Andrew Leigh

AUSTRALIANS AREN’T BETTER OFF THAN AT THE LAST ELECTION

Are you better off than at the last election? If you answered no, you're in the majority. Living standards are lower today than they were in 2013.

Sure, we keep hearing about those 25 years of uninterrupted economic growth Australia will clock up this year. But what often gets ignored is that this is based on total national output – a measure called Gross Domestic Product. It isn't adjusted for population growth, money that gets paid to overseas shareholders, or the relative prices of exports to imports.

Each of these adjustments makes a difference, but the easiest one to get a handle on is the mistake of looking at total production rather than output per person. In recent years, Australia has had one of the fastest population growth rates in the advanced world. Looking only at the total is like measuring an exercise regime by adding up all the calories burned at your gym. When another person walks in the door, they raise the total, but that doesn't mean you're any healthier.

A better measure of living standards than GDP is something the boffins call "real net national disposable income per capita". That measure is down 4 per cent in two years, leading some commentators to describe the decline in living standards as an "income recession".

To get living standards rising again, we have to be honest about the headwinds facing Australia, and devise a clear plan to get growth going again. 

The first headwind is innovation. Just 6 per cent of ASX 300 firms describe Australia as a "highly innovative" nation. Where 10 to 40 per cent of firms in many OECD countries develop new-to-world innovations, the rate in Australia is less than 2 per cent. We have one of the lowest rates of industry–research collaboration in the OECD.

US economist Larry Summers warns that the advanced world may be entering an era of "secular stagnation", which implies a lack of productive investment opportunities and an increasing propensity to save in advanced economies, particularly with low real interest rates, low inflation and sluggish demand. Paraphrasing Keynes, Summers compares an economy to a car: "A car with a broken alternator won't move at all – yet it only takes a simple repair to get it going."

The second headwind is inequality. Over the past generation, earnings have risen three times as fast for the top 10th of workers as for the bottom 10th.  The top 1 per cent share has doubled, as has the number of private helicopters. The number of private jets has tripled. And yet one in five families say they cannot afford a week's holiday away from home. Labor's deliberate focus on inequality is reflected in Jenny Macklin's important social policy report, Growing Together, which charts a path towards a more egalitarian nation; and in Brendan O'Connor's commitment to defending penalty rates, minimum wages and the role of unions.

The third headwind is illiteracy and innumeracy. Australia is one of the few nations in the world that has slipped backwards on international tests. Indeed, it is likely that Australian junior high school students in the 1970s would outperform today's teenagers. The solution is to provide schools with the resources they need, and ensure that every school can attract and retain great teachers. As Kate Ellis has noted: "Teachers don't just help students build skills, they change lives."

Finally, there's the headwind of international events. As any economic historian can tell you, most of Australia's recessions have been driven by global events. From the sharemarket crash of 1929, to the Middle Eastern oil shock of 1973, to the US recession of 1990-91, a medium-sized economy like ours will invariably be buffeted by offshore events. At best, we can brace for impact (as Australia did in avoiding recession during the Asian Financial Crisis and Global Financial Crisis), but we're never immune to world fluctuations.

Today, the Republican front-runner for the US presidential race favours greater "unpredictability" in world affairs. Britain will soon vote on whether it leaves the European Union. Syria remains a humanitarian catastrophe. China's leadership continues to centralise power to a greater extent than at any time since Mao was alive. Russia continues to thumb its nose at the international order. And all this in a world that's more interconnected than ever before.

Between innovation, inequality, illiteracy, innumeracy and international events, Australian policymakers face considerable challenges. Headwinds shouldn't leave us flat on our backs, but they're a reminder of the need for big thinking and bold ideas. During this election term, Bill Shorten's Labor team has released over 70 practical policies on education, health, tax, housing affordability, climate change, infrastructure, start-ups and innovation, marriage equality, domestic violence, the sharing economy, competition policy and more. We understand the need to raise living standards, we recognise the headwinds, and we're confident about the course we're setting.

Andrew Leigh is the shadow assistant treasurer and Member for Fraser. 

A version of this opinion piece was first published in the Sydney Morning Herald on 27 April 2016.