Australia's data and digital dividend

25 August 2022

Australia is in the middle of a digital and data revolution. The Productivity Commission’s second interim report for our five-year productivity inquiry looks at how these new technologies can grow our economy.

The impact of the digital and data revolution is easy to see. For consumers, smartphones, social media, online shopping, and video streaming are part of everyday life. Almost all Australian businesses are connected to the internet, over half have a web presence, 68 per cent have placed orders over the internet and 57 per cent have adopted cloud technology. But none of this was possible thirty years ago.

And the journey is far from complete.

Connectivity is growing through the internet of things (IoT), underpinning innovations from global logistics to your new ‘smart’ video doorbell. Big data analytics can personalise medicine, transportation and other services. Robot assisted warehouses automate online order fulfilment and reduce accidents. Artificial intelligence systems linked to IoT sensors enable smart cities, allowing real time optimisation of infrastructure, energy and services.

Governments have an important role to play in this revolution: as an enabler and as a service provider and funder.

As an enabler, governments set the rules for the digital economy. They also have a key role in facilitating the infrastructure and skills that underpin productivity improvements.

Parts of the digital economy resemble the ‘wild west’. Businesses and consumers will limit investment in new technology if there are unclear rules about both their rights and obligations. Ethical and secure digital and data practices are needed for productivity growth. Governments can facilitate the debate around these rules and, where needed, modify legal frameworks. This is already occurring in some areas. The Consumer Data Right, recommended by the Productivity Commission in 2017, is being carefully rolled out. Both our privacy and competition laws are being reviewed for a digital future. But there is a long way to go.

You cannot participate in the digital economy without connectivity, regardless of where you live or work. Governments already invest in regional digital infrastructure, but current funding lacks transparency and accountability. And by international standards, our internet speeds are low. Allocating funding via a transparent and technology‑neutral tender mechanism could increase efficiency while guaranteeing minimum service outcomes.

Business investment in digital tools will only increase productivity if matched by workforce skills. But businesses cite the lack of skilled staff as a key barrier to adopting digital technologies. There are existing opportunities to upskill and reskill in digital and data, such as through industry certifications and short courses, but governments can also play a role, for example, through skilled migration policies.

As noted in the Commission’s first interim report, we live in a services-dominated economy. Governments are key funders and providers of many services, including medical, welfare, housing, and education. Governments also interact with businesses through policies such as taxation, licensing and border security. This means that a productivity revolution powered by data and digital will only occur if governments also innovate, adopt and adapt.

We already see some great examples of government innovation, such the Taxation Office’s single touch payroll platform. Other agencies, including the ABS, NDIA and some state government agencies, are forming digital partnerships with the private sector. But these examples are few and far between. Collaboration between governments and the private sector – including both for-profit and not-for-profit businesses – can create new opportunities for digitisation and data sharing, derive more value from data provided to government agencies, and drive service-sector productivity.

Much of the data generated by government‑funded services and investments is not currently shared. But there could be large public benefits resulting from better use of this data. For example, in health, data sharing can lead to improved services as providers have access to more accurate medical records and policymakers make more informed decisions. The Commission canvassed some of the potential health gains in our 2021 report on Innovations in Care for Chronic Health Conditions. The conclusion: better use of health data not only saves taxpayer funds, it also saves lives!

When the government funds a service, it should have a carefully controlled right to some specific data. This requires strong consideration about appropriate data security and privacy safeguards as well as working with service and software providers to minimise compliance burdens. While caution is needed, the productivity benefits can be significant.

The rise of the services sector is a reflection of Australia’s past success at improving productivity in manufacturing, mining and agriculture. Services now dominate both output and employment. But historically, productivity growth in services has been slow. The digital and data revolution can help change this. With the right policies, businesses and governments can thrive with productivity benefits flowing through to all Australians. Of course, as our second interim report recognises, the key challenge is getting the policies right.