RESERVE Bank governor Glenn Stevens has urged the federal government to confront the nation's dismal rate of productivity growth, saying that the mining boom has masked a dramatic downshift in consumer spending.
In a landmark speech, Mr Stevens said Australia was unlikely to return to the era of the 1990s to mid 2000s when large mortgages and rising house prices helped fund a consumer spending binge, saying those "good old days" were unlikely to return.He said there was a "new conservatism" among Australian households and hinted that the country would be in the middle of a housing market crash like that witnessed in the US and parts of Europe had it not been for the huge rise in Australian income driven by a once-in-a-century mining investment cycle.
He highlighted the structural changes in the economy, which included the high Australian dollar and spending habits turning to lower, historical trends, savaging the profits of the nation's retailers accustomed to higher growth. If not for the rise in national income and terms of trade -- the difference between the price Australia gets for its export and pays for its imports -- this would have led to a "considerably more difficult period of adjustment". The growth in borrowing against homes from 1995 to 2005 was unusual, he said, and "it was bound to end".
Mr Stevens said the global financial crisis and ensuing credit crunch ensured the "financial source of upward pressure on housing values will abate", in effect warning the era of stellar rises in home prices was over.
While the consumer binge until about 2005 would not return, he noted that consumer mood could lift noticeably when the raft of uncertainties in the international environment lift, "so I don't think we need to be totally gloomy".
Europe is in the middle of the sovereign debt crisis while in the US President Barack Obama is warning of "financial armageddon" if Washington cannot find a resolution to its own debt crisis by next Tuesday, when congress has to approve an increase in the country's $US14.3 trillion ($13 trillion) debt limit or start defaulting on its obligations.
Mr Stevens said in the era of renewed consumer restraint and a peak in the terms of trade growth rate, the Australian economy's future rested on productivity improvements.
"As everyone in this room would know, there is only one source of ongoing higher rates of growth of real per capita incomes, and that is higher rates of growth of productivity. Everyone here also knows that it is now just about impossible to avoid the conclusion that productivity growth performance has been quite poor since at least the mid 2000s," he said.
Australia learned to produce more with less through the 1990s, supported by Hawke, Keating and Howard government reforms that included the floating of the dollar, banking industry deregulation, tariff cuts and the the GST.
But productivity growth has dropped back sharply since then, despite Julia Gillard's vow to embrace Labor's reformist legacy. Discontent over Canberra's policymaking has now spread to some of the nation's most respected business leaders.
Mr Stevens said periods of easy affluence had distracted attention from productivity in the past but said the issue was "quite critical", especially in the retail, tourism and manufacturing trouble spots of the economy. "You've got product prices under downward pressure, costs under upward pressure. How are you going to square the circle? Well, productivity's really the only answer to that question," he said.
The RBA governor identified labour market regulation and imposition of new occupational health and safety and governance standards as areas for reform.
Wayne Swan last night told a small business conference in Sydney the sector should expect to share in a $1.9 billion boost to the economy from surplus assistance to households as part of the carbon price package.
A spokesman for the Treasurer said Labor would not repeat the Howard government's "decade of neglect" of skills and infrastructure and was determined to address the long-term structural decline in productivity.
Australia learned to produce more with less through the 1990s, supported by Hawke, Keating and Howard government reforms that included the floating of the dollar, banking industry deregulation, tariff cuts and the the GST.
But productivity growth has dropped back sharply since then, despite Julia Gillard's vow to embrace Labor's reformist legacy. Discontent over Canberra's policymaking has now spread to some of the nation's most respected business leaders.
Mr Stevens said periods of easy affluence had distracted attention from productivity in the past but said the issue was "quite critical", especially in the retail, tourism and manufacturing trouble spots of the economy. "You've got product prices under downward pressure, costs under upward pressure. How are you going to square the circle? Well, productivity's really the only answer to that question," he said.
The RBA governor identified labour market regulation and imposition of new occupational health and safety and governance standards as areas for reform.
Wayne Swan last night told a small business conference in Sydney the sector should expect to share in a $1.9 billion boost to the economy from surplus assistance to households as part of the carbon price package.
A spokesman for the Treasurer said Labor would not repeat the Howard government's "decade of neglect" of skills and infrastructure and was determined to address the long-term structural decline in productivity.
