Productivity growth is critical to support a strong economy, lift living standards and underpin Australia’s social compact.

The Commonwealth Government’s Economic Reform Roundtable is a rare opportunity to build consensus on the reforms Australia will have to undertake to reignite progress on productivity, to ensure future economic growth, international competitiveness, and sustainability for public services that Australians rely on.

Economic reform and productivity growth are complex and multifaceted, requiring a raft of changes, big and small, across the economy. We need to think big, broad and in a whole-of-federation way to ensure Australia’s long-term success. This is not a challenge for the Commonwealth alone – states and territories must also get on board. Meaningful change will require coordination and joined-up thinking across the federation.

A starting point should be the development of a whole-of-federation Intergenerational Report that would build a more robust picture of intergenerational equity and highlight the structural pressures facing the nation, as well as state and federal budgets. This would complement existing intergenerational reporting delivered by the Commonwealth and NSW governments and provide an evidence base for regulatory harmonisation and tax reform.

Any long-term picture of budget sustainability is incomplete without assessing the substantial spending and revenue pressures faced by the states, who are responsible for delivering many of the fastest-growing budget items such as health and school education.

A whole-of-federation approach to planning and budget sustainability can help prevent poor decisions that lead to unintended consequences. It also promotes better investments in long-term planning and reforms, especially in early intervention and prevention, which could yield significant productivity benefits over the coming decades.

Regulation is an important part of this. Australia’s regulatory systems, particularly across states and territories, are often conflicting and fragmented, making it difficult for productive businesses to start up and expand nationally. This is costly and burdensome, and means Australian businesses have little chance of becoming competitive and dynamic on an international scale.

Fortunately, there is a template to improve harmonisation. Australia delivered billions of dollars from higher productivity growth through the Seamless National Economy agenda that operated between 2009 and 2013. This included important reforms to deliver a national consumer law, consumer credit regulation and a personal property securities register. These changes have stood the test of time, continuing to deliver benefits through more consistent national regulation. Now is the time to reinvigorate this agenda and update it to tackle new challenges facing the nation.

A key driver of the agenda’s success was payments made by the Commonwealth Government to states and territories that had implemented reforms. States and territories lack the budget flexibility and resourcing to make many of these changes on their own, and the productivity payoffs of reform tend to bolster the federal budget, not their own bottom lines. The Commonwealth could use and expand its $900 million National Productivity Fund established late last year to make similar payments for implementing a new round of seamless economic reforms.

Priority areas for a new seamless economy agenda should include restarting reforms that stalled under the first agreement. These included national occupational licensing, harmonisation of environmental assessments and more consistent heavy vehicle access and design rules. There are also new challenges that have emerged in the past decade that should be identified and addressed.

A similar approach should be taken to tax reform. State-based taxes – primarily stamp duty and payroll tax – need to be part of the conversation. They are two of our most inefficient taxes, meaning that for the amount of money they raise, they cause a higher degree of economic harm.

Despite the concerns around these taxes being well-known, states have been resistant to change. It’s easy to see why. Payroll tax and stamp duty are their main sources of revenue to fund essential services such as health and education. They simply don’t have as many options to raise revenue as the Commonwealth.

Stamp duty should be replaced by a broad-based land tax. This could be revenue-neutral over the longer term but would require a long transition period to give households and markets time to adjust.

Payroll tax, meanwhile, is not just an inherently bad tax, but there are vast differences in rules and implementation across the states, making it difficult for businesses operating nationally. A good starting point would be to harmonise payroll tax arrangements across the states and simplify the system.

To do this right, the Commonwealth, state and territory governments will need to have a comprehensive look at the tax-and-transfer system and resolve questions over who pays for what. Demand for largely state-funded government services is rising, and this will only become more acute as the population ages.

The Commonwealth will need to assist states with the transition. This is another ideal use of the National Productivity Fund. With a current allocation of $900 million, it will arguably need to grow to tackle tax reform and other seamless economy regulations. Experience suggests this would be money well spent.

Productivity growth will ultimately be driven by private sector innovation and investment. The role of governments at all levels should be to establish the enabling environment to allow this to happen. Getting rid of inefficient taxes, reducing and harmonising regulation and looking at long-term investments will get us part of the way there.

Cassandra Winzar is Chief Economist at the Committee for Economic Development of Australia (CEDA).

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