Grattan Institute CEO Danielle Wood has been announced as the new head of the Productivity Commission (PC), after incoming candidate Chris Barrett pulled out in favour of a promotion at Victoria’s Treasury.
Wood is undoubtedly an inspired pick — she’s a well-regarded economist and a proven leader of an influential think tank. Her analysis of important issues like tax reform and childcare is generally astute. She will also be the first woman to lead the PC, a welcome break from the economics profession’s male-dominated leadership.
However, the role the PC will play in future policy formation remains uncertain. The government advisory group is indelibly associated with the heyday of neoliberalism, and as that ideology fades, so has the PC’s influence. It still produces thorough research, but its recommendations are mostly reheated covers of its outdated ’90s hits (tariff reform, microeconomic reform), or lukewarm restatements of current consensus (improving education, managing the energy transition). Either way, much of its work now makes the fifth or sixth page of the newspapers and gathers dust on bureaucrats’ shelves.
Earlier this year, the Australian Council of Trade Unions called for the PC to be abolished entirely, claiming it has been “stacked” with former Coalition advisers and business lobbyists. Treasurer Jim Chalmers has since mooted an overhaul, to be expected in the coming months.
If anyone can save our nation’s once-revered econocrats from irrelevancy, it’s Wood and the next generation of economists she represents. But is the PC even worth saving?
An unproductive debate
Perhaps the most pertinent question is: has the PC helped increase the nation’s productivity? It certainly claimed so after its formation in 1996, amalgamating various existing agencies. It soon announced that Australia was experiencing a “productivity miracle” which was “the ‘predictable’ outcome of policy reforms” like market liberalisation, which it had championed.
However, as economist John Quiggin recently wrote, “the productivity miracle fizzled out completely”:
Dispute remains over whether it was a statistical illusion or an unsustainable blip. But … over the period since 1990 (which includes the “miracle” years), annual labour productivity growth has averaged 1.6%, lower than the 2.4% recorded in the 1960s and 1970s.
The decline is partly due to Australia’s shift from a manufacturing to a service-led economy, which market liberalisation sped up.
That’s not to say there was nothing worthwhile in the PC’s moves to open up Australia’s economy. However, the Nordic countries, which preserved higher state capacity and a more extensive social safety net amid globalisation, have generally enjoyed better labour productivity growth than we have.
How productive is a $3 million trust fund?
The PC’s more recent research is a mixed bag. One can find useful reports like its stocktake of mental health and suicide prevention policies, and its alarming inquiry into the costly trade-offs of Australia’s rising incarceration rate. Then there was its report on why young people’s incomes have declined, which was interesting but neglected to mention union membership once.
Least impressive was its 2021 report on wealth transfers and inheritance, which claimed they “are reducing some measures of relative wealth inequality in Australia”. Commissioner Catherine de Fontenay highlighted that “when measured against the amount of wealth they already own, those with less wealth get a much bigger boost from inheritances on average.”
Such Freakonomics-style contrarianism predictably spawned suggestions that inheritance taxes would increase inequality.
Yet this galling framing fails to imagine alternative paths. Instead of allowing the very wealthy to transfer enormous sums untaxed, so that the poor can retain occasional one-off lumps that are only meaningful due to their contingent poverty, we could tax and redistribute wealth progressively and smoothly over time. But that apparently didn’t cross the minds of our mainstream econocrats, who seem only to bemoan “inefficiency” and “churn” when it benefits the state or the poor.
Where to next?
Commissioner Lisa Gropp also reassured us, “By the time people receive inheritances, they’ll usually be well into middle age — about 50 years old on average. This limits the impact inheritances have on opening up lifetime choices and opportunities about career and family”.
Vast wealth sits idle for decades, then is delivered to people long after they most need it, and somehow that’s a good thing?
The PC strangely buried the lede — we already have a much more efficient means of reducing inequality and smoothing income over one’s life cycle. It wasn’t mentioned in the report’s media release, but if you scroll down to pages 39 and 48, you’ll find that “welfare payments reduced immediate-term relative wealth inequality by 20 times more than [private] wealth transfers”.
Needless to say, one should expect a higher standard under Wood’s leadership. But if she cannot comprehensively modernise the PC’s output, then perhaps — in a true ’90s throwback — the PC ought to be privatised.
Subsidising mediocrity is simply unproductive.
