Calls for reform become urgent as economy flags

Australia’s labour productivity has fallen over the year for the first time on record, underscoring the need for reform.

Treasurer Josh Frydenberg. Picture: Kym Smith

Australia’s labour productivity has fallen over the year for the first time on record, underscoring the urgency of reform ­ to ignite economic growth.

The Australian Bureau of Statistics on Friday said labour productivity — the amount of goods or services produced by workers in a given hour — fell by 0.2 per cent in the previous financial year.

It was the first annual fall for the market sector aggregate of ­labour productivity since the data series started, and the government statistical agency said the decline was broad-based, sliding across more than half of all ­industries.

Josh Frydenberg highlighted a raft of potential reform areas at a meeting of state and federal treasurers earlier this month, including overhauling transport and logistics taxes, health funding, skills ­investments and streamlining ­environmental regulation.

The federal Treasurer has also called on companies to invest more in new technologies — rather than returning excess cash to shareholders — in a bid to kickstart productivity and boost wages by $3000 a year.

The NSW government is also pushing to broaden the goods and services tax, get rid of stamp duties and abolish complex federal-state funding agreements in the first genuine attempt at Federation reform since the Turnbull government dumped a shake-up in 2016 after scrapping a white paper on how to fix the relationship ­between the states and the ­commonwealth.

The 30-year average for productivity growth in Australia has been 1.5 per cent but in the past five years it has fallen to 0.7 per cent. Without restoring productivity growth, Australia’s tax and transfer system, which re­distributes wealth and underpins welfare programs, will become unsustainable.

 

CommSec chief economist Craig James said it was little wonder wages were growing so slowly with productivity in the doldrums.

“Productivity is low because there was a surge in jobs over the past year. The new workers take time to be fully productive,” Mr James said. “But, nevertheless, it is always important to note that wage increases are based on both price and productivity trends.

“It is clear that the route to higher ­income growth is increased ­productivity.”

According to the figures, household consumption rose at its slowest pace since 2013 as Australians culled discretionary spending and car sales fell for the first time since 2009.

Spending on ­hotels, cafes, restaurants and household goods was also “subdued”, the ABS said.

Overall, household wealth ­recorded its smallest increase in a decade.

“Australia’s economy continued to grow for its 28th consecutive year, albeit at a slow pace, recording the softest annual growth since the global financial crisis,” ABS chief economist Bruce Hockman said.

Appearing before a Senate estimates committee this week, new Treasury secretary Steven Kennedy endorsed the government’s fiscal strategy, suggesting there would not be a dramatic unleashing of new economic stimulus.

“We are less optimistic,” Capital Economics analyst Ben Udy said on Friday. “While we think house prices will continue to rise, we expect the deterioration in sentiment and persistent weakness in domestic demand to cause the unemployment rate to rise to 5.5 per cent by the middle of next year.”

AMP Capital chief economist Shane Oliver said without further economic stimulus, the Reserve Bank would likely have to cut ­interest rates below the ­record-low 0.75 per cent current level.

“Growth is likely to remain subdued and below-trend for longer than the RBA is allowing.

“This will keep unemployment higher for longer and wages growth and inflation below target for longer,” Mr Oliver said.