NSW Productivity Commission green paper highlights key opportunities for growth

By Shannon Jenkins

Friday August 28, 2020


The New South Wales Productivity Commission has released a new green paper to help achieve a more productive and sustainable economy for the state and its community in the future.

The 296-page document noted that the past two decades have seen a slowdown in productivity growth, and labour productivity has gone backwards in recent years. The impacts of COVID-19 will further damage productivity.

However, there have been some benefits to the pandemic, according to NSW productivity commissioner Peter Achterstraat.

“COVID-19 has shown us we have more opportunities for productive change than we realised and we can respond quickly,” he said.

“One successful change to the system has been our pandemic-driven experiment in relaxing regulations on supermarket trading and deliveries. Another successful change has been our national decision — again, driven by the pandemic — to bring telehealth into Medicare, letting us all talk with a doctor without leaving our homes.

“This is what productivity growth looks like.”

While a 2016 report assumed labour productivity growth would lift to a long-run average rate of 1.5% per year, it has grown at a rate of 0.7% per year for the past decade. The paper said that if this continued, the NSW economy would be $33,000 per person each year worse-off by 2056.

“To see the impact more clearly, think of how an extra $33,000 per person per year would improve the living standards of your family,” it stated.

The dozens of draft recommendations outlined in the report aim to provide the greatest productivity gains at the lowest social cost, and can be implemented without complex negotiations with other governments. They focus on addressing issues within schools, vocational education and training, regulation, water and energy, infrastructure, housing, and tax.

The PC has encouraged the public to provide feedback on the draft recommendations.

NSW needs smarter, more flexible regulations that support innovation, competition and economic growth, the commission said. It has identified 16 opportunities to modernise NSW regulations, and has called on the government to:

  • Extend some COVID-19 regulatory changes, such as flexible trading hours and digital solutions for legal and administrative processes,
  • Review existing regulatory regimes in a number of fields ranging from genetically modified technology to childcare,
  • Pursue automatic mutual recognition or unilaterally recognise licenced occupations so that workers can move to NSW from other jurisdictions,
  • Implement regulation to support new technologies and competition in a range of areas,
  • Remove outdated arrangements and improve complaints processes in competitive neutrality policy,
  • Create an evidence-based best-practice regulatory policy framework and new tools to improve regulator performance, including local government regulation.

Read more: NSW Treasury report shows how AI can fast-track regulatory reform process

The report highlighted a number of issues with the water and energy sectors. For example, the water sector’s functions are spread across a number of agencies and corporations, making coordinated long-term decision-making more difficult. In the energy sector, regulation is fragmented and dispersed across several agencies, and regulation responsibilities should be brought “under one roof”.

The commission recommended setting a plan for the water sector to clarify roles and responsibilities, improving collaboration. Removing unjustified barriers to water recycling, targeting regional utilities that need funding the most, and ensuring the management of water demand maximises community benefits were also recommended.

The government should also ensure its energy reliability policy is consistent with consumer willingness to pay, and investigate how technology can improve electricity pricing. It could adopt a market-oriented climate change and energy policy that is technology-neutral and prices carbon dioxide emissions, and streamline energy subsidies, the paper said.

Smarter infrastructure and planning to support communities

Investing in the right infrastructure can be a “powerful lever” which the government should use to raise productivity, the report noted. To use it effectively, NSW should ensure agencies’ business cases align with government guidelines, investigate new ways of easing road congestion, and assess how Opal fares can be used more effectively to ease demand in peak times.

Planning for greater housing and business activity in areas with spare infrastructure capacity, and improving transparency to create incentives for good infrastructure investment would also benefit the state.

While planning systems can enable productivity, overly complex regulations can “stifle business competition and reduce housing supply”.

The paper also noted that access to open and green space is important for productivity, keeps people healthier, connects communities, and helps make cities more resilient to the impacts of climate change.

Among the numerous planning recommendations, the PC has called on the government to ensure planning instruments keep up with housing needs and consider community interests, and develop a consistent way to measure the benefits of open and green space to incorporate it into land use planning.

Read more: For green cities to become mainstream, we need to learn from local success stories and scale up

Some NSW government taxes are “disproportionately distorting the economy and cutting productivity growth”, the PC argued.

It noted the existing rates mechanism does not properly compensate councils for population growth, leaving local governments unable to meet demand and more likely to resist development. It has recommended that reforms be evaluated within three years, and, if they don’t provide sufficient funds to deliver services, councils should hold a plebiscite of ratepayers to test support for abolishing the rate peg.

The PC has also recommended replacing inefficient taxes with more efficient ones and coordinating payroll tax administration across states and territories.

Students falling behind

NSW students are more than a year behind their counterparts of 20 years ago despite higher funding and recent reforms, the report said. The PC has called for school reform to focus on “best practice teaching in every classroom”. Among several recommendations to government, the commission has called for more flexible pathways into teaching, support that is tailored to individual school needs, and making schools accountable in implementing evidence-based best practice.

Despite many reviews of NSW’s VET system, few reforms have modernised learning modes, career pathways, or VET’s relationship with industry, the paper said. Meanwhile, universities continue to be seen as the default pathway, COVID-19 has displaced thousands of workers, and limited training pathways have led to chronic skills shortages in trades.

However, the report noted that micro-credentials are a “highly targeted and efficient method of skills delivery and are well-suited to life-long learning”. It recommended the government promote the development and recognition of micro-credentials and prioritise their funding in line with business needs.

Other recommendations included creating an “earn or learn” strategy centred on the skills needed for the post-pandemic economy, targeting HSC graduates and mature-aged workers with new pathways that allow students to complete the institutional requirements of a qualification before gaining on-the-job experience, refining the NSW Skills List, and directing funding toward skills shortages and emerging business needs.


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