Productivity Commission’s interim report on Australia’s data and digital dividend

Last month, the Productivity Commission released its second interim report from its Productivity Inquiry, focusing on Australia’s data and digital dividend.

The purpose of the inquiry is to assess Australia’s performance and provide recommendations on how productivity can be improved. The inquiry is undertaken every 5 years; the first report – Shifting the Dial – was published in August 2017. The second report consists of two interim reports; the first report, The Key to Prosperity, was released on 3 August 2022.

Australia’s data and digital dividend — good but can be better

Australia’s data and digital dividend is the second Productivity Commission report produced as part of the latest inquiry. The report outlines the current landscape in terms of digital technology adoption and data use in Australia, and makes provisional recommendations on how to better leverage these assets to increase productivity.

The report highlights that Australia, while doing well in some indicators, is falling behind other countries on more advanced uses of data and technology, such as artificial intelligence and data analytics.

Australia’s internet speeds are also slower than many other OECD countries, particularly in remote and regional areas. Other limiting factors for industries include a shortage of workers with appropriate digital and data skills, the costs of digital adoption, low awareness of available technology and uncertainty about the benefits of digital adoption and data usage.

The report has three key sections:

1. Use of digital technology and data in the Australian economy
2. Potential barriers to adoption new technologies and data
3. Targeting government investments and policy priorities

Digital technology and data in the Australian economy

Australian businesses and governments have increasingly adopted digital technologies over the past decade. The COVID pandemic fast-tracked certain industries such as health, education and retail to adopt new digital technologies. This is good news for productivity.

There is a positive relationship between the use and adoption of technology and productivity growth. This can happen due to capital expenditure and investment in technology, as well as increased production of goods and services. Digital technology and data can also create efficiencies for businesses that reduce costs, improve quality of products and services, and ultimately provide better outcomes for customers.

Data has the potential to generate a larger economic contribution than other inputs because it can be accessed by many entities without running out or degrading. The inquiry referred to research that found businesses reporting higher revenues generated a significant proportion of their growth from leveraging data and analytics.

However, smaller businesses and businesses in regional and remote areas in Australia have been less successful in adopting new digital technologies and taking advantage of data. The inquiry also found that access to data is limited in many cases, further hindering productivity.

Barriers to adoption of new technologies and data

The inquiry identified several factors limiting adoption of technology and data. Some of the key challenges include:

• Slow internet speeds — Regional and remote areas suffer from slow internet speeds. This is particularly problematic for agricultural businesses, which are unable to take advantage of new technologies due to poor digital connectivity.
• Lack of appropriate skills — Businesses also do not have staff with appropriate digital or data skills to fully leverage emerging technologies and transform their businesses. The report also found businesses have low awareness of relevant technologies, and are uncertain about the benefits these technologies and data would provide.
• High costs of adoption — The cost of adopting new technologies is another barrier limiting productivity, particularly for medium to large businesses with heavier reliance on legacy systems. The report also identified a resistance to change in some instances.
• Lack of access to data — The lack of clarity around access rights, and the complexity of creating, storing and sharing data safely and securely can deter businesses from realising the maximum potential of data assets. Australia’s data consumption is high but our use of data-driven technologies such as artificial intelligence is low.

Targeting government investments and policy priorities

Not surprisingly, the inquiry recognises the government can play a significant role in helping businesses adopt new digital technologies and data use. The report includes six key areas where government intervention is needed:

1. Invest in regional digital infrastructure — almost 40% of Australia’s economic output is generated in regional areas, and the Productivity Commission estimates significant economic benefits and productivity gains from improving digital infrastructure in the regional and remote areas. The inquiry emphasised the importance of providing more transparency on how investment decisions are made.
2. Create new data sharing and integration opportunities — mandating providers of government-funded services (health, education, aged care and childcare) to safely and securely share their data will have potential economic benefits and generate significant productivity gains. The report also mentions there is potential for more gains by improving the use and sharing of data that is held by government agencies.
3. Develop digital, data and cyber security skills — the inquiry acknowledges that upskilling and reskilling education options are already available in Australia, so government action should be focused on altering skilled migration policies to match demand for emerging digital, data and cyber security skills.
4. Balance cyber security and growth — the Productivity Commission cautions the government to carefully consider the balance between mitigating our growing cyber security risks, which have negative economic impacts, and imposing regulatory restrictions and requirements on businesses, which can impede productivity if too burdensome. Government policy and actions should match the risk profile of the threat — where risks are low, the government should take a ‘light touch’ approach.
5. Support the ethical use of technology and data — concerns around the ethics of emerging technologies such as artificial intelligence (AI), the internet of things (IoT), augmented reality can degrade trust and limit adoption. While the government’s role in this space is unclear, the government should take a risk-based approach and have clearly articulated principles and guidelines in relation to emerging data and digital technologies. The Productivity Commission states that: “operationalising ethical principles is important for agencies to maintain their social licence to deliver digital and data-enabled government services”.
6. Coordinate the policy and regulatory environment — the inquiry calls for more coordination and alignment between policy and regulatory agencies in order to avoid inconsistencies and inefficiencies for businesses. It is important to provide certainty for businesses, and the report emphasises the importance of greater engagement between agencies and industry.

The Productivity Commission’s report shows that Australia is doing well in terms of some aspects of digital technology adoption and data use. But we lag on indicators such as internet speed and the use of data-driven technologies and analytics. Providing appropriate policy settings and incentives, investing in needed infrastructure, and providing clear guidelines for data access rights can all improve productivity.