The Australian’s Judith Sloan has questioned why Australia’s policy makers continue to ignore productivity?
Annual multifactor productivity rose only 0.12% in the five year period to 2019-20, while labour productivity rose 0.83%. This compares to labour productvity growth of more than 2% annually between 1992-94 and 1998-99. Yet, neither the Coalition or Labor seem to care:
If we take the five-year period ending in 2019-20, annual multifactor productivity grew at only 0.12 per cent whereas annual labour productivity grew at 0.83 per cent. If we consider a longer time frame, there was clearly a purple patch for productivity in the 1990s – labour productivity grew at more than 2 per cent a year between 1992-94 and 1998-99, for instance – but the growth in this century has been much lower…
While productivity may seem like an arcane concept, it is critical in driving higher living standards as well as assisting governments fund the services that the members of the public are keen to receive…
In the Intergenerational Report released this year which, in part, deals with the sustainability of fiscal outlays in the future, it is assumed labour productivity will grow at its long-term of average of 1.5 per cent. (A similar assumption is made by the Parliamentary Budget Office in assessing future fiscal policy settings.)
The reality is that annual labour productivity growth has been much lower than 1.5 per cent for many years, with the average driven up by a relatively small number of boom years in the ’90s. Were labour productivity to grow at, say, 1 per cent a year, then many of the comforting conclusions about “she’ll be right” when it comes to future budgets will simply not apply.
With an election looming, it is fairly certain that neither the government nor the opposition will be worrying about Australia’s poor productivity performance and what can be done to improve it. It’s something that requires longer-term thinking, some bold action and focus. It may be only when some sort of crisis emerges – think surging inflation, higher interest rates, real fiscal pressure – that the policymakers of the day will give the topic serious consideration.
MB’s latest Christmas Special Report: “Sowing the seeds of another ‘lost decade'” tackles this issue in detail.
In a nutshell, Australia’s poor productivity growth over the past decade resulted in the 2010s delivering the worst growth in per capita GDP and household disposable income on record. Instead, the federal government grew the ‘GDP pie’ by running one of the largest immigration programs in the world. But everybody’s slice of the pie did not grow and per capita living standards remained stillborn.
The federal government is making the same mistakes again by returning to the mass immigration ‘Big Australia’ economic model while ignoring policies to boost productivity or labour force participation. This will inevitably result in similar outcomes – i.e. another ‘lost decade’ for Australians.
