Australians are getting poorer, and a leading economist has created a simple chart to show why.
Australians are getting poorer and a leading economist has produced a striking chart to explain the decline in living standards.
In an article sent to X on Friday, AMP chief economist Shane Oliver showed a chart showing the annual change in labor productivity in several advanced economies.
Australia was at the bottom of the group, with a negative productivity change, while the United States had a growth rate of nearly 5% and Norway had a growth rate of 2.
Mr Oliver wrote: “Australia’s labour productivity growth is at the bottom of the OECD .. and this is the fundamental reason why Australia’s living standards are falling.
Labor productivity refers to the amount of goods produced by workers in a certain period of time.
Increased or improved productivity means workers can produce more in less time.
It is a key measure of living standards because higher productivity is often linked to higher wages as employees become more valuable to businesses.
Leading economist Shane Oliver says Australia’s productivity is falling, leading to lower living standards. Image: Supplied
This also means more goods will be produced, making things cheaper for everyone.
In a more detailed study, Oliver said a surge in government spending had “exacerbated” Australia’s productivity decline and contributed to falling living standards.
“The surge in public spending has exacerbated Australia’s productivity decline, which fell by another 0.8 per cent last year, because private sector productivity is always higher than public sector productivity and because public spending squeezes private business investment, it can exacerbate the weakness in private sector productivity,” he said.
“Weak productivity growth makes it harder to bring inflation down and will hold back long-term growth in GDP per capita, and therefore living standards.”
He said public spending now stands at 28% of GDP, a record high.
“(It) makes the Reserve Bank of Australia’s task of controlling inflation more difficult because it keeps demand in the economy higher than it would otherwise be, which means interest rates have to be kept on for longer to slow demand and thus hold down inflation, which in turn means private spending has to be squeezed more than it would otherwise be,” he said.
Oliver warned that public spending was crowding out private sector investment. Image: NewsWire/Luis Enrique Ascui
“Families are having to cut back on discretionary spending.
“In other words, had it not been for the surge in public spending, inflation would likely be lower now and the RBA cash rate would be lower as well.”
Oliver said “politically unpopular” policies were needed to reverse Australia’s falling productivity.
“Federal and state governments need to slow spending, stop squeezing private spending, and do more to fundamentally improve productivity, which requires tax reform, labor market deregulation, and competition reforms,” he said.
“And work with the RBA in this process rather than against it.
“Unfortunately, with the federal election just around the corner, things are not looking good.”
The next federal election is not due until May 2025.