Rates not to blame for cost-of-living pain, Philip Lowe says

In a rare interview, the former Reserve Bank governor Philip Lowe says a lack of productivity growth is to blame for cost-of-living challenges.

Former Reserve Bank governor Philip Lowe, and Anthony Albanese on Sunday.

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Former Reserve Bank governor Philip Lowe has declared that a lack of productivity growth – not decade-high interest rates – is to blame for cost-of-living challenges, as Anthony Albanese looks to strong growth in this week’s ­national accounts before moving to call a federal election.

As Labor sources talked down the release of an economic statement in coming days, the Prime Minister and Jim Chalmers were confident that ­national accounts data to be ­released on Wednesday would ­indicate stronger growth in the economy.

In a rare interview, Dr Lowe - who is also chair of the Future Generation Australia fund - said the nation’s productivity problem is a “political one” rather than an economic one, as he warns the ­nation has lost the ability to take on difficult reforms.

“That’s the source of the cost of living – shall I use the word ‘crisis’? It’s not interest rates. Interest rates have probably suppressed aggregate demand by 1 per cent this year. The lack of productivity growth over that time has suppressed demand now by 9 per cent [today]. So that’s the source of the problem,” he told The Australian.

“And we’ve got to do something about that … We’ve had our living standards rising quickly for decades, and that’s no longer happening, and people are getting ­unhappy about it. The problem isn’t an economic one, we kind of know broadly what to do. It’s a political one – our society has lost the ability to form coalitions to implement difficult things that in the short run will hurt some people, but are good for our kids. And we’re now seeing the ­consequences.”

Economists are predicting the Australian Bureau of Statistics figures will show a gradual pick-up in GDP growth in the December quarter. The economy is expected to have expanded by 0.5 per cent, likely bringing to an end seven consecutive quarters of negative per capita GDP growth. That uptick would bring annual economic growth to 1.2 per cent, which remains among the weakest results outside the pandemic since the early 1990s recession.

Dr Lowe’s productivity intervention comes after the first interest rate cut last month since his emergency cuts during the depths of the pandemic, and more than a year after Labor refused to renew his term as RBA governor.

The ex-governor has also opened up about some of his ­darker personal moments leading the Reserve Bank through the Covid-19 pandemic and the subsequent inflation crisis.

“It was a fairly intense time … I was reading that I was the most unpopular person in Australia,” he said. But Dr Lowe said Australia had a good social and political story to tell the world.

“We have to start telling people that this is the best country in the world and that we’re damn lucky,” he told The Australian. “And we should focus on that.

“I mean, there are expectations to all these things, but too often people are focusing on the negatives. And it frustrates me, because I’m inclined to think of the glass being half-full, rather than half-empty. And in Australia it is three-quarters full.”

The comments came as Labor and Liberal operatives were on high alert for an imminent election, with key personnel readying Sydney-based ALP and Coalition campaign headquarters ahead of Mr Albanese and Peter Dutton blitzing multiple battleground states this week.

With more campaign strategists due to arrive in Sydney this week, the Prime Minister will travel to three states and is expected in Western Australia ahead of Saturday’s state election, which Labor Premier Roger Cook is ­expected to win comfortably. The Opposition Leader will also campaign in three states, starting in Queensland early this week, as the Coalition and Labor ramp-up election policy ­announcements and political ­advertising.

Prime Minister Anthony Albanese greets people during a visit to the Westmead Medicare Urgent Care Clinic in Sydney on Sunday. Picture: Nikki Short

Mr Albanese, who celebrated his 62nd birthday with fiancee Jodie Haydon and son Nathan at The Lodge on Sunday night, said “obviously an election is due at sometime”.

The Labor leader, who will convene a cabinet meeting in Canberra on Monday, said “we’re continuing to put together a (March 25) budget” despite ongoing expectations that Mr Albanese will call an April 12 election immediately after the WA election and skip a fourth budget.

“This week, I’ll be in at least three states. That’s what I do. I work hard each and every day, and I don’t disappear for days or weeks on end, and I don’t just do supportive interviews where I get bowled full tosses,” Mr Albanese said.

As the ALP launched a new political ad featuring Bob Hawke and spruiking its $8.5bn Medicare package, Mr Albanese is framing the election fight around Labor’s record on the economy, health, childcare and stability, while warning voters about returning the Coalition to power.

“We have inflation falling. Wages rising, interest rates beginning to fall. They began to rise under the former government,” he said.

“We have created 1.15 million jobs while all of that has been occurring and every single taxpayer has got a tax cut. That is our economic record. We want to build on it. The job is not done.”

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Asked about election timing on Sunday Agenda, Dr Chalmers said that “the Prime Minister will make a decision about the timing of the election … I’m not going to get into all of the hypotheticals”. The Treasurer, who turned 47 on Sunday and challenged opposition Treasury spokesman Angus Taylor to three election campaign debates, said if he hands down a budget it will be “defined by responsible economic management”.

“We’ll help with the cost of living where we can do that in an affordable way, we’ll keep fighting inflation, we’ll keep trying to make our economy more productive and dynamic, and we’ll build Australia’s future,” Dr Chalmers told Sky News.

On the prospect of Mr Dutton promising voters a fresh round of tax cuts, Dr Chalmers said “it would be strange for Peter Dutton to oppose a tax cut for every taxpayer on the one hand and then announce new tax cuts on the other hand”. “Our focus is on rolling out the tax cuts we’ve already budgeted for,” he said.

After the Coalition announced a $3bn package to purchase an extra 28F-35 joint strike fighters, opposition defence spokesman Andrew Hastie told Sky News that the Defence Force “has been driven into the ground” under Labor.

“Morale is at an lowest. We have a recruiting crisis, we have a retention crisis, we have a readiness crisis. We want a strong country, and given today’s dangerous strategic circumstances, we are investing in it so that we can secure the Australian people and our interests,” Mr Hastie said.

Additional reporting: Jack Quail