Government is making it harder for business to be productive. This is not a new phenomenon, but given the urgency of our productivity challenges, we need to address it with new energy. It takes almost 50 per cent longer to build a home than it did in 2020, and labour productivity in construction has fallen 18 per cent since 2014.

IR regulation is critical. The range and scope of the government’s IR reforms have made things worse. But we need to move beyond the election-driven pendulum swing of IR to a truly constructive way forward.

Three key reforms

There are three things governments of any stripe should commit to now for the election. First, help smaller businesses deal with IR complexity by lifting the threshold for small business in the Fair Work Act from 15 to at least 25, or better still, 50 employees.

Second, work with unions and businesses to simplify awards. And finally, review the Fair Work Act through the lens of productivity as well as worker protections, and move from an ideological conversation to a practical one. IR regulations that hurt productivity hurt wages.

IR legislation is not the only government-imposed handbrake on productivity. An insightful observation I heard recently is that “regulators have no natural predators”. Regulators have too many incentives to stop stuff happening. They inevitably get blamed when something goes wrong, but they don’t pay much for the worthwhile things they stopped.

Generations of governments have struggled to reduce red tape. We need senior people – including a minister of better regulation and a senior point person in every area of significant regulation – to constantly challenge how regulation can better promote productivity and competition, and whether the costs of regulation outweigh the benefits. It’s not quite Elon Musk, but we need a shake-up. And we need a proactive focus on right-sizing regulation by sector – starting with construction and the care economy.

This focus on IR and restrictive regulation also needs to be applied to the government-funded non-market sector, where productivity is most concerning. Overall non-market productivity has barely increased in the past 20 years. Of course, it’s hard to measure productivity in these sectors, but the growth of this workforce relative to the population is unsustainable.

A process for tax reform should be an election commitment of any party that is serious about our economic future.

IR also plays a role in the public sector – ineffective public sector workers cost us all. To really deliver on non-market productivity, we need governments to commit to outcome targets rather than just cataloguing inputs, to assemble rigorous business cases before spending on infrastructure projects and to stop NDIS spending growing faster than the rest of the economy. And we need to return to budget commitments that limit spending growth.

Finally tax reform. As I have outlined in my green paper, we need to lower taxes on people who are working, sharpen incentives for business innovation and investment, and tilt the tax system to support home ownership so that young people can build the prosperity of previous generations.

All of this is hard – the only way to do it is to put together packages that do not increase the overall tax burden, using a reform process that is willing to put all taxes on the table. A process for tax reform should be an election commitment of any party that is serious about our economic future.

But neither major party seems willing to face the situation. While the government’s missteps on IR and spending levels are significant, the Coalition didn’t deal with time bombs like the NDIS while in government, has not articulated what it will do in government in future, and cannot explain how spending billions on nuclear will help.

This isn’t the time for small target political blame-games. New year is the time to make resolutions for serious-minded reform.