Beyond the boom Australia s productivity imperative

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With a strong banking sector and an enviable unemployment rate hovering just above 5 percent, Australia stands among the fortunate few advanced economies that are currently generating significant income growth. An outsized boom in the resources sector, driven by demand from developing nations in Asia, has led to a surge in income from record export prices and historic levels of investment. But the boom belies a clear decline in Australia’s productivity.
The sheer scale of the expansion in mining and energy makes it more difficult
to assess the long-run performance and prospects of the economy as a whole. Typically labour productivity is a useful measure of performance and is rightly
a focus of national policy. But Australia’s recent investment boom has changed the growth equation, placing greater emphasis on the role of capital productivity. Drawing on expertise from 20 years of productivity studies, including a 1995 report on the Australian economy, the McKinsey Global Institute aims to create
an analytical framework that acknowledges the complex structural shifts currently under way. This report develops a new method of “growth accounting” that emphasises the distinct roles of capital and labour while also separating the terms of trade from output.
How to maximise the benefits of the current resource windfall to Australia’s public finances is already a heated topic. While we completely agree that this is an important issue, attention must also focus on ensuring that the nation’s underlying prosperity continues. If it doesn’t, discussion of how to spend the windfall will
be moot. By shoring up productivity now, while the benefits of the boom are still accruing, business and policy leaders can position Australia to better withstand external risks beyond its control.