The Productivity Commission (PC) is half-way through its second five‑yearly review of Australia’s productivity performance. The first five-yearly review, “Shifting The Dial”, made recommendations to focused on non-traded markets such as health, education and town planning, but as yet there has been no substantive response from the Commonwealth Government.

In the period since, Australia’s productivity has continued to slow. The Grattan Institute’s research presented at the Jobs and Skills Summit leads to the sharp assessment that Australia is “older, fatter and slower”. The Institute identified as one of the reasons “a declining contribution from technological advancements”, which is striking when you think about the accelerating pace of technological change.

In the lead-up to the summit, the PC released two Interim Reports, Interim Report 1: Key to Prosperity and Interim Report 2: Australia’s data and digital dividend. We focus on the digital dividend report.

Australia’s digital puzzle

At the heart of the PC interim report is the following observation:

“While we do well compared to other developed economies on foundational aspects of technology and data use (such as internet connections and data volumes), we are falling behind on some more advanced indicators. Australia’s internet speeds are relatively low and business use of data-driven technologies, such as AI and analytics, trails uptake in other countries”.

The PC interim report identified the following digital economy parameters where Australia does well, if not outperforms globally:

• 99% of Australian businesses had access to either a fixed or mobile internet connection in 2020, ranking Australia up there with Denmark and Finland, and ahead of Germany, France, the UK, Japan and even that ‘digital poster child’, Israel;
• Australian businesses have high rates of cloud technology adoption (71% of businesses purchased cloud computing services in 2021), ranking Australia third in the OECD;
• Australia was ranked second out of 94 countries in publishing government data, with particularly high scores in the national statistics, high-level budgets and geographical information; and
• the share of IT university graduates in Australia is 6% — higher than in the US, UK and Canada.

The PC interim report identified the following areas where we fall down:

• a global ranking of businesses using data analytics or artificial intelligence placed Australia at 26th spot;
• 26% of Australian business who participated in a recent survey reported digital literacy as a key skills gap. Digital literacy within the agriculture sector has also been identified as relatively low; and
• while Australia was the third-most targeted country based on ransomware intrusion volumes in 2021 (with 67,500 cybercrime incidents in 2020-21, up 13 per cent on the previous financial year), the investment Australian businesses make in cyber security is modest compared to other countries.

Hence the puzzling dynamic between take up and engagement of some digital technologies, whilst we are languishing in others. Clearly, we should be doing better than we are, but why aren’t we?

What are the issues the PC want to solve?

Digital infrastructure

The PC called out that Australia’s internet speeds are not globally competitive: “Australia’s median mobile internet download speed was 68.35 Mbps (ranking 18th in the world) and the median fixed broadband download speed was 50.89 Mbps (ranking 61st)”.

On the other hand, the PC interim report referred to a study that found Australia ranked fourth out of 13 OECD countries on broadband affordability for the 26–50 Mbps speed tier and sixth for the 51–100 Mbps tier pricing. But the PC pointedly noted, this study did not include affordability for speeds higher than 100 Mbps. Obviously, there is some potential circularity here which imposes a ‘speed vs price trade-off’ on business and consumers using more sophisticated broadband applications which require higher speeds. Cheap, low speed broadband is not the pathway to digital transformation.

While the PC does not say so, this seems a strange position for a country to be in which has spent so much ‘taxpayer treasure’ on a national broadband network.

The PC also identified the drag on productivity in regional and rural areas of poor or patchy connectivity. Slow or unreliable access to the internet prohibits the adoption of productivity-enhancing technology in industries crucial to the Australia economy such as agriculture and hinders the delivery of essential services, such as telehealth.

Data sharing

The PC identified inefficiencies around data sharing within government, but more significantly between government and the private sector. This enabler should be given attention because of the increasing volume of data that is available, which could lead to new opportunities, open access to government and better service provision.

The PC makes the well-accepted observation that public trust is crucial to achieving the high level of data sharing required to maximise digital technologies. The PC interim report also illustrates the mountain of public mistrust to climb when it comes to data sharing, as a result of failures by both business and government:

• CEDA reported that while 88% of business participants in an AI workshop indicated that trust and confidence in AI is a high priority in the future, only 12% identified it as a current priority for their business; and
• on the government side, the PC acknowledged the adverse impacts on public trust of Robodebt (which is only likely to deepen with the Royal Commission). Initiatives such as the ‘My Health Record’ scheme, which were initially designed to improve consumer health data sharing, has proved to be messy and inaccessible. This is because the need to originally opt into the scheme meant take up was slow, which facilitated a competing patchwork of government and industry solutions to collecting and storing data, and over time, this only served to exacerbate the functionality and interoperability of data sharing.

Data skills

Digital inequality is real and entrenched. Australians who are older, who live in regional or remote areas, or who have lower levels of income or education are particularly susceptible to being left behind as digitisation takes hold. This is illustrated by Figure 3.13 of the PC interim report, set out below.

 

 

What is even more striking is the PC’s observation that, when you drill into Australia’s relatively good performance on IT university graduates set out above, you find that we are actually going backwards. As figure 3.10 from the report shows, tertiary IT qualifications amongst domestic students has declined while international graduates (most of whom will return home) have increased:

 

 

What is the PC proposing?

Digital infrastructure

The PC interim report skirts around the issue of slow fixed network broadband. The new Minister for Communication’s decision to reboot the NBN special access undertaking process is likely to bring Australia’s relatively poor performance on this issue into sharper focus.

