Institute. Twitter: @RDNS_TAI