No light for Australia’s poor productivity record
The Whyalla Steelworks was established in 1941 and employs 1,100 people. The Mount Isa copper smelter was established in 1953 and employs 550 people, and the Townsville refinery was established in 1959 and employs 500 people. Without enormous government subsidisation, all three businesses look like they will follow the Exxon Mobile refinery, Oceana Glass and plastics makers, Qenos and Trident, into oblivion.
There will be unintended negative consequences. For example, the Dyno Nobel Phosphate Hill mine, 140km from Mount Isa, which employs 500 people, relies on a copper smelter by-product for its fertilizer production.
All these businesses have experienced an approximate 50 per increase in the price of energy since 2019, a 7 per cent average annual increase in six years. And this places enormous pressure on Australian manufacturing. Of the 37 Organisaqtion for Economic Co-operation and Development (OECD) countries, Australian manufacturing has the lowest share of Gross Domestic Product (GDP) at 5 per cent, down from 10 per cent 25 years ago.
Graph 1: Australia has the lowest share of manufacturing of any OECD country
Source: macrobusiness.com.au
One of my bugbears is the obsession both sides of politics have with a “Big Australia”. Since 2000, the Australian population has grown by nearly 9 million people or 45 per cent. If we had had grown by the OECD average of 17 per cent, that would have seen an increase of closer to 3.5 million people.
Graph 2: Population change this century (to 2024)
Source: macrobusiness.com.au
The theoretical additional 5 million people since the year 2000 have placed excessive pressure on housing and infrastructure and labour productivity per head of population. Real GDP per person has declined in nine of the past 12 quarters. Government is increasing its indebtedness, with near record expenditure at around 28 per cent of GDP, 4-5 per cent above the 65-year average of sub 24 per cent of GDP and much of this increase is wasteful.
Think of the lack of accountability associated with the NDIS (Natioinal Disability Insurance Scheme), infrastructure blowouts, bailouts and subsidies, and the extraordinary amount of duplication and inefficiency.
The problem is that government expenditure is too often poorly allocated, made for political reasons, with a channeling into low-productivity jobs. So, when we read that the federal and state government spending splurge has hit the highest level since the end of World War II, and that more than 50 per cent of adult Australians now rely on the government for their main income, this complicates the ambition to lift labour productivity.
Graph 3: Labour productivity
Source: macrobusiness.com.au
With high net immigration, high government expenditure relative to GDP, an significant reliance on government for adult Australians’ income, and higher energy prices from poorly structure regulation plus decarbonization, it seems likely the Australian economy will remain in a low productivity trap.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience.
David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
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