Urgent action needed to address hidden issue that’s been strangling Australia for decades, business leaders warn
An issue that has been eating away at the economy for decades could leave Australia lagging behind the rest of the developed world without drastic action from governments.
That’s according to NAB chief executive Andrew Irvine, who used a speech to a business summit to issue a stark warning about cratering productivity levels.
NAB chief executive Andrew Irvine has issued a dire warning about Australian productivity. Louis Trerise
He said local living standards, which have already started to decline in recent years, are at risk of falling well behind other advanced economies unless productivity growth kicks into gear.
“I spoke earlier this year about the risk that we were at ‘peak Australia’. That economic conditions were as good as it gets,” Irvine told NAB’s Business Summit on Monday.
“We were growing but without real reform we would soon hit the limits of what the economy could deliver.
“You see, when demand outpaces supply, inflation goes up and the RBA needs to raise rates to put a hand break on demand and reduce growth.
“That is largely what has happened.
“The risk now is not that we are at the peak of the mountain – it’s that we slide down the other side, stuck in a low-productivity, low-growth trap that’s been slowly strangling Australia for decades.
“Without urgent action, we’ll be locked in a slow lane – sitting in the rear-view mirror of other advanced economies surging past us.”
According to RBA data, annual productivity growth averaged more than 2 per cent during the 90s and early 2000s, before slowing to closer to 1 per cent in the second half of the noughties and into the 2010s.
In the 2020s, the measure has been going backwards.
Business Council of Australia chief executive Bran Black is set to strike a similar tone when he delivers his speech to the council’s annual dinner on Tuesday night.
Bran Black is also calling for productivity reform. Alex Ellinghausen
According to a widely reported embargoed copy of his speech, Black will urge governments to create more business-friendly conditions to unlock higher productivity growth, and with it better living standards.
He will also admit, though, that industry has failed to explain to the wider public why addressing the issue is so important.
Economists regularly talk about productivity growth – or Australia’s lack thereof – and outline how it is directly linked to living standards, while the federal government has also spoken of the need to address the issue.
However, that conversation is yet to filter down to the wider electorate, according to Black.
“We know that the often-referenced Betty from Blacktown doesn’t care about our rate of productivity, but we know she does care about her cost of living,” he will say.
“Too often, we – collectively – fail to explain why it matters, and critically, why its absence or reduction affects people’s lives day to day,” he will add.
“That has to change, and to do it, we must do a better job making the case to all Australians.
While the issue isn’t well understood in the wider population, productivity growth is crucial for improving Australians’ living standards. Oscar Colman
“If we want Australians to support the economic reform needed to become a top 10 investment destination, they need to be able to see and understand why it helps them and, conversely, why its absence hinders their prosperity.”
Irvine said artificial intelligence was looming as a productivity game-changer, labelling it a “fourth industrial revolution”.
But he also said Australia desperately needs reduced red tape, a better tax system, more housing supply and cheaper energy.
“Lifting productivity must be the number one priority for government at all levels,” he said.
“It must also be the number one priority for businesses including NAB, regulators and unions.
“Ultimately, we all have the same goal – raising living standards for all Australians.
“Without a collective national effort across all jurisdictions, we will not make the progress we need, and future generations of Australians will suffer the consequences of our inaction.”
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