Australian Energy Producers conference: Philip Lowe warns productivity failure will hit living standards

West Australian

27-05-2025

Former Reserve Bank governor Philip Lowe is worried Australia's prosperity is at risk from political failures to fix productivity and the global move away from free trade.
He said supply shortages in crucial sectors including energy and housing had been caused by an economic environment that made it harder for businesses to invest.
Productivity has cratered since the post-pandemic bubble in 2022 and the decline has also put the brakes on Australia's wage growth.
'More supply needs more investment,' Dr Lowe told the Australian Energy Producers conference in Brisbane on Tuesday.
He said the country needed to invest in more capital — plants, machinery, equipment and education — as the population grew.
The RBA had expected productivity to grow by 1.25 per cent annually but it was instead stuck at the same level as six years ago, Dr Lowe said.
That meant wages, business profit, and budget revenue would all be about 8 per cent lower than they might have been.
'This is the source of the cost of living crisis,' Dr Lowe said.
'It's robbing you all of 8 per cent of your income.'
He said politicians were too focused on the short term and needed to sharpen up Australia's industrial relations rules, tax system, planning laws, and improve education.
'We need political leadership that can look over the horizon . . . we need to take some hard decisions,' he said.
'Our living standards are about the best in the world. It's just stagnant.
'If we don't address the issues I was just talking about, our kids will still have a high living standard but we won't be world-beaters any more.'
Treasurer Jim Chalmers recently said the Federal Government's top priority after a thumping victory in the election earlier this month would be boosting productivity.
That would mean the country gets improved goods and services without needing employees to work harder or more hours.
The Productivity Commission has been asked to assess a national strategy to fix the decline.
Dr Lowe said the global move away from free trade, led by the US President Donald Trump, was also a major threat.
Mr Trump unleashed the biggest tax hikes on America's economy in decades on April 2, although he has since been forced to walk back the worst pain, at least for now.
The chaos had sparked warnings that the US economy could be driven into recession.
'It's extraordinarily concerning,' Dr Lowe said.
'Australia has built its wealth on being able to sell stuff to the rest of the world.
'We have a really strong interest in preservation of that system.'
He said financial markets might be able to ensure economic discipline by Mr Trump — pointing to the administration's reaction to surging interest rates on US debt.
'If we get anything like President Trump has proposed, it's going to be a disaster.'
The reporter travelled to the AEP Conference as a guest of the lobby group