The new economic Marshall

While the new Steven Marshall state government didn’t release an economic plan in the lead up to the election it did release a raft of policies that give us an indication of what its economic priorities are.

One of its major pledges was the removal of payroll tax for companies with annual payrolls of less than $1.5 million, at a cost to the State Budget of around $45 million. The argument has been that this would act as a stimulus to employment. The new Labor opposition leader Peter Malinauskas agrees and has confirmed that Labor won’t block it.

The problem with this policy is that the evidence available on the impact of reducing tax on employment indicates that while it might be a popular measure in the business community, it won’t deliver a sustained increase in employment or translate into higher wages growth.

History tells us that investment is the best driver of jobs growth and that companies tend to return the benefits of reductions in tax to their shareholders and owners rather to the workforce. This is a wider problem in Australia with stagnant wages growth coinciding with strong profit growth. At a federal level there is a strong push to lower the corporate tax rate, a policy that companies welcome but most admit won’t translate into them hiring more people or offering higher wages.

The new state government has been critical of the former Labor government’s direct grants to business and is likely to rein these in, at least in the short term. Labor provided grants to companies in an effort to accelerate product diversification and the uptake of technologies, a practice that the Federal Coalition government has also made extensive use of to help companies deal with the shock of the automotive closure and the wider pressures on manufacturing.

On the trade front, there is unlikely to be much policy difference between the major parties. The Marshall government says it will establish new trade offices in Shanghai, a move that will enjoy bi-partisan support given the strategic importance of China as a destination for our exports. This must be part of a wider strategy of engagement with the Asia Pacific region with India, Indonesia, Japan, Taiwan, Thailand and other nations also requiring our attention.

On the roads and infrastructure policy front, there is a divergence of approach. The new government has said that it will establish a new body, Infrastructure South Australia, to develop business cases for particular projects and submit them to Infrastructure Australia for consideration. It has not yet committed to a spending target on infrastructure but has said that it will identify about 10 priority projects and establish a Regional Roads and Infrastructure Fund. An amount of $50 million has been set aside for spending on infrastructure but it is not clear what this is intended to fund.

The Marshall government stated it will continue with the infrastructure project commitments of the previous government, suggesting that the total spend on infrastructure will probably be in excess of $1 billion. Over the last few years, the total public sector spend on infrastructure has been in excess of $2 billion. The new state government has some ambitious infrastructure plans that could help to sustain this level of spend, particularly the GlobeLink project, an intermodal export park proposed for Murray Bridge.

The challenge is: how quickly can it be activated. The policy imperative for the new state government is to nail down sufficient new infrastructure projects to ensure that there is not a sharp decline in total spending on infrastructure while we are still dealing with the closure of the auto industry.

The processes of providing economic advice to the state government is about to change in South Australia. The former government’s Economic Development Board (EDB) will be replaced by an Economic Advisory Council. It is not clear what its terms of reference will be but it is less likely that it will have responsibility for specific project delivery as the EDB had in some areas.

The new government plans to establish a state-based Productivity Commission, which is likely to have a profound influence on policy in years to come, as the national Productivity Commission has on the direction of the federal government. The tendency of the national body has been to advocate privatisation, outsourcing and minimising the role of government in the economy — an ideological mission that should be abandoned given the evidence of failure now available.

Governments across the political divide are seeking to foster entrepreneurship and accelerate the growth and success of start-up companies. This will be a particular focus of the Marshall government, which has committed to four schools being designated as Entrepreneurial Schools. It has also promised to establish a new innovation, start-up and growth hub on the old Royal Adelaide Hospital site. A key strategic consideration is how this might build on and strengthen existing initiatives such as Venture Dorm at Flinders University and ThinkLab at The University of Adelaide. We don’t need to reinvent the wheel.

On the employment and training front, the new state government has committed an additional $100 million to attract matching funding from the federal government for 21,000 additional apprentices over four years. The challenge in the short term will be getting employers to take advantage of these places. They are much more likely to be in some sectors like construction if we maintain high levels of spending on public infrastructure.

A major policy challenge for the new state government is to define what kind of support it provides to companies to help accelerate the uptake and diffusion of advanced digital technologies. Shared infrastructure providing access to the latest technologies and business processes has proved to be a successful strategy internationally.

We are great at inventing but lag when it comes to translating discoveries and ideas into commercial outcomes. This requires a different institutional architecture to the one that has prevailed for the last 100 years in South Australia — innovation districts where universities, government, industry and communities are engaged in solving problems and developing solutions more collaboratively. All of this has profound implications for the education and training sector, which must play a central role in preparing students for the jobs of the future and retraining the existing workforce for the digital age we live in.

John Spoehr is director of the Australian Industrial Transformation Institute at Flinders University

@JohnSpoehr

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