Outgoing mandarin Martin Parkinson warns on threat to living standards

Our most senior bureaucrat warns growth in our living standards faces a significant decline over the next decade.

Martin Parkinson, the retiring secretary of the Department of the Prime Minister and Cabinet, in Canberra yesterday. Picture: Sean Davey

The country’s most senior bureaucrat, Martin Parkinson, has warned that growth in Australia’s living standards was poised for a significant decline over the next decade without improvements to productivity.

The former Treasury boss, who will retire from the public service next month when he steps down as the secretary of Department of Prime Minister and Cabinet, said the forecast decline was “quite striking”.

He said the gap between Australia’s productivity gains and the rest of the world was “pretty concerning”.

“We have fallen behind in global productivity,” Dr Parkinson told The Australian. “For whatever reason, our productivity performance is not keeping up.

“Over the next decade, our living standard growth is going to fall; it has fallen, and will continue to fall partly as a consequence of the inevitable ageing of the population and the fact we are not getting the same boost to participation.

“But it’s also productivity performance.”

Scott Morrison has made productivity a priority reform over the next decade.

Treasury forecasts show the growth in living standards per capita continuing to decline since the early 2000s and falling to levels of about 0.5 per cent by the mid-2020s.

In a wide-ranging interview, Dr Parkinson said political instability in Australia in the past decade may have also contributed to the falling productivity rates because of policy paralysis and investment uncertainty for business.

He blamed higher electricity prices on the 10-year failure to achieve a bipartisan approach to energy and emissions policy.

“I think (instability) has been quite debilitating for the development of good policy,” he said. “I wonder if we had more stable governments, whichever colour, which had a chance to own the policy domain for a while, whether or not we would have had more robust policies, better policies … had a business community with more confidence … to invest and take risks. I’m sure it has absolutely contributed to the erosion in public trust in institutions … we know that from work that has been done by various bodies.

“And you just can’t have that sort of instability and think the political class is going to be able to concentrate on the big issues ahead.

“And if they can’t concentrate, it doesn’t matter how much work we are able to do — we are not able to be as helpful with them and influential. And the net effect is there is an erosion of trust in the political class; there is an erosion of trust in the bureaucracy because people have a sense that we haven’t delivered the sort of services and support they expect from us … and so everybody gets hurt.”

Dr Parkinson said the policies necessary to continue to ensure growth were made more difficult because of the economic success story of the past three decades, which meant governments ended up making bad policy decisions.

“When you get through such long periods of economic growth, communities can lose sight of what is required to generate growth and higher living standards. And you can end up taking decisions that … seem quite justifiable. But when you accumulate them all up, you’ve thrown a lot of grit at the wheels of the system.

“That’s part of the reason why economic growth inevitably peters out after a while.”

Dr Parkinson echoed the concerns of Reserve Bank boss Philip Lowe that global economic conditions were “challenging”, with trade tensions between China and the US posing the most risk.