Australia’s productivity performance improved in the June quarter, but weak capital investment is still holding back growth in living standards, the Productivity Commission says.
Growth in labour productivity – or doing more with less – accelerated to 0.3 per cent in the three months to June 30, the commission reported in its quarterly bulletin.
It’s a welcome improvement after the measure, considered a key ingredient to rising living standards, failed to grow in the first three months of the year.
The commission’s deputy chair Alex Robson said it would be “premature to say Australia’s productivity malaise has passed”.
“While this is good news, Australia’s workforce is barely more productive now than it was prior to the COVID-19 pandemic,” he said.
The commission puts the economy’s productivity stagnation down to a lack of capital deepening since the mid-2010s.
Capital deepening – when workers have access to more capital, such as tools, tech or better buildings – was a key reason Australians had become wealthier and more productive over the year, graduate research economist Daniel Arzhintar said.
In a research paper released alongside the latest productivity estimates, Mr Arzhintar said the decline in capital deepening was driven by businesses becoming more risk-averse and Australia’s tax and regulatory settings making investment less attractive.
He reiterated the commission’s recommendation for the government to implement a novel corporate cash flow tax that would boost incentives for companies to invest but raise the nominal tax rate for Australia’s largest firms.
While the government did not rule out the idea at its economic reform roundtable in August, the business community has rejected it.
Even the Council of Small Business Organisations Australia, which represents companies that would stand to pay a lower tax rate as a result of the proposal, joined a chorus of employer groups in shooting it down earlier in September.
“The proposed cashflow tax is not acceptable. It’s more red tape,” the council’s chair Matthew Addison said.
“Small businesses need simplicity, not more complexity.”
The recent surge in jobs growth in the health and social assistance sectors, which show lower recorded productivity growth, was another driver behind Australia’s productivity slowdown.
In recent months, growth in non-market jobs has slowed while the market sector has picked up, “suggesting potentially better productivity outcomes in the September quarter”, CommSec chief economist Ryan Felsman said.
The Reserve Bank would be keeping a close eye on the labour market as the transition from public sector-led growth to private sector continued, HSBC chief economist Paul Bloxham said.
Jobs figures released by the Australian Bureau of Statistics on Thursday were weaker than expected, with employment falling by 5400 and the participation rate retreating.
But there were signs a significant gap in the public-private handover was unlikely, Mr Bloxham said.
“For the RBA, we expect the main focus will be on the unemployment and underemployment rates which are both continuing to signal a fully employed jobs market,” he said.
Thursday’s labour force release should not have changed the Reserve Bank’s view about its path forward for interest rates, Mr Bloxham said.
“With a jobs market that is fully employed, our view is that the RBA has little to worry about at present,” he said.
Australian Associated Press is the beating heart of Australian news. AAP is Australia’s only independent national newswire and has been delivering accurate, reliable and fast news content to the media industry, government and corporate sector for 85 years. We keep Australia informed.
