Policy to boost living standards

Householders forced to pay more than $1500 a month extra on the average home loan than they did three years ago would probably disagree with former Reserve Bank governor Philip Lowe, who says a lack of productivity, not interest rates, is to blame for cost-of-living problems. The rates cut of 25 basis points in February will help, but many borrowers, including small businesses, are struggling to meet their commitments. More than one in 10 have added years to the length of their loan terms to cope. And in a sign of the times, Foodbank is in overdrive, supplying food to more than a million people a month, including those in work. For all that, Dr Lowe is correct about the central importance of productivity to living standards.

For the sake of all Australians and reducing pressure on inflation and therefore interest rates, the major parties should be putting productivity growth front and centre of their economic policies in the election. If, as economists expect, Wednesday’s national accounts show a 0.5 per cent uptick in GDP growth in the December quarter, bringing an end to seven consecutive quarters of negative per capita growth, the improvement would bring annual economic growth to just 1.2 per cent. Aside from in the pandemic, that would be one of weakest results since the early 1990s recession. Unless we and our children are to be a whole lot poorer, political leaders must do better.

Economic figures released on Monday suggest the economy is improving, Jack Quail reports. Not for the first time, our most efficient and productive industry, mining, is leading the way with a $2.9bn profit boost as a result of rebounding commodity prices in the December quarter. In the interests of prosperity and government revenue, the sector should be encouraged to increase investment and activity with policies that avoid costly delays, such as the Greens’ destructive push to block Woodside expanding its North West Shelf gas project. In the coming term, more affordable energy should be a key goal by both major parties. It is essential for a more productive economy.

Productivity, the measure of the rate at which output (goods and services) is produced per unit of inputs (labour, capital, raw materials and technology), is one of the prime determinants of living standards. It also shapes the ability of government to strengthen national defences and provide more and better services, including to those most in need. It is not about staff working longer and harder for less. To the contrary, as RBA research shows consistently, productivity supports real wages growth.

Partisan as it is, modelling by Liberal Party-aligned think tank the Menzies Research Centre presents a compelling case, Simon Benson reports, about the benefits of lifting productivity by just 0.3 per cent annually. Workers would be $11,000 a year better off, the budget would be back in surplus in 2030-31, four years earlier than forecast, and almost $1 trillion would be added to the economy. The Menzies Research Centre proposes practical initiatives worth considering by whichever side forms government post-election; a mix of those and other policies would produce results across the short and longer term.

Options include lowering taxes to ensure the nation remains competitive, removing stamp duty for property purchases and insurance, deregulating retail trading hours and simplifying planning and zoning. The paper also recommends establishing an ongoing process to cut red tape, repealing restrictive workplace laws, improving government services and infrastructure procurement, supporting the uptake of artificial intelligence in the private and public sectors, removing barriers to the use of modern construction methods such as modular building and prefabrication, and investing in research, such as an Australian equivalent of the US Defence Advanced Research Projects Agency.

Dr Lowe’s comments prompted industry leaders to raise concerns about productivity. Australian Retailers Association chief industry affairs officer Fleur Brown called for federal leadership to provide incentives for states and territories “to simplify complex, inefficient regulations that vary across states and cost businesses”. The Australian Food and Grocery Council called for a focus on the costs of doing business.

Much depends on business initiatives and management. But as RBA governor Michele Bullock told the House of Representatives economics committee in February, productivity was the only path to sustainable increases in living standards, and government had to play a role. Little has been said on the subject by either major party to date. But they should not underestimate voters’ intelligence. Productivity measures, not taxpayer-funded state giveaways, are the way to prosperity.