The road to recovery: restoring prosperity after the crisis

Australia has navigated its way through the global financial crisis better than any other comparable nation. We now face a more insidious threat: complacency.

If Australia is to emerge as a more competitive, resilient and vibrant economy, improving our productivity performance is absolutely paramount.

The productivity reforms of the 1980s and 90s involved big, bold, sweeping decisions, such as floating the dollar, slashing tariffs and introducing enterprise bargaining. Today's world is different. With one notable exception, the Rudd government's productivity reform agenda is more incremental, yet it is no less important. The central elements of this agenda are infrastructure, skills, innovation and deregulation.

The government has committed many billions of dollars to long-term infrastructure investment. Capacity constraints inhibited Australia's most recent surge in economic growth.

We are also expanding Australia's commitment to education and training. Only 68 per cent of Australians of workforce age [25 to 64] have qualifications equivalent to year 12. The comparable figures for nations such as the US, Canada and Germany are 88, 87 and 84 per cent respectively.

Without productive workers there will be no productivity improvement.

In tandem with these efforts is a renewed commitment to innovation. In the 2009 budget, the Rudd government committed to a reformed research and development tax credit, now accessible for newer companies not yet making profits, and a major boost to innovation funding across a number of delivery mechanisms.

The government has introduced important new funding opportunities for elite researchers, such as fellowships for key postdoctoral research leaders.

The modern world of micro-economic reform is all about detail.

Significant reforms have already been achieved. Simple, short product disclosure statement requirements are in place for some financial products, with more to come. Medibank Private now pays dividends and taxes like its main competitors, and is driving serious change in private health insurance. Excessively bureaucratic processes regarding property purchases by foreigners have been streamlined. Rules governing pathology businesses are being reformed, to give consumers more choice and remove restrictions on the number of collection centres a pathology provider can operate. Australia's wheat export sector has been deregulated.

Much more is in train. Building a seamless national economy isn't done with the stroke of a pen. It involves endless negotiation and arm-twisting.

Progress so far is varied because each reform process is different.

The most far-reaching and challenging micro-economic reform process that's under way is of course in telecommunications. The government's national broadband network project is half of a wider reform agenda in telecommunications. The other half is regulatory reform.

The Rudd government inherited a terrible stalemate in telecommunications: a private company that completely dominates the sector through its control of monopoly infrastructure; a complex regulatory regime that encourages gaming and discourages innovation and investment; and broadband outcomes well behind most comparable nations.

Regulatory reform and infrastructure investment are inextricably connected. The government is committed to ensuring Australia has world-class infrastructure that is accessible to all market participants on equal terms. Under the Howard government private monopoly model, this couldn't happen. In the modern economy, telecommunications services are of similar importance to financial services. The notion that we should tolerate third-rate arrangements is unacceptable. Most of the critics of the government's proposals would regard themselves as supporters of the free market, but they are somehow unable to address the need for genuine competition in telecommunications.

The hard grind of improving Australia's productivity performance is at the heart of our economic strategy. There is hardly a sector anywhere in the Australian economy that is not touched by the government's micro-economic reform agenda.

Our economy is changing all the time. That means the reform task is also always changing. There is always more to be done. And the influence of political realities can never be completely discounted. In aggregate, though, the economic reform challenge is one that Australia can't afford to fail. We are emerging from the global financial crisis in better shape than virtually all other developed nations.

That's no reason for self-congratulation. It's a very good reason for grasping the nettle of difficult reform challenges. We have survived the war, now we have to win the peace.