Both falls in productivity were the first since the mining construction boom of the early 2010s when resources firms sank hundreds of billions of dollars into new mines and processing plants.
Among industries, the biggest drop was in agriculture due to the drought. But there were very large falls in sectors including manufacturing, electricity, gas and water, construction, tourism and professional services.
The commission said wages growth, compared to consumer prices, had been “weak” since 2012-13, with the slowdown in productivity accounting for half of the problem.
Another quarter was attributable to consumer prices outpacing producer prices, which was due to changes in the nation’s terms of trade while much of the rest of the drop was due to the share of national income flowing to workers continuing to fall.
Last week, Reserve Bank governor Philip Lowe bemoaned Australia’s “continuing weak productivity growth” while urging the public and private sectors to invest more in areas that would help boost the economy.
The bank has sliced official interest rates to a record-low of 0.75 per cent in a bid to quicken economic growth, tighten the jobs market and boost wages.
The Productivity Commission found much of the swing in income from labour to business was being driven by the mining sector, where up to 80 per cent of shareholders live overseas, and the finance sector.
It discounted the impact of higher consumer prices as a long-term reason for Australia’s wage stagnation, but warned poor productivity and the falling share of income going to workers would be an ongoing issue.
“It is possible that labour productivity will continue growing at historically slower rates indefinitely and that the labour share of income may fall again in the future,” it found.
The commission’s research backed the RBA’s concerns. It said economic growth had been driven by the labour market rather than business investment. Total investment to GDP is now at its lowest level this decade.
The commission also found Australia’s “strong terms of trade have allowed incomes to out-grow productivity over the past 20 years”.
This week’s wage price index, to be released on Wednesday, is expected to confirm continuing downward pressure on pay packets across the country.
Economists are tipping the index to show a 0.5 per cent increase in the December quarter, which would keep annual growth at 2.2 per cent.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.