The Federal Government is right to open its wallet to the states: CEDA

CEDA Senior Economist Melissa Wilson said:

“The Albanese Government’s new $900 million national productivity fund is a positive start to tackle Australia’s weak productivity. 

"It will encourage states and territories to make critical reforms despite the fiscal odds often stacked against them. 

“While paying the states to undertake reform sounds expensive, we've done this before and it’s worked.

“Under the National Competition Policy in the 1990s, these payments averaged around $600 million a year while making the economy up to 5.5 per cent bigger over the long term.

“States that move to reform first risk losing precious tax revenue, while the Commonwealth always stands to gain most from productivity reforms, so a fund like this is an important step to encourage reform.

“The construction-related changes under this fund are especially welcome given Australia’s dire housing shortage.

“Construction productivity has been flat for three decades. Skills shortages and rising materials costs show the importance of efficiency gains, technological innovations and new ways of working to deliver high quality housing and infrastructure on time and using fewer resources.

“Total construction directly accounts for around seven per cent of economic output and almost nine per cent of employment, while residential construction is 40 per cent of total construction work completed. Raising productivity in construction is thus critical for the sector, the economy and society.

“Encouraging pre-fabricated and modular construction has an important role to play. A McKinsey study found prefabrication can cut housing construction times by as much as 50 per cent and reduce costs by up to 20 per cent.

“To maximise the gains from modular housing will require scale and a consistent pipeline of work. Encouraging more streamlined and consistent regulation of building within and between states and territories will be an important step here.

“Pre-fab and modular housing could also help reduce waste in the sector, with construction now accounting for 38 per cent of all waste generated by Australians, driven by both demolition and new-build projects.

“And they could also help us reach our climate and energy goals by enabling us to build more energy efficient homes.”