Grow the pie or we’ll be left fighting over crumbs

RBA governor Philip Lowe. Picture: Bloomberg

After 10 straight interest rate rises, Philip Lowe appears politically friendless and is certainly not ­revered as the home borrowers’ champion.

Maybe the prospect of an ­imminent cash rate pause will ­refresh his reputation.

For years, the public-spirited Reserve Bank governor has been trying to promote the national ­interest by cajoling the political class to do more to raise our lacklustre productivity growth, the only sustainable path to higher living standards.

Friday’s Productivity Commission five-year performance ­review has challenged the Albanese government to broaden its reform horizons, get smart and busy, and avoid the mistakes of our inglorious “Fortress Australia” past. The pre-emptive strike by Jim Chalmers against the commission and its policy lecturing brings to mind some other famous words: not now, not ever.

Last July, Lowe told this newspaper’s strategic business forum that “the strategic challenge for us as a nation is to do what we reasonably can to lift our productivity growth”.

As a policy priority, it’s up there with overhauling our defence posture, decarbonising the economy, and repairing both sides of the ­federal budget.

Lowe’s policy advocacy hasn’t always made him popular in Canberra, but he’s been right to keep talking about “growing the pie”, boosting the economy’s supply-side and improving the nation’s allocation of workers and capital.

Because of the productivity slowdown there’s been a gradual decline in what economists call the “neutral real interest rate”, providing officials with less room to move to smooth the bumps in the business cycle.

It means a given level of the RBA’s cash rate is more restrictive than in the past, hence its dalliance with near-zero for 18 months during the pandemic.

Higher productivity not only makes the RBA’s job easier, it means the federal government can pay its way and manage an ageing country’s future running costs, including disability services, aged care and health.

“But if we can have stronger growth and a more robust economy then, on average, we’ll have higher real interest rates, so savers will get higher returns as well,” Lowe told the House economics committee last month.

“Workers will get higher ­returns, savers will get higher ­returns, the government will have more revenue, and we’ll enjoy higher real asset prices. We’d better get on with it.”

The minutes from this month’s RBA board meeting turn up the pressure on the Albanese government, businesses and trade unions to get cracking on increasing the size of the pie.

Right now, wages are rising but there’s no productivity dividend. So it’s a zero-sum battle, all participants fighting over the crumbs, at a time when the jobless rate is at a near 50-year low and growth should be humming. It shows the economy’s cost base is rising and we’re becoming less competitive in the global marketplace.

What it boils down to is corrosive inflation for longer and the blunt tool of higher borrowing costs to slow down demand as it hits a relatively low speed limit.

We’re better than that.