Look, I hate to say it but Grattan sucks. They are just another trendy, neo-liberal think tank with people on them who have extensive uni degrees. That’s all. They are the nice, polite Centre for Independent Studies or the IPA. They still think low wages are a good thing and their contribution to the Federal Government Retirement Income Review was lacking in substance. I made a contribution to it. Their’s chose to focus on the sexy Industry Fund versus Retail Fund debate. A no-brainer. I chose to focus on defined benefit super schemes as opposed to accumulation based, interest earning and unit pricing ones. They also focused on the issue that retirees used their super more for estate panning than retirement income. Also obvious. Super is a weapon these days. In the past it used to be what you owned, earned or inherited – a farm, a business, multiple properties or employment savings, family heirlooms and individual or family investments. Now these are either taxed, variable under market conditions or divided up and the only power one has is in their super portfolios which used to be unlimited. Grattan’s answer, make the oldies pull their money out and tax them more. Probably right but not very expansive in thought. Very wishy-washy bunch and deserving of the inept and wrong Productivity Commission. They have been wrong on their analyses and predictions as much as those other suppositories of wisdom – the RBA and Treasury. It should be a giggle.
I consider them to be sheltered workshops for upstarts. I mean what do they really do? Their staff go to uni, join these organisations and then try and apply the theories they have learnt into policy papers without any real life experience. It’s a recipe for disaster
tothat has screwed everyone else. Years ago I would read opinions in the paper from IPA folk who were barely out of their nappies waxing on lyrically about neoliberal policies and would just think these guys have got no idea. Seriously, these organisations should be ignored and hopefully they will go away.As for the Productivity Commission, we have seen what their policies have turned Australian into – A service economy that can’t make its own stuff. A good example is the COVID epidemic where it was cheaper to outsource pharmaceutical production only to then have compete with every other man an dog for the same product. The PC has had its time and should become a footnote in history.
Brilliant. Gotta agree particularly the “…As for the Productivity Commission, we have seen what their policies have turned Australia into – A service economy that can’t make its own stuff.”
So damned true. I would like to see the Productivity Commission rounded up like I wanted to with the RBA Board, surrounded by security officers/guards, made to open their computers and desks and demonstrate what they have produced over the last 10 years. If their predictions are off or their work output is limited, then sack them.
The productivity commission has been underwhelming. They should follow their own advice, cut their own wages, immediately raising their unit productivity performance, privatise themselves, much more productive for taxpayers, enact a voluntary feasibility study where they all personally pay a 15% GST, etc etc. Sorry, the stunted thinking of neoliberal economics has gutted capacity of govt to run the economy to benefit ordinary people, deal with climate change, or do literally anything that industry will get mildly grumpy about…we don’t need more of that or an empty service economy agenda. We need to beef up our domestic capacity to move rapidly to a low carbon future, that includes, shock horror, value adding and manufacturing/technology development here, and a large boost in public sector housing, capacity to respond to disasters etc etc. We don’t have any trouble doing it for the military and defence, even where squillions are wasted subsidising U.S. manufacturing capability. Productivity commission hasnt been very productive for Os i’m afraid.
Feather-bedding the big end of town was, is, and will be the disaster that entirely changes the game. Have you noticed that all the people carrying on about ‘productivity’ never produce anything? Not even ideas. They’re just part of the army hired on to throw sand in our eyes to take our minds off the real issues, like THE CLIMATE!
Really ? “Raise GST”, “increase subsidies” and “we need more tax to fund services” are about as boring, orthodox, cookie cutter ideas as you could imagine. You could get that out of a graduate.
Absolutely. You need to remember the enormous sums of money skimmed off by the banking industry lending the money that those inheritances pay off !
True and very arrogant of her for saying so. Long after they most need it eh? Who is she to judge when people need wealth? Arrogance is all Grattan and Ms Wood offers. Nothing more but sheer intellectual snobbery.
One thinks the ACCC Australian Competition and Consumer Commission is far more important vs the PC, why?
Suboptimal ‘productivity measurements’ are too often used as generic headline numbers from averaging or per capita (defies statistics 101 & ignores intangible factors), based on a now very diverse working age cohort, for media headlines; the latter cohort has been diluted by more long term temporary churn over being included in the ESP estimated resident population since 2006 just before the boomers started retiring (that keeps working age on paper, younger vs. just citizens & PRs)
Not ESP but ERP