Australia's remarkable boom times are over and the best way to maintain our standard of living is to have a "laser-like" focus on productivity, new Reserve Bank governor Philip Lowe warns.
In his first appearance before the House of Representatives Standing Committee on Economics as governor, Dr Lowe said the confluence of factors that boosted living standards in recent decades will not happen again.
Australians enjoyed real income growth per person of three per cent on average for 15 years until the global financial crisis in 2007, he said.
Incomes and living standards grew solidly because of strong productivity growth, large numbers of young people entering the workforce and the global commodity price boom.
But Dr Lowe warned the situation has changed today, with tepid productivity growth, an ageing population and falling terms of trade cutting into standards.
“It was a remarkable kind of a period and I think many of us started to think that was the normal state of affairs, it would have been nice if it was,” he told the hearing.
“That period now looks like it’s behind us.”
Dr Lowe said as it was hard to control demographics and impossible to control the terms of trade, the primary way to try to keep living standards growing was “laser-like” concentration on boosting productivity.
“The only way we can go back to anything like the previous rate of growth in our living standards is focusing on productivity growth,” he said.
“That’s not just a concern for the Reserve Bank, it should be a concern for the parliament and the whole 24 million people in our country – what do we do to get the productivity growth up again to get the living standards rising.”
The RBA governor also warned of the limits of monetary policy with the key interest rate at 1.5 per cent, the lowest since Federation.
Dr Lowe urged “some entity” or government to use low interest rates to invest, using their balance sheets to facilitate infrastructure spending.