Address by the Hon Dr Peter Hendy MP, Assistant Minister for Productivity to the Australian Financial Review Workforce and Productivity Summit

Type: Speech

Date: Tuesday 8 December 2015

Location: Melbourne

Thank you for the invitation to address today’s Summit.

At the outset, I’d like to reaffirm the Government’s intention to work collaboratively with the business community, to listen, and to respond to the needs of those who do the heavy lifting on generating growth.

We need productivity growth if we are to remain a high-wage, generous social welfare net, first world economy.

For the economists among you Australia’s multifactor productivity has seen a long-term growth rate over 40 years of 0.8 per cent – it doesn’t sound much, but it’s big enough.

That growth rate dipped dramatically in the period 2007 to 2013 to -0.1 per cent. 

You might recognise that six-year period.

I am happy to say that the multifactor productivity growth rate has improved and in 2013-14, the growth rate has increased to 0.4 per cent.

This is still below the long-term trend, but it is an improvement. 

However, to the non-economists what do these figures mean for ordinary Australians?

As an example the former Chairman of the Productivity Commission, Gary Banks, calculated that a fall in the labour productivity growth rate between 2002 and 2012 of just 0.15 percentage point translated to a reduction in per capita GDP of nearly $7,000 per person by 2050.

Small change, big effects.

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Government can help drive productivity by investing in innovation and science, education and training, and infrastructure.

And this Government is investing in them all.

The Innovation and Science Agenda released by the Government yesterday is one of the most significant investments in innovation ever made in this country.

This is a transformational package of measures that will enhance incentives to invest in Australian start-ups; support entrepreneurship; increase collaboration between universities and industry; and equip Australians with the digital skills they will need to navigate a changing economy.

At a cost of $1.1 billion over four years, this is a comprehensive package that addresses obstacles to innovation across the economy.

We know that there is no silver bullet to increase innovation or productivity.

It requires hard work from everyone to improve their business or introduce something new.

That is why the Government’s plan provides incentives to business, including tax incentives for start-up investors and new arrangements for venture capital investment.

We have a deep pool of gifted researchers in this country, but we haven’t done so well at creating the environment and incentives to enable both business and researchers to embrace risk.

We are building on our previous work with a new suite of measures to help build greater collaboration between industry and the tertiary sector so that scientists and researchers work with businesses on solutions to business challenges. 

Given this is a Workforce and Productivity Summit, I want to spend a little time on the measures in the Innovation and Science Agenda that will address key emerging skill requirements in the workforce.

The world is changing, and our workforce and economy need to change with it.

We have a strong vocational education and training system that helps around one in four working-age Australians build skills to move into work or progress their careers.

Recent Government reforms have given industry a stronger voice in how we train students.

But there are other challenges in ensuring business can access the sophisticated and productive workforce of the future.

It is estimated that 75 per cent of jobs in Australia’s fastest growing industries will require workers skilled in science, technology, engineering and mathematics (STEM).

Serious efforts to ensure that Australian workers can fill those jobs have to address digital literacy at school as well as encouraging high level researchers at our institutions of higher learning.

It is a serious concern that student ICT literacy scores have fallen behind, with recent national testing showing 52 per cent of Year 10 students meeting the proficiency standards in 2014 compared to 65 per cent in 2011.

The Government will invest $50.6 million to support teachers in implementing the digital curriculum.

This will help kick start the Digital Technologies curriculum – which has recently been endorsed by all States – and ensure that teachers and schools are able to deliver those skills.

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We know that ‘innovative’ is often one of the last things that comes to mind when people think of government.

We are committed to changing that so that the public sector is an “exemplar of innovation” in how it does business.

As part of these reforms, we will be trialing ways to shift the way Government spends its $39 billion procurement budget to advantage innovative small business.

This is government leveraging the spending it already undertakes to benefit the wider economy; becoming more innovative in the way it delivers services; and shares data with the public.

In a world where you can order a pizza through an app and complete your banking on a smartphone, it’s not unreasonable to expect you can deal with Government just as easily.

