Get cracking on the economic reform list, Philip Lowe urges Scott Morrison

RBA governor Philip Lowe has urged the Morrison government to move faster to transform­ the economy, singling out IR.

Reserve Bank governor Philip Lowe at The Australian’s Strategic Forum in Sydney on Wednesday. Picture: Nikki Short

Reserve Bank governor Philip Lowe has urged the Morrison government to move faster to reform­ the economy, singling out an industrial relations system that “needs fixing” and lamenting a lack of “big-signature moves” to boost productivity.

Speaking at The Australian’s Strategic Forum on Wednesday, Dr Lowe said state and federal governments were still looking at the recommend­ations of the ­Productivity Commission’s Shifting the Dial Report, “which had identified a lot of opportunities to improve the delivery of government services”.

That report was sent to the government in August 2017.

“There are no really big signature moves that will quickly move the dial but there are a whole ­series of individual initiatives that I think all add up,” Dr Lowe told the forum. “There’s a long list of things to be done and we’re ­making incremental progress; and let’s hope we can make a bit faster progress over time.’’

A new Productivity Commission report, released overnight, found almost all of Australia’s longer-term growth in incomes and wages had arisen from labour productivity growth, “with policy playing a key role in driving this growth”.

“Looking to our history provides some lessons for the future — including the importance of openness to trade and investment, competition and flexible regulation of product and labour markets,” said commission chairman Michael Brennan.

Dr Lowe said he was optimistic the federal government’s five working groups, comprised of union and employer representatives and charged in June with agreeing on how to simplify and improve awards and make enterprise bargaining more appealing, would reach some agreement.

“I’m optimistic: I have no particular­ insight here but I’m optimistic­, there will be progress,” he said.

Reports have suggested that discussions between some of the most powerful members — the ACTU, Australian Industry Group and Business Council of Australia — have broken down.

Dr Lowe praised the NSW government for laying out in its budget on Tuesday a model of how the state would replace stamp duty, long identified as one of the most economically damaging taxes, with land tax: “That’s the type of reform people have been calling out for (for) years.”

Asked to single out federal government reforms that would boost growth, he cited plans to remove­ “responsible lending” laws as a way to boost lending, and a “series of digital initiatives, including in the payments area, health and delivery of government services”.

“The (federal) government has a very strong focus on the digital economy,” he added.

Speaking alongside Michael Thawley, a former ambassador­ to Washington, Dr Lowe pushed back against calls for Australia to “diversify away” from China in light of growing geopolitical tension­ with Beijing.

Australia signed a new regional­ trade deal, the Regional Comprehensive Economic Partnership, with 15 countries including Indonesia on the weekend.

China buys about a third of our exports, more than any other nation­, including more than 80 per cent of our iron ore, the economy’s biggest export by value.

“It’s not a matter of diversifying away, it’s a matter of building trade with other markets over time,” Dr Lowe said, suggesting Indonesia and India as candid­ates. “It’s a matter of building on those opportunities rather than diversifying away from China.”

His comments followed the signing of a new defence pact with Japan this week, which drew critic­ism from Chinese media.

Mr Thawley, now vice-chairman of US fund management giant Capital Group, agreed, but highlighted “the challenge of how to pursue economic interests with a country which is becoming much more strategically assertive”.

China has placed arbitrary restriction­s on Australian barley and meat exports this year, and threatened to impose restrictions on Australian wine.

“There is no question that (the) nature of China’s economic engagement with (the rest of the world) is going to change substantially,” said Mr Thawley, who was Tony Abbott’s head of the Prime Minister’s Department until 2018.

Dr Lowe played down the likelihood of a house price bubble developin­g following the RBA’s last board meeting, where the official­ interest rate was lowered to almost zero and a $100bn quantitative easing program was launched.

“Population dynamics have changed a lot,’’ he said. “We will grow at the slowest rate since 1916 … and vacancy rates for residential properties are rising, rents falling — it doesn’t feel like fundamentals are there to drive an unsustainable price rise.’’