Danielle Wood, chair of the Productivity Commission, has expressed a desire for the government to adopt a bold approach toward productivity reform and inflation management. She emphasized the importance of the government taking a proactive stance in these areas.
Wood highlighted the pressing issue of housing affordability, noting that the federal government is falling short of its ambitious target to construct 1.2 million new homes. She also raised concerns regarding the sluggish growth of labor productivity in Australia, which currently stands at approximately a quarter of its historical average over the past 60 years.
During a discussion on ABC’s That’s Business podcast with Alan Kohler, Wood pointed out that the nation’s housing crisis can no longer be overlooked. She indicated that while there are no immediate solutions, the escalating costs of housing relative to incomes are creating significant challenges, particularly for younger generations. “We are witnessing a notable exodus of young people from cities like Sydney,” she remarked.
Wood urged for serious contemplation around productivity growth and the pressures on wages, housing, and living standards, questioning the sustainability of relying on favorable conditions rather than implementing substantial reforms. She underscored the need to address why productivity seems to be declining and why the government has not prioritized necessary changes.
In her view, increasing the supply of housing is crucial for enhancing affordability. However, she identified two primary obstacles: restrictive planning regulations and a decline in construction efficiency. Wood noted that residential construction productivity has decreased by 12 percent over the last 30 years, even when accounting for larger and higher-quality homes.
Despite some states implementing reforms to planning regulations to expedite development, Wood believes the current trajectory indicates that the goal of building 1.2 million homes will not be achieved. “It’s evident to anyone following this issue that we are unlikely to meet that target,” she stated, a sentiment echoed by federal Treasury analyses.
Nonetheless, Wood affirmed that striving for high targets is essential. She commended the government’s initiative to set ambitious goals and provide funding aimed at motivating states to accelerate efforts. “While change won’t happen overnight, this sets the groundwork for long-term improvements,” she remarked.
Regarding productivity enhancement, Wood highlighted the importance of corporate tax reform as a potential catalyst for increased investment. She noted that current corporate income taxes tend to discourage investment, proposing a shift to a cash flow tax system that would allow for full immediate write-offs of investments.
Additionally, she acknowledged that reforms to personal income taxes could incentivize labor participation. Wood suggested that reducing tax concessions and leakages might warrant consideration to lower personal income tax rates, although she refrained from making specific commitments on this matter.