Getting information out of your government in a straightforward way is a basic service in a democracy, but it is also an economic issue.

Of the estimated 811 million transactions with government agencies every year, around 40% are still completed using non-digital channels.

According to a report from Deloitte Access Economics, if over the next 10 years this was reduced to 20%, the change would deliver around $17.9 billion in savings to government and a further $8.7 billion in savings for Australians through time, convenience and out-of-pocket savings.

To improve the efficiency of transactions between Government and the community, the Government has established an executive agency called the Digital Transformation Office.

The Office is charged with increasing the ability of Australians to interact digitally with Government, as well as giving our citizens a better quality experience.

We have to transform the business of government.

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However, we also have to transform the way government regulates business.

Too often, governments resort to regulation as our first response.

Fundamental to this Government’s approach is ensuring that first and foremost, regulation is not seen as a costless way to address policy issues.

Even where we have good regulation, the way it is administered and applied by regulators can have a major effect on business productivity.

That is why we have also set out clear expectations for the performance of Commonwealth regulators.

They need to minimise their impact on those they regulate while still delivering the vital roles for which they have been created.

And they will publicly report their performance every year.

Before the last election the Government made a commitment to reduce red tape by $1 billion annually.

I am pleased to announce on behalf of the Government that we have achieved double that target in the last two years with $4.5 billion in red tape savings.

We have repealed over 3,600 spent and redundant Acts and over 10,000 legislative instruments from the Commonwealth books.

For every $1 added to the cost of regulation, the Government has made decisions that cut over $11.

These successes have helped to reduce the burden of red tape that businesses face.

This is illustrated by the improvement Australia has made in its ranking in the Global Competitiveness Index.

Under the “Burden of government regulation category” Australia was ranked 80th out of 140 countries in 2015.

This is a significant improvement from the rank of 124th we achieved in the previous year.

But our goal is not only to reduce the cost of complying with regulation. 

Our recently announced new Regulatory Reform Agenda will be targeting productivity enhancing priorities, such as those recommended in the Murray Review into the Financial System and the Harper review into competition policy.

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I note the interest of this Summit in employment and workplace relations.

Australia’s labour force participation rate has been climbing over the past few decades, although population ageing is likely to put downward pressure on participation going forward.

The composition of the Australian economy has changed markedly at the same time.

Like many other developed nations, employment has shifted away from manufacturing and towards services.

Highly skilled occupations are playing a more important role in economic activity, and there is broad consensus that this trend is likely to continue.

We need to keep looking for opportunities for further improvement.

And we need a flexible workplace relations system which can take account of the challenges of technological change, an ageing population, and an increasingly globalized world.

The Productivity Commission final report of its review into workplace relations is now due.

Based on the draft report it is raising a number of important recommendations for future change.

Just as important the Royal Commission into Trade Union Governance and Corruption is also due to report by 31 December this year.

The Government has said that any changes to workplace relations will be taken to the next election, to allow Australians to cast their vote on the changes proposed.

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While workplace relations is an important issue for the way we do business in Australia, it is only one reform area.

However, the need to change Australia’s culture to further embrace innovation and entrepreneurship will arguably have a more enduring effect on Australia’s productivity growth. 

Each of us can do our bit to innovate—a product, a process, a system—and I implore you to embrace this new era of disruption as an opportunity to do things better.

The Innovation and Science Agenda announced by the Government is more than just the sum of its parts.

It is transformational change that brings innovation to the heart of Government and to the whole of Government.

We are serious about innovation and science being central to our policymaking and a new, independent body—Innovation and Science Australia – and a new Innovation and Science Committee of Cabinet will help ensure that.

As Assistant Minister for Productivity I have a special interest in the success of our reforms because their success will drive productivity growth across the economy.

Innovative businesses are twice as likely to report productivity increases than businesses that do not innovate. 

Ultimately, it is productivity growth that is the primary source of a sustainable improvement in a nation's living standards.

I look forward to hearing from Summit participants on these critical questions, to help Australia grow and prosper.