Former RBA Governor States Australia’s Lack of Political Will Hinders Productivity Growth
Former Reserve Bank of Australia (RBA) Governor Philip Lowe believes that the country lacks the “political will” to enhance stagnant productivity growth, which has been slow in recent decades.
During a webinar on July 4, Mr. Lowe discussed Australia’s current economic situation with shareholders of Future Generation, a philanthropically-focused listed investment company.
After the conclusion of his term as RBA governor in September 2023, Mr. Lowe took on the role of chairman for the group.
While Mr. Lowe expressed optimism about Australia’s future, he also expressed concern that the economy was heading towards a “period of mediocrity.”
He highlighted weak productivity growth, the conclusion of the demographic dividend, and shifting demographics as key concerns.
Mr. Lowe cautioned that without improvements in productivity or other economic areas, Australians would have to accept slow progress in their living standards, which he believed would be a shock to the community.
According to government data, Australia’s labor productivity growth from 2010 to 2020 was the slowest in 60 years, with average growth over the 20 years leading up to 2021–22 at only approximately 1.2 percent, compared to 3 percent in the late 1980s to the early 2000s.
Australia Lacks Political Will to Improve Productivity
While Mr. Lowe acknowledged that there are ways to enhance productivity, he stated that Australia lacks the political will to make necessary changes.
He identified tax, infrastructure, skills, public services, and energy as critical areas for government focus, but highlighted that these areas are politically challenging and little progress has been made.
In particular, Mr. Lowe criticized the taxation system, pointing out flaws in the way income, wealth generation, consumption, and land are taxed, as well as the burden of stamp duty.
Regarding energy, Mr. Lowe emphasized the need for an efficient, reliable, and cost-effective energy system for a strong economy, which he believes Australia currently lacks.
Additionally, he noted shortcomings in infrastructure investment and workforce skills development.
Mr. Lowe concluded by stating that the real issue lies not in a lack of good ideas but in the political will needed to effectively implement these ideas.
Further Interest Rate Hikes Possible
Mr. Lowe discussed two key issues related to inflation in Australia: demand consistently exceeding supply and weak productivity growth leading to higher business costs.
He emphasized the need for the central bank to address persistent inflation and bring it down to the target band of 2 to 3 percent.
Given the current economic challenges, Mr. Lowe suggested the possibility of the RBA raising the official cash rate again to manage the demand-supply imbalance and rising costs.
He also highlighted the importance of upcoming consumer price index data in influencing the RBA’s future interest rate decisions.
