Productivity Commission chair Danielle Wood has warned that Labor’s workplace reforms should be examined to assess their role in Australia’s economic malaise after the Albanese government shielded Labor’s union-friendly laws from the commission’s inquiry into “corporate dynamism”.
Federal public service wages rose 7 per cent last financial year, according to ABS data, adding pressure on the cabinet to rein in spending as Prime Minister Anthony Albanese delayed his travel to the COP climate summit next week to chair back-to-back budget meetings .
Elevated spending on the bureaucracy was revealed hours before a Productivity Commission report was published, blaming more than a decade of excessive government regulation for dulling the economy’s “animal spirits”.
Days after Reserve Bank governor Michele Bullock warned of a “new normal” of subpar growth , Wood said that even small improvements in productivity over the next decade would improve a workers’ income by $14,000.
The commission, which acts like a government think tank, said in the new report: “Australia’s economy has become increasingly stagnant.” Weak business investment has contributed to the lower speed limit of the Australian economy, unable to flourish without fuelling inflation.
The report repeatedly notes that the terms of reference for the commission’s review, which are overseen by Treasurer Jim Chalmers, did not include workplace relations or tax despite “many inquiry participants” saying industrial laws were key to firing up productivity.
Wood challenged Labor’s decision in an interview with this masthead: “It doesn’t make sense to leave a big area like workplace relations totally off the table.”
The former head of the Grattan Institute think tank was appointed in her role at the commission by Chalmers in 2023.
She said her biggest surprise after three years in the job was the sheer scale of red tape, conceding that business complaints she once viewed as contestable were genuine problems. She cited the fact that boards spend 55 per cent of their time on compliance – up from 24 per cent a decade ago.
After winning government in 2022, Labor rolled out a series of ambitious workplace reforms, including a multi-employer bargaining scheme and same-job-same-pay laws.
Labor and unions say the changes have succeeded in bolstering wages. The Coalition, backed by economists who prefer lower regulation, argue the laws have further clogged up Australia’s sclerotic economy.
“We have had a long-standing challenge with the complexity of the awards systems which add to the costs and complexity of doing business,” Wood said. “Given the number of changes the government has introduced to the system in recent years, it would be good practice to review how those are working with a particular focus on productivity impacts.”
She praised Labor’s changes to environmental approvals and the work done to streamline regulations across Australia and talked up the prospects for artificial intelligence, which she said showed signs of energising the US economy.
The commission’s report recommended cutting red tape, refining the insolvency and financing systems, and improving the skills and qualifications of Australian management to US standards, which could boost productivity by nearly 10 per cent.
Wood’s call to review workplace reforms adds to growing calls for an economic shake-up, including from within Labor, as Albanese and Chalmers scramble to pare back spending to put downward pressure on interest rates.
Announcing a further increase in official interest rates this week, Bullock said the bank wanted to slow the economy and avoid tipping it into a recession.
But in a speech on Thursday, bank deputy governor Andrew Hauser conceded the difficulties facing the Reserve. He said the world had entered a more volatile and uncertain period as the global economy was hit by a “fusillade of shocks” such as higher tariffs, geopolitical tensions, technological change and environmental challenges.
“That means inflation is likely to be pushed off target; economic forecasts are more likely to be wrong and policy trade-offs get uglier,” he said, according to speech notes.
Independent MP Allegra Spender told ABC TV that Labor should wind further back a generous tax concession to EV purchases – a lower price cap was introduced in the May budget after enthusiastic uptake – and slow spending on infrastructure to alleviate inflation.
UNSW economics professor Richard Holden backed Spender’s call to tackle the EV subsidy and said Chalmers should also push ahead with his proposal for a road user charge for all drivers. This masthead reported last week that Albanese was not in favour of the move. Holden said the reform was both a necessary policy to plug the gap in the fuel excise and would create a small disinflationary effect.
The economist warned that an extended period of slightly subpar GDP growth may not sound significant in the short-run but would compound over time to significantly reduce living standards.
“When the economy is growing at or above trend, it also just makes the politics a lot easier,” he said, pointing to periods such as the post-1991 economic boom. “It’s much easier to make trade-offs when almost everyone is doing better and you talk about winners and losers only at the margins.”
“It’s very concerning for our economics but also our politics.”
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