Business Council of Australia CEO Bran Black warns lagging pay levels to drag on unless major change occurs

The lobby group for Australia’s most powerful corporate chief executives says workers will continue to see their pay levels lag behind inflation unless the nation’s productivity crisis is resolved.

Australia’s productivity, measuring hourly output in the labour force, has been going backwards in the 2020s and without a dramatic improvement, it would be the worst since records began in 1960 and continue contributing to high inflation.

Bran Black, the CEO of the Business Council of Australia, said higher corporate tax rates and more rigid industrial relations policies were to blame for falling productivity.

“What that points to is a need for us to have that type of reform, and it’s really important because ultimately productivity is the driver of real wages growth,” he told ABC Radio on Monday.

“If we’re to achieve more business investment and lift productivity and reduce inflationary pressure, we have to have more competitive settings, and that means we need to address those core challenges that are already in place in terms of our taxation settings, our regulatory settings, and our industrial relations settings.”

Apart from a surge in data centre spending for AI, overall business investment in Australia is still weak, with technology generally regarded as necessary to make workers more productive.

While productivity is still growing strongly in the United States, it’s been declining in Australia since the aftermath of COVID.

“We know that countries that have better quality settings in those areas are attracting more investment and have improved productivity rates,” Mr Black said.

“If Australia wants to deliver a higher level of productivity, it follows that we need to have those more competitive settings to attract investment.”

Deputy Liberal leader Jane Hume, who is also shadow industrial relations minister, said Labor with its multi-employer bargaining laws had forgotten about the more flexible industrial relations system championed by former ACTU leader Bill Kelty in the early 1990s, that led to Paul Keating’s ALP government introducing enterprise bargaining.

“Labor has made workplaces more prescriptive and less flexible when we should be making it easier for employers and employees to work together to lift wages and productivity,” Senator Hume told The Nightly.

“Labor luminaries like Bill Kelty understood 30 years ago that productivity and real wage growth go hand in hand.

“It’s remarkable that today’s Labor seems to have forgotten what its own leaders once knew.”

Australia’s productivity level fell by 0.2 per cent during the last financial year and it was flat in the June quarter.

“Productivity growth has been pretty weak over the last few years compared to historical average,” the Reserve Bank’s chief economist Sarah Hunter told a Regional Australia Institute summit in Canberra on Monday.

This weak productivity means Australia continues to have an inflation problem even if the economy grows at a relatively weak pace of 2 per cent a year.

“For us at the bank, what that really means is that the pace that the economy can grow before it generates inflationary pressure is lower now than it was in the past,” Dr Hunter said.

“We’re looking at that very closely. It matters very much for what we think about inflation and interest rates.

“How can we increase living standards for everybody over time? To do that, you really do need productivity growth.”

Dr Hunter was hopeful about artificial intelligence helping to boost Australia’s sagging productivity.

“I have to say I’m probably, ultimately an AI optimist in that I think that it will add to productivity, it will make us more productive,” she said.

“I do think that ultimately we will get there but I’m not sure I think it’s going to solve all the problems.”

Productivity levels have declined for the past six years and the Business Council of Australia is warning the economy will be on track for the worst level of productivity since records began in 1960 under the current trajectory.

That is a sharp decline from the 1990s to the mid-2000s when annual productivity growth averaged 2.1 per cent, following the advent of the internet and new regulations tackling anti-competitive behaviour.

The productivity crisis intensified in 2022 after COVID and Russia’s Ukraine invasion, when the highest inflation since 1990 led to output plunging.

Since coming to power, Anthony Albanese’s Labor Government has reintroduced multi-employer bargaining so pay increases can be more easily replicated across an industry.

The BCA’s pre-Budget submission cited higher company tax rates, multi-employer bargaining and expanded rights for unions to enter workplaces as impediments to workplace productivity, and called for enterprise bargaining to only commence with majority support in the workplace.