Productivity and long term growth

Going for Growth 2014: Australia

 

Economic Policy Reforms 2014

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Going for Growth  |  Indicators of Product Market Regulation data tool

Australia weathered the global economic crisis relatively well and enjoyed robust growth in per capita income, fostered by favourable terms of trade and high employment rates. However, as the mining boom recedes, GDP growth has eased and the economy is rebalancing away from the resources sector. Also, productivity gains have slowed in recent years and the level remains below that of leading OECD countries. Reforms to enhance investment in infrastructure and knowledge-based capital as well as to boost labour force participation would help to ensure that Australia’s good economic performance can be sustained in the long run. 

Previous Going for Growth recommendations include:

  • Introduce new measures to boost business-research collaboration in order to enhance innovation outcomes.
  • Improve efficiency of the tax system by reducing the comparatively high headline company tax rate and relying more to indirect taxes, such as goods and service tax (GST).   
  • Enhance capacity and regulation in infrastructure in a cost-effective way, for example by expanding user and congestion charge in transport.
  • Improve performance of early childhood education by reforming childcare support to account for the high cost of pre-primary education and to encourage parents’ labour force participation.
  • Further promote foreign direct investment by easing the stringency of screening procedures.

Actions taken: Notable reforms in these areas over the past two years include:

  • Extension of childcare: local authorities are implementing the entitlement of 15 hours a week early childhood education for all children of 4 years old.
  • Australia’s overall good performance has been supported by comparatively low regulatory barriers to competition.  Pro-competition regulation raises living standards by increasing investment and employment as well as by encouraging companies to be more innovative and efficient, thereby lifting productivity.  The 2013 up-date of the OECD indicators of Product Market Regulation – highlighted in this report -- shows that the stance of regulation in areas such as state control and barriers to business start-ups and foreign trade is overall favourable to competition, at least in international comparison.

‌The report also discusses the possible impact of structural reforms on other policy objectives (fiscal consolidation, rebalancing the current account and reducing income inequality). In the case of Australia, expanding early childhood education service may put pressure on the fiscal balance, at least in the short run. However, it contributes to narrowing income inequality by enabling a more equal formation of human capital at early age and by facilitating full-time labour participation by women.


 

 

 

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