The Productivity Commission has released its first ever five-year productivity review, called ‘Shifting the Dial’. It was released in conjunction with the Commission’s annual report.

It is “a look out across the landscape of factors and influences that may affect Australia’s economic performance over the medium term, in order to offer advice on where our priorities should lie if we are to enhance national welfare.”

The report has a chapter on ‘More effective governments’, which offers a critique of how government works in Australia and how it can be improved.

“The effectiveness of government functioning is critical for continuously improving living standards,” says the report. “Governments set and re-set the legal and commercial rules of the game that give greater certainty to investors, and standards to protect employees and consumers.

“Governments choose our service levels — in defence and trade, as well as the more obvious health and education — and they set incentives and provide information for the development of natural resources, and rules to protect the environment.

“They fund infrastructure, and collect and reallocate tax revenue to reduce inequities in opportunity and outcomes. Above all, they manage the complex interaction of all these, across three levels of government, a task that often only comes to notice when it fails badly.”

The Productivity Commission says that, while Australians’ trust in governments and their institutions is falling, there are practical things that can be done to make governments work better.

It might be too much to ask, given the increasingly rancorous nature of political debate in Australia. Still, the Commission is to be commended for trying. Many of its observations, and its suggested fixes, seem spot-on.

One key area of reform, says the commission, should be in intergovernmental relations. It says COAG is “currently not an effective reform vehicle.

“A key will be that COAG chooses to restore its role as a vehicle for economic and social reform. The scope for the vital big reforms will require commitment to a joint reform agenda by all jurisdictions.”

It also says that revenue-sharing is not working well and that governments “commit to tax changes that would improve revenue-sharing arrangements as an essential part of the agenda.”

It says that budget constraints are weak, particularly at the federal level, and that there is insufficient cross-government understanding of long-term national spending pressures. It calls for strengthened accountability mechanisms.

The report is accompanied by 16 supporting papers, including one specifically addressing local government. It is critical of the way many state governments have “delegated functions to councils without clear policy frameworks or well‑designed support.

“In principle, meaningful information on how well local government services match the requirements of their communities and state governments, and their efficiency over time and against peers, should reduce the need for restrictions on revenue raising (by improving the accountability of local government to residents and taxpayers).”

The wide-ranging report also examines the health system, skills and the future of work, the functionality of towns and cities, and improving the efficiency of markets. And it recommends a price on carbon.

“Mediocrity beckons if we let it. In the future, we cannot rely on high commodity prices or, given an ageing Australia, labour participation rates, to drive national income. We might try to invest more to add to growth, but capital must be paid for, and investment to GDP rates are already at historically high levels, so there may not be much room to move.

“That means that innovation and learning — doing things better — is the key for prosperity. Yet this has languished in Australia (and many other countries) for a decade.”

The Productivity Commission has outlined the problems, and recommended some solutions. It is an excellent report, but the Government does not exactly have a good track record on taking the advice of experts – even (or especially) its own.

The report is available here.