Australia is facing a prolonged economic adjustment, as its central bank warns of a sustained decline in living standards. The Reserve Bank of Australia (RBA) has attributed the downturn to a marked slowdown in productivity growth, compounded by weak wage growth and diminishing business returns.
The stark assessment was delivered in the RBA’s latest statement on monetary policy, which outlines a pessimistic outlook for household incomes, consumer spending, and private sector profitability. Despite recent moves to cut interest rates, Governor Michele Bullock stressed that monetary tools are largely ineffective against structural productivity issues.
Productivity Decline Drives Stagnation
Australia’s productivity performance has shown a sharp deterioration, falling from an annual growth rate of 1.8 per cent in 2003–2004 to just 0.9 per cent in 2022–2023, according to the Australian Bureau of Statistics. This decline is now translating directly into economic strain for households and businesses.
The RBA warns that this structural weakness in productivity is undermining income growth and business performance. In its statement, it notes that “lower productivity growth means slower growth in business revenues, household incomes and ultimately demand”. Central bank officials have made clear that monetary policy alone cannot correct these deep-rooted issues.
Governor Bullock acknowledged that responsibility for addressing the slowdown rests primarily with government and the private sector. “There’s nothing the Reserve Bank can do,” she stated. “All the Reserve Bank can do is make sure we have low and stable inflation.” The message is unambiguous: fiscal reform and sector-wide action are necessary to reverse the trend.
Economic Roundtable Raises Hopes—And Doubts
The government is preparing to host a high-level economic roundtable in Canberra, bringing together economists, union leaders, business representatives and politicians in an effort to address the productivity challenge. According to polling by Amplify and YouGov, public awareness and confidence in the roundtable remain low, with three in four Australians unaware of the event and 60 per cent expressing doubts about its potential effectiveness.
Among the voices calling for urgent reform is AMP chief economist Shane Oliver, who identifies four key areas for intervention: cutting red tape, reforming the tax system, increasing competition, and limiting government spending. He suggests a GST expansion balanced by income tax adjustments and calls for the removal of “nuisance taxes” such as stamp duty.
Meanwhile, NAB chief executive Andrew Irvine highlighted that the bulk of job growth over the last decade has occurred in the public sector. He emphasised that excessive regulation is making it difficult for private businesses to scale, warning, “We need to fix that and reduce red tape to create more jobs in the private sector.”