The PC does, however, recommend that regional and rural connectivity issues be addressed by replacing the current USG scheme (which is limited to telephony and delivered by Telstra with Federal Government funding) with a market mechanism to deliver broadband connectivity because:

"It can be difficult for the government to decide on the type of infrastructure that would most cost effectively deliver the USG’s minimum standard in a given location. The government could instead consider using a technology neutral market-based mechanism such as competitive tendering, which may lead to more efficient outcomes and address gaps in regional and remote connectivity at lower cost…"

The PC has suggested that the USG mechanism would operate to allow the Government to “take advantage of existing infrastructure owned by incumbents, as that may be most efficient, without entrenching a single provider in particular locations where a competitive market could exist”.

The PC’s recommendation is not surprising as market-based solutions are in the PC’s DNA, but other recent inquiries into rural connectivity take a somewhat different view. Both the 2021 Regional Telecommunications Review and the Australian Broadband Advisory Council report on digital agriculture identified shortcomings with competitive tendering processes by which other Commonwealth funding for telecommunications ‘in the bush’ is allocated. Regional communities who have the resources or the ‘nous’ to submit the best funding submissions win out, while smaller communities with more limited resources can struggle to attract the funding and attention that is needed.

Both the RTIRC and ABAC reports emphasised the need for a more localised, ‘do the planning first’ approach. The 2021 Regional Telecommunications Review recommended the development of a long-term investment and planning framework between all levels of government for digital infrastructure and regional digital capability, stating:

"There is a role for all levels of government to work together to identify connectivity requirements as part of investments in shared strategic priorities… this speaks to a need for improved cross-government collaboration in setting and acting upon strategic priorities for regional telecommunications investment through a formal investment and planning framework."

Building trust to support more data sharing

While Australia does well in the digital availability of government data, the PC interim report said that there is currently not an effective framework in place which facilitates data sharing between public and private sectors. As the PC noted, the recent introduction of Data Availability and Transparency Act 2022 (Cth), which sets up a regime to facilitate sharing between Commonwealth entities, explicitly excluded participation by private businesses. The effect of this is that private businesses are prevented from creating new opportunities and value from accessing certain government data. The PC contrasted this with the UK experience, where the UK Ministry of Justice’s Justice Data Lab provides access to government data to organisations that provide offender rehabilitation services.

Regulatory framework

The PC interim report identified the importance of developing appropriate policy and regulatory frameworks in an environment where technology is constantly evolving. But the PC does not deal in any meaningful way with what further coordination or collaboration would look like, and how it would specifically tie back to productivity.

The PC interim report cites as positive developments the formation of the Digital Platform Regulators Forum (DPRF), which includes the ACCC, ACMA, OAIC, and the Office of the eSafety Commissioner, and the Tech Policy and Regulation Coordination Model developed by the ANU Tech Policy Design Centre. But the PC fails to drill into the differences between these approaches – and in particular, the scope and ambition of the ANU model. The DPRF – worthy as it is – is an informal ‘talk shop’. By contrast, the ANU Model seeks to establish much bigger, formal framework which brings together regulators, policy makers and industry, topped by a cabinet level committee, with the objective of building a stronger national focus on digital transformation.

While effective cybersecurity regulation was crucial, the PC received feedback that Australia’s expansive national security laws “have large and complex impacts on businesses’ core operations.” In particular, the recently enacted Critical Infrastructure legislation was criticised in feedback to the PC as rushed without suitable consultation with industry. Treading carefully, but hinting at possible overreach, the PC commented that:

“In practice, the government may rarely have to use these powers if companies have suitable risk mitigation and management processes that minimise the likelihood of serious incidents occurring — and the rest of the critical infrastructure security obligations seek to ensure this is the case. However, the mere existence of intervention powers in the legislation could have the unintended consequence of deterring investment, particularly by multinational companies if Australia is ahead of other countries in implementing such requirements. As it is early days, more time is required to assess whether the current suite of critical infrastructure regulations strike an appropriate balance between securing high risk sectors while not unduly discouraging future growth. The government should monitor and evaluate the effectiveness and economic impact of implemented policies to improve its understanding of the trade-off between security and growth, and recalibrate the regulations as required.”

Conclusion

The aspiration of the PC interim report is clear: it is about how declining productivity can be addressed through a better digital economy. Earlier this month, Treasurer Jim Chalmers also said that he hoped the digital dividend report would spur a genuine national conversation about how to reverse the poor performance, and flagged that boosting productivity would be a focus of the Jobs and Skills Summit.

While the PC interim report is a strong statement of why Australia should be doing better than it is, its recommendations seem to fall short of the mark. Better digital infrastructure, data sharing, data skills and digital regulation are important enablers to digital transformation, but what Australia seems to lack is a stronger, shared national sense of urgency, ambition and preparedness to take risks in the transition to a digital economy.

The explanation for this missing ‘digital oomph’ cannot be that we lack the necessary scale, since, as the global comparisons in the PC interim report show, smaller economies like Ireland, Netherlands and Finland have 4 or 5 times the level of usage of advanced data analytics and AI. It also can’t be that Australia lacks the ‘secret sauce’ of imagination, creativity or an ability to think outside the box. In discussing Australia’s poor digital performance in creative industries, the Australian Broadband Advisory Council notes that we punch above our weight globally in traditional media industries such as film, demonstrating that we have “a strong talent base of creatives and professionals, and a healthy academic and training infrastructure, both in a stable political, legal and social environment.”

At the Jobs and Skills Summit, the Grattan Institute called for “a substantial upgrade of the public scaffolding from government – especially the enablers [including]….. digital policy… to provide a positive ecosystem for investment”. While the interim PC report provides a good base to build on, ‘this ain’t it’.

 

Read more: Interim Report | 5-year Productivity Inquiry: Australia’s data and digital dividend