When Australia’s latest economic figures came out last week, the Treasurer Jim Chalmers said that “any growth is a decent outcome”.
The problem is that the Australian people are not feeling the economic growth. What the Treasurer was referring to was modest growth, of just 0.2 per cent, in the total economy. But on a per person basis our economy is shrinking in real terms. Real terms just means after correcting for inflation which has surged in recent years.
We now have 3 full years of economic data for the Albanese Labor government. In 9 of the 12 quarters for this period, real per person income levels for Australians have fallen.
Over the past three years, the size of the Australian economy has fallen by $1000 per person in real terms.
And, things would be a lot worse if people were not working more. Over the past three years, the average Australian is working 11 per cent more and getting less for it. For an average full time employee that is an extra 4 hours of work a week, and 4 hours less a week spending time with your children.
If Australians had not worked harder, then Australia’s per person income would have fallen by $6000 per year.
That is because Australians are producing less for each hour of work. Economists call this measure productivity and there is no more important economic statistic.
In the long run, productivity determines our living standards. If we are producing fewer goods, then that means there will be too much money chasing too few goods. The oversupply of money will lead to a decline in the value of money, that is inflation.
To respond to inflation, the Reserve Bank has to raise interest rates. That helps reduce the oversupply of money, but Australians then have to pay more on their mortgages.
This is exactly what has happened during the first term of the Albanese Government. Productivity has fallen by 5.3 per cent in just three years. There has never been a fall anywhere like this. The previous biggest three-year drop in productivity was under the Keating “recession we had to have” and it was a tiny 0.5 per cent drop in comparison.
That drop in productivity has meant that our inflation rate has been one of the highest in the world and our interest rates remain elevated while they are being slashed in other countries.
It has taken three years, but the Prime Minister seems to have finally woken up to this productivity fiasco. In his first major speech since the election, the Prime Minister announced that he would be convening a summit to talk about productivity.
Our lacklustre productivity performance has been clear for over a year so why has it taken the PM so long simply to discuss it? And why is he not ready to take action rather than have yet another talkfest?
What was missing from the PM’s speech was any diagnosis of why our productivity has fallen by such a rapid amount. On an industry level, productivity has fallen by the fastest in the arts, mining and the energy sector.
The arts is a small part of the economy so it can not explain the overall fall in productivity. The fall in mining productivity is probably due to high commodity prices which encourages miners to go after less productive ore bodies.
The big fall in the energy sector can not be easily dismissed, however. Our energy plan involves shutting down productive coal plants and replacing them with unreliable solar and wind factories that require billions for backup and new transmission lines. It does not take Sherlock Holmes to work out that our green energy plan probably explains this big drop in productivity.
The PM’s new productivity summit sounds a lot like the Jobs and Skills Summit he announced in his first term. At that time, the PM did not even invite the Productivity Commission (the government’s main advisor on productivity matters) to attend.
Hopefully, that will be rectified this time but that is not all that needs to change. If the PM simply doubles down on the same failed energy policies of his first term, we are not going to get a different result on productivity and therefore the lives of Australians will not improve.
