A strong economy is central to the welfare and wellbeing of all Australians. It provides the material basis to deliver the sort of society we want to live in.
If GDP growth averages 3.5 per cent a year over the next few decades, average real incomes would be around $40,000 higher ($160,000 in today’s dollars) than projected in the Intergenerational Report (IGR). Tax revenues would be some $290 billion higher (in today’s dollars).
On the other hand, if GDP growth were to slow to 2.5 per cent a year then tax revenues would be $100 billion lower (in today’s dollars) and income per person would be around $108,000, not $122,000 as in the IGR.
Without stronger economic growth, Australia will sleepwalk into a state of fiscal weakness, slower growth in living standards and heightened vulnerability to economic shocks.
Arguing about how the economic pie is divided up does not offer an enduring solution to Australia’s low income-growth predicament.
The only way to improve living standards for all Australians is by growing the size of the economy, not increasing taxes to fund ever-growing spending.
The government and the Parliament have an overriding obligation to give the community the best value for the over $400 billion in federal taxes it currently pays.
Productivity growth is not about making people work harder or paying them less. It is about businesses, and governments, investing, innovating and working smarter to create greater value.
Labour productivity growth has been averaging around 1.3 per cent over the decade to 2017-18.
Treasury’s confronting arithmetic shows that for real gross national income growth per person to return to its long-run average of 2 per cent per year, annual labour productivity growth will need to increase to around 2.5 per cent.
Achieving this would be unprecedented in modern history – higher than the “golden decade’’ of productivity growth in the 1990s when it averaged around 2.2 per cent.
It will require a renewed focus on business investment and innovation.