Wealth Within- Australian Productivity… How This Data Affects You

David Murray, ex- CBA chief and chairman for an inquiry into our financial system, released findings from a recent inquiry. One area highlighted showed that Australian productivity is not keeping pace with wages growth. My concern is for first home buyers as without wages growth the affordability gap will only widen.

Why Australian Productivity is so Important…

Australian productivity is an important statistic for our government, economists and business in general. It is a measure of efficiency. Put simply, it is considered as a ratio of outputs to inputs and measures the capacity to create income. So the higher rate of Australian productivity the more profitable we are as a nation, and this means growth in wages can be justified.

For those of you who are not currently part of a union or if your workforce is not unionised, you may not notice how often Australian productivity data surfaces. It is typically talked about when large unions are negotiating enterprise agreements. That said I am not aware of whether the financial services unions, which cover employees of the major banks, are in the midst of enterprise negotiations. However, with the release of recent Australian productivity data if these unions do try to make a case for significant wages increases they are going to face a real challenge.

image of guy representing Australian productivity

Increasing Australian productivity will have wide ranging, positive implications for our nation

Australian Productivity… Swings and Roundabouts

I recall, after completing a university degree many years ago, that increasing Australian productivity meant getting people to improve work practices and often this required the use of new tools and retraining. Of course, when these improvements were exhausted industry looked to automation.

With automation came job losses and although new positions were created in the process, the total number of positions fell, which of course reduced costs for the business and usually increased output. However, when all inefficiencies were ironed out as could be justified, often companies would create new products or technologies, or expand to create more jobs.

How Australian Productivity and Wage Growth Affect Affordability

Significantly increasing Australian productivity is an endeavour that has wide ranging positive implications, and may mean people are paid more, however I believe wage growth continues to lag our biggest lifetime expense, being the home. House prices in Australia continue to rise at a much greater rate than wages.

Around 20 years ago Australians borrowed $95,000 on average to buy their first home, whereas today if you are just coming into the market you will need a minimum of three times that – the average level of borrowings now being around $300,000. I question this statistic in today’s market and its very low when compared to borrowings for property around the major cities. However, let’s consider the change in the data as being the important point. If borrowings required have tripled compared to 20 years ago what is interesting is how average wages over the same period only doubled.

I believe this gap, between wages growth and housing affordability, or even borrowings, is only likely to widen. Given this, we need to take seriously inquiries into effective taxation on property. Of course these sorts of inquiries, often supported by the major stakeholders, in this case it would be the banks, are not going to be supportive of changes to taxation on land.

Dale Gillham Wealth Within

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