Productivity Growth

I agree in part with Senator Ludlam. Although I have no theological opposition to nuclear power, it is too costly thanks to the bountiful and cheap sources of fossil fuel we have in this nation. But I take one issue. 

I understand why therefore we would not build nuclear in this nation, at least not at the moment given its cost, but I am not sure why we would not sell uranium to other countries who want to use it, even if that means a high-cost source of power for them. If they feel they would like to use higher cost sources of energy than we do, that is up to them. If we can make money selling them uranium, that should be great too. But I do not want to focus on negative things today. I think sometimes we focus on far too many negative things. I was reflecting on this the other day when I looked back at the speeches I have made in this place. I probably have spent too much time talking about debt, drought and why I don't like the Greens and all those sorts of things. But I want to talk about something more positive, Senator Ludlam. I want to be more positive today and I will try not to attack you too much!

We do live in a very lucky country, as the saying goes. It is not perfect, but we are a very decent, strong and progressive nation. We are very, very lucky to live in a country that has now had 23 years of uninterrupted economic growth. That is something that we do not reflect on enough. It is the second longest period of uninterrupted growth in recorded world history, only beaten by the Netherlands after they discovered oil in the North Sea. Sometimes it is said that we are only lucky because others want to buy our coal and iron ore and that has contributed to it. It certainly has contributed, but only in the second half of that 20-year period has that been a major factor. In the first 10 or so years of this 23-year period, we had very low mining prices and low terms of trade.

The reason we are able to enjoy this economic growth is because of our productivity. Productivity is the seed of all the fruit that we are lucky enough to reap in this country. Our ability to grow more food on less land with fewer workers lets others in our hospitals care for our sick, lets others teach our children, a few of us to create works of art and even fewer of us to give speeches in this grand place. In the early decades of the 20th century, agriculture accounted for around one-quarter of our total employment in Australia and produced just under one-third of our GDP. The Food and Agriculture Organization shows that wheat yields in developing countries have increased from around 800 kilograms per hectare in 1960 to in excess of 2,500 kilograms today. We have always had a problem feeding the world, but that has been massively made easier through better productivity. A culture without a productive economy has never produced high works of art and the more productive the economy the more resources are available to spend on the things in life that are not free but are the best things—our children, our art, our health, none of them are free.

The best things in life are not free. They must be paid for and the only way to pay for them in the long run is by producing wealth. We have had a strong economy for the past two decades and we have produced much more wealth in that time. Two decades ago in about 1993, our economy was worth $783 billion a year—we produced that much wealth a year—or about $44,600 per person. Today, the economy is worth more than $1.5 trillion in size—so it has almost doubled—and we produce around $66,500 in wealth per person. That is a $22½ thousand difference in just 20 years. The sons and daughters of the workers of 20 years ago can now afford to buy a new car every year relative to their parents.

But the last two decades has been a tale of two halves, as I said earlier. The first decade was marked by strong productivity growth. I think it was about 1.2 per cent a year for the first 10 years—much higher than other countries in the world and much higher than our historical average. We benefitted from falling electricity prices in this period, increasing competition and less restrictive capital and labour markets. The second half of this period was also marked by strong economic growth, but the growth occurred in spite of negative productivity growth. From 2002 to 2013, multifactor productivity growth, which is a broad measure of productivity, grew by negative 0.2 per cent per year—a long way from the historical average of 0.7 per cent per year that we have achieved over the last 30 years.

The only reason we sustained high levels of economic growth in such an environment was because of the growth in our terms of trade. A few years ago Glenn Stevens famously said that in 2005 a shipload of iron ore would buy about 2,200 flat-screen TVs. By 2010, that same shipload of iron ore could buy 22,000 flat-screen TVs. That was both because TV prices fell and because iron ore prices rose by a factor of six. Iron ore prices have fallen, so the picture is not quite as rosy today. These are my calculations not Glenn Stevens's, so take them with a grain of salt. By my calculations, a shipload of iron ore today would only buy around 11,000 flat-screen TVs. So we have half the wealth in iron ore that we had just four years ago, but, on the positive side, it is five times the purchasing power of 10 years ago.

Higher and higher prices for iron ore are not sustainable and if we want economic growth in the future we are going to have to have high productivity or increase the utilisation of our capital and labour. I want to focus on the productivity side of things in the remaining time I have today. Productivity growth is a powerful force because it is compound growth—it compounds year on year. So over the next decade if are able to grow our productivity at the same rate as our historical average, 0.7 per cent a year, over a 10-year period the average Australian would be $6,300 better off, just if we go back to our historical growth in productivity compared to the near zero levels of productivity growth that we have had in the past 10 years.

I want to put that in a little context. We could probably all consider that $6,000. It is a lot of money. We spent a lot of time debating the carbon tax in this place and I think rightly so. It cost the average Australian around $300 a year. This debate on productivity could benefit Australians by $6,000 a year if we could achieve those goals. In some sense, this productivity challenge is 20 times more important than the removal of the carbon tax—20 carbon taxes put together. But we do not spend 20 times the time debating the issue. Productivity is a hard concept to get across but it is very, very important.

We spend a lot of time talking about the budget in this place—and, again, rightly so. We spend upwards now of nearly $400 billion of other people's money in this place each year, so it should take a considerable amount of our time and debate. But, again, productivity is actually very important to the overall budget debate even though it does not really feature in any of the budget papers, because our budget is a function not just of the $400 billion that we spend but how much that $400 billion is of the size of the pie. Right now, it is around 26.5 per cent of that pie. But, if we were able to maintain that productivity growth over the next decade—the historical productivity growth—without any budget cuts at all, our spending relative to GDP would fall from 26.5 per cent to 25 per cent, which is the historical average over the last 30 years. So without any budget cuts, if we just dealt with productivity and were able to lift that, we would go a long way to fixing our budget. It does not mean we would necessarily pay back the debt we have accumulated, but we would go a long way to dealing with the budget problems we have.

The only way we are going to do that is by focusing on areas that are going to deliver productivity growth. There is no silver bullet. There is no one policy or one piece of legislation which is going to fix everything. But we do need to focus on the things that got us to that strong level of productivity growth in the 1990s. We do need to get serious about reducing electricity prices. Again, the carbon tax is a component of that. But there are other things, like the renewable energy target, that lift electricity prices. Our network and access regulation needs reform, and the AER is looking at that at the moment. It is all those things. Lower electricity prices will mean that manufacturing will be stronger, there will be more jobs and we will achieve greater productivity in our businesses.

We need to look at areas of our nation that we can invest in and get greater productivity out of those areas. I was up in the gulf region recently, on a cattle property. It produces around $2,000 a hectare in beef every year. But, if we were able to turn that into cotton production through irrigation, it would produce many, many times that. It would produce around $5,000 a hectare. It would be a great increase in productivity. I noticed a report in the paper today which says there are only four million hectares of irrigated land available in the north—only four million hectares! That is what it actually says. There are only two million hectares of land in the whole country that are irrigated right now. So that report is a bit like saying there were only 300 Spartans at Thermopylae. They did a pretty good job. If we were to irrigate four million hectares of land in Northern Australia, it would increase our productivity massively.

Finally, we need to reform environmental approvals. Those delays are costing us. To get more productivity, we need to get big projects over the line.

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