Last month the Government belatedly recognised that Australia has a productivity problem and organised a roundtable to have a discussion about it.
Over the past three years Australia’s labour productivity has fallen by 5.7 per cent. There has never been anything close to this kind of decline. The previous largest decline over a three-year period had been just 0.6 per cent.
The Government’s plans for immediate discussion is where the good news ended. It became apparent the Government had no intention of tackling the underlying causes of our poor productivity performance. If they had wanted to do that, they would have started by looking closely at what parts of the economy have had the poorest performance in the recent years.
Only two sectors of the Australian economy have seen declines in labour productivity over the past 20 years, mining and electricity, gas, water and waste services. Yet the Government’s productivity paper that it prepared for the roundtable did not even mention energy prices and the Minerals Council were not even invited to the discussions.
On face value, the poor productivity performance of mining is perplexing. Just as we have experienced a record mining boom, productivity in mining has declined. Some economists, who should know better, have even suggested that mining’s poor productivity shows why the sector should not be supported and should be taxed instead.
In truth, it is not hard to explain. Productivity in mining tends to decline over time as miners exploit the best reserves first. One hundred and sixty years ago you could find gold by panhandling. Today you have to dig deep shafts and crush basalt (or other rocks) to get the way less than 1 per cent of gold that resides there.
In addition, during a mining boom, miners seek to exploit even lower quality ores as the high prices justify the extra costs of extracting from them. This decision hurts productivity but it increases profit as the high prices make it add up.
Productivity is important all other things being equal. But when the price rises for something a reduction in productivity can make sense.
But even after taking into account these issues, labour productivity in mining has fallen by a lot and there are broader factors at play.
The other sector that has seen a big reduction in productivity (electricity) almost certainly has hurt the mining sector too. Mining ores (especially lower quality ones) is an energy intensive exercise. Electricity prices have doubled this century and that makes mining in Australia that much more expensive.
But the Government refused to recognise the elephant in the room of electricity prices. So, I organised my own productivity roundtable where we did discuss that and other difficult topics.
As the former head of the Productivity Commission, Gary Banks, said at our discussion “abundant low-cost energy has traditionally played an important role in offsetting the detrimental impact on industry performance of Australia’s rigid, high-cost labour market”. In simple terms if we want dear wages, we must have cheap energy.
If we want to improve our productivity performance (and increase our wages), we need to change the energy policies that have produced these dire results. Instead, the result of the Government’s productivity discussions was to double down on failure. They have recommended weakening environmental laws and financial performance standards for solar and wind energy.
At my roundtable we recommended the opposite approach. We should instead be removing the bans we have on coal and nuclear power. We should get rid of net zero which is holding us back from using our energy resources.
The easiest way to reduce the cost of doing business in Australia and to create more wealth, is to let Australians use the same energy resources that we export to the world.
Hon Matt Canavan
Senator for QLD
