Australia’s stagnant productivity growth and lack of political will to address the issue were highlighted by former Reserve Bank of Australia (RBA) Governor, Philip Lowe. Speaking during a webinar with shareholders of Future Generation, Lowe expressed concerns about the country’s economy entering a period of mediocrity. He emphasized that productivity growth, the demographic dividend, and favorable export prices have all diminished, leading to slow improvement in living standards for Australians. Government data revealed that labor productivity growth in the past decade was the slowest in 60 years, with average productivity growth over the past 20 years at only 1.2 percent compared to 3 percent in previous decades.
Lowe pointed out that although there are ways to improve productivity, Australia lacks the political will to implement necessary changes. He identified key areas that require attention, including tax reform, infrastructure development, skills enhancement, public services, and energy. However, he noted that these areas are politically challenging and little progress has been made. Lowe criticized the current tax system, stating that income and wealth generation are heavily taxed while consumption is not adequately taxed. He also highlighted the need to rectify issues with land taxation and stamp duty. Regarding energy, Lowe stressed the importance of an efficient and reliable energy system for a strong economy, acknowledging that Australia currently lacks this.
Furthermore, Lowe highlighted the inadequate investment in infrastructure and workforce skills development in Australia. He urged politicians to prioritize executing effective ideas rather than simply lacking good ideas. The former RBA governor emphasized that it is not a lack of solutions but rather a lack of political will hindering progress.
In addition to addressing productivity concerns, Lowe also discussed inflation in Australia. He identified two issues contributing to the current inflation situation. Firstly, there is an imbalance between demand and supply in various sectors, such as the housing market. This leads to increased prices and rents. Secondly, weak productivity growth increases business costs, which, in turn, drives up prices. Lowe stated that the RBA needs to take necessary steps to bring inflation down to the target band of 2 to 3 percent. Given the demand and supply imbalance, weak productivity growth, and uncertain economic outlook, Lowe suggested that the RBA may raise the official cash rate again, depending on upcoming consumer price index data.
Overall, Lowe’s insights shed light on the pressing need for Australia to address its lackluster productivity growth and make necessary changes in areas such as tax reform, infrastructure development, skills enhancement, and energy systems. Without political will to execute effective solutions, Australia may continue to experience slow improvement in living standards and persistent inflation.
