INCENTIVISING
“For the sake of four in five Australians in the workforce, policy must work in support of our services industry.”
G lobally, governments provide programs to support business investment in R&D. For the past 35 years, R&D tax incentives have provided Australia-based businesses with financial support to develop new and/or im- proved products, processes, services, devices and materials. A country’s R&D policy settings must align with its broader strategic economic objectives, including productivity and other growth drivers. Productivity is often defined as the ratio of a vol- ume of output and a volume of inputs. It meas- ures how efficiently production inputs (such as capital and labour) are used to produce a certain level of output. It follows that Australia’s ability to improve its standard of living depends, in large part, on its ability to increase output per worker. In addition to demographic changes and labour force par- ticipation, productivity is a key determinant of long-term economic growth. For firms investing in R&D, Alan Garcia believes one policy tool has an outsized – and measurable – impact.
Australia’s productivity is going backwards Empirical evidence indicates that higher pro- ductivity is tightly linked to higher wages. Un- fortunately, the 2020 Productivity Commission report Can Australia Be a Productivity Leader? showed that labour productivity fell in Austral- ia for the first time since 1994, by 0.2 per cent. Australia lags behind the United States, France and Germany, ranking sixteenth in productivity among OECD member nations, despite ranking fifth in number of hours worked per person. An average worker in the US can produce in four days what it takes an Australian worker five days
to produce. Australian workers produce less per hour than German and French workers. The challenges for Australia are our land mass, low population density and remoteness, and the effects that these have on efficiencies of scale vis-a-vis production/manufacturing and distribution channels. These are factors that un- doubtedly influence our productivity results. It is important to note that approximately 80 per cent of Australian employment relates to the services industry. Therefore, increasing pro- ductivity in that field to drive economic growth must be an immediate focus for policymakers.
INNOVATIA
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INNOVATIA
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