How to kick-start Australia’s declining rate of economic growth

Professor Fabrizio Carmignani wrote the following opinion piece for the September edition of Queensland Business Monthly. 

Australia’s economic growth is on a long-term declining trend. In the last decade, Australia has grown at half the speed sustained in the 1960s.

The slow-down poses a problem. As growth weakens, achieving better outcomes for society (e.g. better health and education) becomes much more difficult. The question of why growth is decelerating and how to revamp it is central to ensuring the well-being and prosperity of next generations.

Economic growth results from the translation of new discoveries and ideas into commercial processes. It is therefore a matter of innovation and entrepreneurship. However, Australia is failing to support both. Venture capital investment is among the lowest in the G20, spending on research and development is significantly lower than in countries that drive innovation, we produce a small number of patents and trademarks by international standards, and our exports of high tech and ICT services are small compared to other regional leaders.

There are a few things that Australia will need to do in order to support productivity and economic growth in the long-term.

First is a need for a more ambitious and pro-active government policy in support of innovation. This should include more funding to finance truly new activities, in any sector of the economy (the biggest mistake a government can make would be to pick one sector and invest all funding there). The funding should be conditional on achieving agreed performance benchmarks and limited over time. Entrepreneurs that eventually fail to achieve those benchmarks would no longer receive funding but would not be asked to return funds. Parameters for strengthening collaboration between entrepreneurs and universities could be included as part of such a scheme.

Second, the labour market should better support the process of innovation. This obviously requires investing in education (again, in all areas of study, not just selected sciences and technology). It also requires the implementation of forward-looking retraining programs for the unemployed and a comprehensive job searching/matching support scheme to prevent the skills mismatch and facilitate workers’ transition from declining to emerging sectors/professions.

Third, the personal income tax system should be made more progressive. While the changes recently introduced do imply a generalised reduction in the tax burden for many Australians, the benefits of such cuts are unequally distributed, with those at the top end of income distribution receiving the lion’s share.

Finally, growth is conducive to long-term prosperity only to the extent that it is sustainable, both environmentally and socially (that is, inclusive). This broader concept of sustainability must be embedded in our collective thinking about the drivers of growth, the distribution of its benefits, and the technologies for energy production.

Professor Fabrizio Carmignani is the Dean (Academic) of Griffith Business School