Australia needs to undertake a fundamental policy rethink on how to improve its flagging performance in services exports, according to a new discussion paper released today by the Business Council of Australia.

The paper, Underserviced: Why Australia’s Services Economy Deserves More Attention, says current policy thinking and settings reflect an outdated view of Australia’s economy and without a more proactive policy approach, the country risks missing out on the rapidly growing global demand for services.

While the discussion paper highlights how Australia’s domestic economy and jobs growth has become more focused on services such as communications, business, property, health, and financial services over the past 20 years, this was not translating into growth in services exports.

Between 2000 and 2005, the value of global services exports grew by 10 per cent a year. Australia’s services exports have not kept up this pace.

Australia’s share of the global export market has declined from 1.45 in 1996 to 1.15 per cent in 2005, the equivalent of nearly $10 billion annually in lost exports.

“The slowdown in Australia’s services exports has occurred against a backdrop of one of the strongest periods of global growth and rising global demand for services,” BCA Chief Executive Ms Katie Lahey said.

“This means Australia’s share of the global growth market has been shrinking while other countries have been expanding. Australia’s services economy also remains relatively undiversified,” Ms Lahey said.

“These trends are significant and need to be part of a broader discussion and recognition of the importance of services – in particular, what should be done to reverse declining market share in those services sectors which will play a major part in Australia’s economic future.”

The paper identifies the intangibility of the services sector, which is often hard to define in terms of price, value and quality, as a major reason why services have taken a back seat to export and policy development in more traditional industries such as manufacturing and mining.

It argues that governments and policymakers need to do more to understand the drivers of services growth and competitiveness, particularly in regard to exports, and rethink policy settings.

The BCA will work with governments, policymakers and relevant organisations to:

• Promote a deeper understanding of the importance of a dynamic and competitive services sector, not at the expense of other sectors but as a complement to their performance and success.
• Pursue a broadly based, comprehensive reform agenda aimed at improving productivity and competitiveness throughout the economy.
• Increase the attention paid to emerging issues of particular importance to services, especially policies and programs which: improve productivity and innovation in services industries; promote better understanding of the role of inward and outward investment to services growth; and improve access to global services markets.

“While policy should continue to support the ability of manufacturing and mining to remain important contributors to Australia’s economy, it is vital that policy settings are balanced across all sectors so we maximise the opportunities available within the global market,” Ms Lahey said.

“The foundations for driving better export outcomes, including from our services sector, rest on a broad economic reform agenda aimed at keeping Australia’s productivity and workplace flexibility levels high,” Ms Lahey said

“This means ongoing reform to workplace relations, cutting business red tape and making sure Australia’s transport and supply chains keep pace with economic expansion.”

The discussion paper will form the basis of further research on services exports by the BCA over the next 12 months.

Underserviced: Why Australia’s Services Economy Deserves More Attention