Introduction
Outgoing Reserve Bank Governor Philip Lowe has highlighted Australia’s weak productivity growth and noted that boosting it “should be the issue that dominates economic discussion”. So why is boosting productivity so important? And why is it seen as so hard to do? It’s worth having another look at it given its importance to our economy and investment markets.
Key points
- The last 20 years have seen a slump in productivity growth in Australia from over 2% pa to less than 1% pa. This has curtailed growth in living standards and real wages. It will adversely affect asset class returns if allowed to persist.
- Policies to boost productivity growth include: labour market reforms; more skills training; more infrastructure spending; increased housing supply; deregulation; and tax reform.
- Unfortunately, the political pendulum has moved against many of the policies necessary to boost productivity.
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