What makes wealth? Strip it right back, and it comes down to making the most of the resources available. This is often referred to as productivity and applies to capital and labour. Productivity = Output/Input, which means that the higher the ratio the more competitive you are. The trend is just as important, as it drives living standards and wage growth. Australia is right now having its worst productivity decade since records began way back in 1960 (declining 0.1% per year since 2020, set to be -0.5% this year and still falling according to the RBA), ripping $250 billion out of our economy this year (compared to the Governments own forecast of anaemic 1.2% growth). We’re told AI will fix it. This is a do or die moment – will it?
AI is evolving very rapidly, and companies are in the late stages of deciding where to invest in the all-important data centres. Australia is perceived as having a geographic and relatively stable societal (legal frameworks etc) advantage as a potential hub for Asia. It’s a global fight for the investment dollars, and the countries left behind will probably never catch up.
Hitching our predicted productivity estimates to AI misses one important point: productivity is relative, and if everyone else is adopting AI the same or more than we are, we’re not making up any ground at all. Our purchasing power will continue to decline.
So what is Australia doing about adopting AI? Well, the key input is processing capacity which is directly correlated to energy/power. Australia has amongst the most expensive power in the world. In other countries, AI datacentres are taking control of their supply chain by ensuring they have 24/7/365 reliable and stable power available on site. They are building and ordering nuclear reactors that also excludes the distribution risk of power lines failing. Many are using coal. Our response is possibly the dumbest you can get: force the data centres to build wind and solar farms (plus a 100% back up system) because our grid can’t cope. Hugely expensive and requiring massive land areas, meaning the centres will be well away from users as well as a workforce.
The second part in attracting investment is of course the ability to harness the competitive advantages, otherwise there will be no improvement in productivity at all. Enter our Industrial Relations framework, where they are busy drafting rules that mean that AI can’t be implemented without agreement from the existing work force to change workloads and flows. Let’s think that process through: so an existing employer is stuck doing what they currently do. A company that is new to the market (or based overseas for that matter) doesn’t have that restriction, and can make the work flows whatever they like based on best practice at the time. Obviously these two companies compete with each other, so it doesn’t take Einstein to work out that the company that can’t adapt will sooner (or later) die – and all the “protected” jobs will be totally gone. What a great achievement! Zero employment, zero taxes, I’m sure you can work the rest out.
Last year there was a “productivity roundtable” love in with big business and Government. They are due to release some of the policies shortly, with the most anticipated being the introduction of a road-user charge for Electric vehicles. Now don’t get me wrong, I am totally supportive of a road-user charge applied to all vehicles on a per kilometre per kg basis – but it must replace existing taxes such as the fuel excise – otherwise it is simply another tax grab and the opposite of a productivity improvement.
The above roundtable included big businesses and associations such as the Business Council of Australia (BCA). Interestingly the BCA has suddenly found a voice on Productivity in recent weeks, highlighting some of the issues. Their suggestions include cutting red tape by 25% by 2030, reform of the tax system (noting that reform is not more taxes and they want to do away with the recent tax changes), and make workplace laws simpler and more flexible.
To give everyone an idea of how “progressive” our society is, a Productivity Commission study found that company directors spend 55% of their time on compliance in 2025 – a decade earlier it was 24%. Another study shows that the number of dwellings completed per hours worked is the lowest in 20 years, and we now build half as much house per hour worked as we did 30 years ago. It now takes an average of 32 months to complete what at the start of the century took an average of 12 months (from woe to go). Opening a cafe in Brisbane takes 31 separate regulatory steps – that’s before you have to navigate the awards to work out how much to pay people. OECD figures also show that real wages have fallen by 5 per cent since 2021, so yes, that feeling of being poorer is actually true.
Even Treasury is coming out with concerns about some wealth destructing mandatory reporting. They singled out the mandatory climate reporting regime. I get lost in what some of these schemes are let alone achieve, but basically this one is about a company reporting all the CO2 “emissions” not only in their own company but from suppliers etc called Scope 3 reporting. Important stuff, like effectively double counting CO2 from suppliers, customers and even employees commuting. This has been dropped in the USA and the EU has pushed this into the never-never. We are also full steam ahead with the carbon credit scheme – which means 4% of Australian farm land will be taken over to lock up as “emission offsets” – farmland absorbs CO2 too, whilst simultaneously producing valuable things like food.
If your head isn’t spinning yet, we also have “the Safeguard mechanism”. Best not ask what this actually “safeguards” as all it seems to do is ensure an expensive bureaucracy consisting of an army of public servants checking on an industry of “accountants” and “auditors” “measuring” emissions intensity trends. In other words, it’s a system of safeguarding of thousands of “non-jobs”.
I’ve done my best to summarise the current situation, but there was an awesome must-read article on the weekend by Chris Uhlmann (Argentinisation: the policies threatening Australia’s prosperity | The Australian) showing how this all impacts Australia’s future direction. I’ll close off with an abbreviated version of some of the key points with my own elaborations:
Uhlmann starts by dissecting the electricity sectors’ misallocation of hundreds of billions of tax dollars that are producing LESS power for every dollar invested, spending that can’t be undone.
This and other spending have pushed combined state and federal debts to $2 trillion. The worst part is that debt taken on in years such as 2021, when rates were around 0.5%, now have to be refinanced at interest rates up to 10 times higher — around 5% and rising. That adds roughly $100 billion a year in extra interest costs: wasted money that delivers no productive return.
Uhlmann runs through a list of productivity “achievements” in the past few years, including:
- the carbon scheme creation of carbon sinks. How does it make any sense to “Make it more profitable to stop producing food than to grow it”?
- “Make sure bureaucrats are amongst the highest paid in the world and don’t demand they actually come to work”. Then make that extend to the private sector also, whilst adding more paid leave in various guises.
- Add reporting requirements such as climate and gender equality, supply chain surveys etc. It’s as if they think that more people doing the same work is “productive” – more people employed right? (until someone has to pay for it). None of this adds to the product or service people have to be convinced to pay for.
- Get companies and individuals trapped as dependent on Government. For instance, “give” a 5% deposit to first home buyers – then collapse the housing market with new taxes whilst creating rising interest rates – many people are about to experience what “negative equity” means. Don’t feel stupid for falling for it though, businesses have also taken the cool aid hook line and sinker, realising that it’s more profitable to follow Government policy (for instance divert investment capital to where the subsidies are) than it is to win over customers – that carpet will be pulled in due course too. It’s called socialising the risk, and they are using not just taxpayer funds but also our super money to prop up spending that doesn’t stack up in any other way.
All on their own each policy might seem not so harmful, but it’s the accumulation of thousands of requirements that eventually has broken the camel’s back.
Most of these requirements do not add one iota of value to anyone, other than create a new bureaucracy to feed. For a private business, they have to create sufficient value for a customer to willingly pay for the product or service. It’s now at the stage where we have the highest tax take per person in history (measured in several ways including portion of GDP, highest income tax etc), and taxpayers are asking why we are paying for things we can’t afford and don’t need?
Words from the wise
“Productivity isn’t everything, but, in the long run, it is almost everything” – Nobel Prize-winning economist Paul Krugman.
“Price is what you pay, value is what you get” – Warren Buffet. And when it’s too expensive, nobody will pay for it, so you go broke.
“The first priority of the business is to add value to the customers’ lives, in exchange for payment.” – Hendrith Vanlon Smith Jr. The rest is “provided” by taxpayers through Government.
As always, Onwards and Upwards!
Fred Carlsson
General Manager
