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Productivity and long term growth

Going for Growth 2016: Australia

 

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‌‌Australia has recently seen a slowdown in growth, with declining resource-sector investment, weak commodity prices and hesitant investment elsewhere in the economy, although the exchange-rate depreciation is helping the economy to adjust. Relatively low rates of youth and long-term unemployment indicate that Australia has generally been successful at keeping lower-skilled workers in the labour force. However, productivity growth remains weak, in particular multifactor productivity, despite a business environment generally favourable to entrepreneurship, in addition to flexible labour markets. Boosting productivity requires that a number of common structural weaknesses be addressed, in particular in the areas of educational outcomes – to ensure that educational qualification translates into skills -- tax revenue structure and public infrastructure.

The performance of high-school students in PISA tests in science and reading proficiency is only around the international average and with a tendency to show a high variation across students. Improving all levels of education will be crucial to boosting the long-term productive and innovative capacity of the economy. Reform should be geared towards increasing the supply and quality of early childhood education as well as towards improving outcomes at the primary and secondary levels.  

1. PISA is the Programme for International Student Assessment. OECD = 100. The variance components in mathematics, sciences and reading were estimated for all students in participating countries with data on socio-economic background and study programmes. The variance in student performance is calculated as the square of the standard deviation of PISA scores in reading, mathematics and science for the sample of students used in the analysis.

Source: OECD (2014), PISA 2012 Results: What Students Know and Can Do (Volume I, Revised edition, February 2014): Student Performance in Mathematics, Reading and Science, PISA; OECD (2013), PISA 2012 Results: Excellence through Equity (Volume II): Giving Every Student the Chance to Succeed, PISA.

Previous Going for Growth recommendations include:

  • Improving the efficiency of the tax system by reducing the corporate tax rate as part of a wider reform that would also consider raising the currently low rate of goods and services tax (GST) and/or widening the base. 
  • Enhancing innovation policy by adding new mechanisms for boosting collaboration between business and academia.
  • Improving performance and equity in education by facilitating access to childcare that is both affordable and scheduled to allow combining work and family life. 
  • Enhancing capacity and regulation in infrastructure by ensuring infrastructure spending delivers value-for-money and by integrating environmental concerns through user and congestion charges.
  • Improving opportunities and outcomes for indigenous communities by simplifying and rationalising the system of indigenous-community support and focusing tightly on improving health outcomes, educational achievement and labour-market participation.

 

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Recent policy actions in these areas include:

  • The 2015-16 Budget included several measures to reduce corporate taxation, notably a lower rate of corporate-income for small businesses and a more generous capital write-off rule.
  • Implementation of the Infrastructure Growth Package which includes an initiative encouraging State and Territory governments to privatise assets to finance new investments.
  • In December 2015 the government announced the National Innovation and Science Agenda, a package of measures aiming to spur productivity enhancing technical and business innovation in both the private and public sector.    

The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, narrowing current account imbalances and reducing income inequality). In the case of Australia, improving educational and labour market opportunities for minority groups would reduce social exclusion and inequality.

Economic Policy Reforms 2016 

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