{"id":500039,"date":"2026-02-24T02:27:30","date_gmt":"2026-02-24T02:27:30","guid":{"rendered":"https:\/\/www.newsbeep.com\/au\/500039\/"},"modified":"2026-02-24T02:27:30","modified_gmt":"2026-02-24T02:27:30","slug":"australia-must-fix-these-things-to-improve-productivity","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/au\/500039\/","title":{"rendered":"Australia must fix these things to improve productivity"},"content":{"rendered":"<p>Last week, the Australian Bureau of Statistics (ABS) released wage data for the December quarter, which revealed that real inflation-adjusted wages fell by 0.3% in 2025, tracking at the same level as December 2011.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/Australian-real-wages.png\" width=\"620\" height=\"472\" alt=\"Australian real wages\"\/><\/p>\n<p>The Reserve Bank of Australia\u2019s (RBA) latest Statement of Monetary Policy also projected that real wages won\u2019t recover over its forecast horizon and will still be tracking at their late 2011 level in mid-2028.<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/Australian-real-wages-RBA-SoMP.png\" width=\"652\" height=\"542\" decoding=\"async\" loading=\"lazy\" alt=\"Australian real wages - RBA SoMP\"\/><\/p>\n<p>Advertisement<\/p>\n<p>Many readers are probably wondering why their material living standards aren\u2019t improving following the pandemic inflation shock.<\/p>\n<p>The main reason comes down to Australia\u2019s poor productivity growth.<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/12\/Productivity-vs-GDP.png\" width=\"642\" height=\"495\" decoding=\"async\" loading=\"lazy\" alt=\"Labour productivity and immigration\"\/><\/p>\n<p>Advertisement<\/p>\n<p>Australia\u2019s productivity growth has fallen sharply over the past 20 years and since the pandemic has ranked amongst the poorest in the OECD.<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/12\/Average-productivity-growth.png\" width=\"510\" height=\"660\" decoding=\"async\" loading=\"lazy\" alt=\"Productivity acress OECD\"\/><\/p>\n<p class=\"wp-caption-text\">Chart from The AFR<\/p>\n<p>Without strong productivity growth, the economy\u2019s speed limit has been lowered to a snail\u2019s pace and cannot grow in per capita terms because it will continue to push up against capacity constraints.<\/p>\n<p>Advertisement<\/p>\n<p>With low productivity growth, every time demand rises, say due to excessive government spending (as we are experiencing currently), inflation will rise, resulting in higher interest rates (as overall demand outpaces supply).<\/p>\n<p>Australia\u2019s poor productivity growth has been driven by three primary factors.<\/p>\n<p>First, due to high immigration, the nation\u2019s population has grown significantly faster over the past 20 years than the growth in business, infrastructure, and housing investment.<\/p>\n<p>Advertisement<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/12\/Capital-shallowing.png\" width=\"660\" height=\"439\" decoding=\"async\" loading=\"lazy\" alt=\"Capital shallowing\"\/><\/p>\n<p class=\"wp-caption-text\">Chart from Gerard Minack (Minack Advisors)<\/p>\n<p>As a result, Australia\u2019s capital base\u2014think infrastructure, tools and machinery, and technology\u2014has been spread more thinly across more people. This has increased congestion in infrastructure, slowed output per worker, and helped to drive up inflation (e.g., via rents).<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/1771900038_333_Population-growth-vs-rent-growth.png\" width=\"540\" height=\"354\" decoding=\"async\" loading=\"lazy\" alt=\"Population growth and rents\"\/><\/p>\n<p class=\"wp-caption-text\">Chart from Gerard Minack (Minack Advisors)<\/p>\n<p>Advertisement<\/p>\n<p>Second, Australia has experienced a rapid expansion of non-market (government-funded) jobs, related mostly to the expansion of the NDIS.<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/Filled-jobs-by-sector.png\" width=\"660\" height=\"658\" decoding=\"async\" loading=\"lazy\" alt=\"Filled jobs by sector\"\/><\/p>\n<p class=\"wp-caption-text\">Chart from Alex Joiner (IFM Investors)<\/p>\n<p>Most of Australia\u2019s job growth since the pandemic has been in the non-market sector.