Australian Productivity Growth Can’t Reach Its Target Without Change: Treasurer

People shop in Pitt Street mall ahead of Christmas in Sydney, Australia, on Dec. 14, 2021. (Brendon Thorne/Getty Images)

Jim Chalmers, the new Australian treasurer, said the nation cannot achieve a return to 1.5 percent productivity growth under current policies.

The treasurer said he wanted to have an upfront national conversation on the challenge of increasing productivity, which enables wage growth.

“But the starting point needs to be a more realistic assessment of where we’ve been and where we’re headed,” he told The Australian.

Chalmers blamed the previous government for “over compromising” on its claims for achieving a productivity boost in the long term.

The importance of productivity was highlighted in the Treasury’s 2021 Intergenerational Report, which projects an outlook for the economy over 40 years by examining the sustainability of policies and how other trends could affect the budget.

“Productivity has been the most important source of income growth in Australia, contributing over 80 percent of growth in real gross national income per person over the past 30 years,” the report stated.

It forecasted the convergence to a 1.5 percent labour productivity growth rate but noted that achieving it would require a lift in performance.

Chalmers said the Albanese government would put out another intergenerational report next year and increase the frequency of the reports from every five years to every three years.

He also said the government’s planned October budget would be “more realistic” in outlining the country’s productivity challenge without providing further details.

Treasurer Jim Chalmers speaks to the media during a press conference on day eight of the 2022 federal election campaign in Brisbane, Australia, on April 18, 2022. (AAP Image/Lukas Coch)

Meanwhile, the treasurer previously told reporters that the skyrocketing inflation and rising interest rates meant people “shouldn’t assume” that the budget would be stronger in October than it was in the pre-election fiscal outlook despite the uplifting revenue from the resource sector.

“I'd encourage you to be really careful about assumptions about improvements in the budget,” Chalmers said on May 25. “Commodity prices have been stronger than what the forecasts have assumed for a little while now, but there’s no guarantee on that uplift in the budget.”

He said there were factors working against the government, including undisclosed pressures in the budget from the previous government. However, the specifics were not revealed.

“I'll get into that at a subsequent opportunity,” he said.

However, in a recent report, the global credit rating agency Standard & Poor’s (S&P) said that the federal budget that Labor inherited was in better condition than previously forecasted.

“We believe a significant upside is likely because commodity prices will outperform budget assumptions. Further, inflationary pressures will drive nominal GDP and taxes higher,” the agency said in a statement.

S&P noted that while the new government had pledged to make investments in a wide range of sectors, as long as the fundamentals of the October budget that support Australia’s economy remain firm, there would be no change to its AAA credit rating.

“We expect this budget to set the fiscal tone and tolerances for spending,” it said.