Labor government shifts its focus to productivity through R&D and manufacturing
Treasurer Jim Chalmers has flagged that productivity will be a key focus in Labor’s next term of government as inflation challenges ease.
As the Labor government returns for its second term, Chalmers has pledged to address a lingering issue that has hampered the Australian economy - our stagnating productivity performance.
“The best way to think about the difference between our first term and the second term …[is] the first term was primarily inflation without forgetting productivity, the second term will be primarily productivity without forgetting inflation,” Chalmers told ABC Insiders on May 4.
The Productivity Commission flagged that Australia’s productivity levels have not significantly improved in over a decade. Without productivity growth, Australia’s living standards are set to flatline, the commission warned.
“With global policy uncertainty again on the rise, addressing productivity directly via targeted reforms will be the best way to sustainably boost Australians’ living standards,” Dr Alex Robson, deputy chair of the Productivity Commission, said.
The commission urged policymakers to focus on boosting economic dynamism, building a skilled and adaptable workforce, harnessing technology, increasing productivity in the care sector and investing in the net-zero transformation to address Australia’s lagging productivity performance.
In response to productivity concerns, the government has adopted a renewed focus on R&D, including Australia’s poor track record of commercialising research.
In a discussion paper, the government flagged that Australia had lower R&D intensity than other OECD countries, at 1.66 per cent of GDP in 2021–22 compared to the OECD average of 2.9 per cent.
Domestic R&D activity has been largely upheld by universities, the paper added. Lagging commercialisation of R&D has negatively impacted economic complexity in Australia, which is a strong predictor of future growth.
“Australia has a strong research base. The difference between the innovation novelty of our firms and our research output indicates we have underused national resources,” the paper said.
“Australian research is being developed into globally transformational technologies – most often by other countries. The old approach – waiting on other nations to turn our ideas and discoveries into products and services that we then adopt at higher cost – is not the path we want or need.”
Labor has also sought to boost productivity by investing in manufacturing through its $22.7 billion Future Made in Australia plan, which has aimed to re-establish domestic manufacturing, boost sovereign capability and invest in the net zero transition.
The Committee for Economic Development of Australia (CEDA) called Australia “the least self-sufficient economy in the developed world,” partially blaming the dominance of our commodity exports within our economy, and the subsequent hollowing out of our manufacturing sector.
They praised the Future Made in Australia (FMIA) plan as an opportunity to boost Australia’s shrunken manufacturing sector, which lags behind other deindustrialised countries such as the UK and Canada.
“The Future Made in Australia initiative is an opportunity to diversify and transform our industrial structure in the context of the global energy transition and the desire for sovereign capability in areas of current and future competitive advantage, as well as possible geopolitical risk,” CEDA said.
“The scale of the opportunity is huge, with the market for clean energy industries alone estimated to be worth $15 trillion by 2050.”
In implementing the FMIA plan, the Productivity Commission warned that the government would have to be careful to ensure that frameworks of providing assistance were robust and prioritised genuine national interest.
“If poorly designed, industry policy such as the FMIA can be costly for governments, act as a form of trade protection, and distort the allocation of Australia's scarce resources towards activities that Australia is not best placed to undertake,” the commission said.
Speaking to ABC Insiders, Chalmers flagged other aspects of Labor’s plan for productivity, which included changes to occupational licensing, non-compete clauses and other incoming policies aiming to boost competition within the economy.