<\/p>\n<p>Advertisement<\/p>\n<p>Productivity in the non-market economy has fallen sharply and is tracking at around the same level as 20 years ago, which has dragged down overall productivity.<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/Productivity-by-sector.png\" width=\"660\" height=\"535\" decoding=\"async\" loading=\"lazy\" alt=\"GVA per hour worked\"\/><\/p>\n<p class=\"wp-caption-text\">Chart from Alex Joiner (IFM Investors)<\/p>\n<p>Third, soaring energy costs have eroded Australia\u2019s productivity growth.<\/p>\n<p>Advertisement<\/p>\n<p>Energy turns labour and capital into useful work, and our GDP and living standards depend on it. Rising energy costs have added costs across Australia\u2019s entire supply chain.<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/08\/Energy-input-costs.png\" width=\"660\" height=\"532\" decoding=\"async\" loading=\"lazy\" alt=\"Energy input costs\"\/><\/p>\n<p class=\"wp-caption-text\">Chart from Alex Joiner (IFM Investors)<\/p>\n<p>Rising energy costs have also <a href=\"https:\/\/www.macrobusiness.com.au\/2026\/02\/high-energy-costs-prevent-australia-from-moving-up-the-value-chain\/\" rel=\"nofollow noopener\" target=\"_blank\">shuttered many manufacturers<\/a> and caused deindustrialisation.<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/12\/Manufacturing-share.png\" width=\"660\" height=\"415\" decoding=\"async\" loading=\"lazy\" alt=\"Manufacturing share\"\/><\/p>\n<p>Advertisement<\/p>\n<p>Manufacturing has traditionally been a driver of Australia\u2019s productivity growth, and its shrinkage has lowered overall productivity.<\/p>\n<p>Fourth, Australia\u2019s productivity has suffered from an increasing share of our economic output being channelled into non-productive housing, fuelled in part by generous tax concessions that incentivise investment in established homes rather than the real economy:<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/02\/Average-value-of-dwelling-stock.png\" width=\"588\" height=\"411\" decoding=\"async\" loading=\"lazy\" alt=\"Value of Australia's dwelling stock\"\/><\/p>\n<p>Advertisement<\/p>\n<p>Australia\u2019s banking system has also transformed into giant mortgage lenders, starving businesses of credit:<\/p>\n<p><img src=\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2025\/07\/Housing-versus-business-lending.png\" width=\"660\" height=\"459\" decoding=\"async\" loading=\"lazy\" alt=\"Housing versus business lending\"\/>The Takeaway:<\/p>\n<p>Advertisement<\/p>\n<p>Australian real wages and living standards won\u2019t improve unless the nation\u2019s productivity growth improves.<\/p>\n<p>The solution requires four main reforms from governments:<\/p>\n<p>Lower and better targeted immigration, to prevent capital dilution. We can\u2019t keep growing demand faster than the economy\u2019s absorptive capacity. We also need an immigration system that imports genuinely highly skilled people in areas of shortage, rather than more Uber drivers. Cutting back wasteful government spending and ensuring that when governments spend our money, they get the biggest \u2018bang for the buck\u2019. Delivering stable and affordable energy via genuine gas reservation and abandoning the push to an all-renewables energy future. Tax reforms to encourage productive investment over speculative housing investment. <\/p>\n<p>I discussed these issues in my weekend Treasury of Common Sense at Radio 2GB\/4BC.<\/p>\n<p>Advertisement<\/p><\/p>\n","protected":false},"excerpt":{"rendered":"Last week, the Australian Bureau of Statistics (ABS) released wage data for the December quarter, which revealed that&hellip;\n","protected":false},"author":2,"featured_media":106127,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-500039","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/500039","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=500039"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/500039\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/106127"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=500039"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=500039"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=500039"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}