RBA Adjusts Productivity Expectations Amid Tax Reform Debates

2

The government recently organised a productivity roundtable to tackle declining productivity growth and living standards. A dominant theme was the apparent intergenerational inequity perpetuated by the current tax system, which heavily taxes the working-age population while comparatively sparing affluent retirees.

However, despite the discussions, the Australian Labor Party has committed to tax reform only after the upcoming election in 2028. There's a concern that the government might leverage sentiments from the roundtable to justify increasing taxes on the wealthy for funding expansive spending, rather than reducing corporate and income taxes to promote work and investment, and in turn, enhance productivity.

Productivity has been a crucial influence on the AUD/USD exchange rate, along with the terms of trade, for the last 25 years. The surge in productivity during the mining investment boom was pivotal in pushing the AUD/USD above parity. However, the subsequent decline in productivity has significantly strained the exchange rate.

The current sluggish productivity growth in Australia is expected to limit AUD/USD gains, reaching only 0.68 by the end of 2025 and possibly hitting 0.70 by the second half of 2026. These predictions hinge partly on the risk that the RBA’s revised view on the inflation-productivity relationship might be overly optimistic, potentially impacting its rate cuts.

As Australia grapples with impending changes in its economic landscape, the RBA's decision to adjust productivity assumptions aligns with broader concerns about the nation's economic trajectory. The focus on tax reform and productivity improvements is crucial for sustaining economic growth, stabilising currency fluctuations, and enhancing overall financial well-being.

Published:Monday, 1st Sep 2025
Source: Paige Estritori

Share this news item:

Finance News

Clear

ASIC Releases Updated Legislation for Financial Advice

16 Sep 2025: Paige Estritori

The Australian Securities and Investments Commission (ASIC) has introduced a new, consolidated legislative instrument that relates to financial advice. This update follows through on ASIC's May announcement regarding the remake of three existing advice-related instruments. - read more

Commonwealth Bank Challenges RBA's Card Fee Reform

12 Sep 2025: Paige Estritori

Australia’s leading financial institution, the Commonwealth Bank of Australia, has openly criticised the Reserve Bank of Australia (RBA) for its calculations related to a proposed reduction in debit and credit card transaction fees. The RBA suggested that the reform would save Australian businesses $1.2 billion annually and benefit the majority of companies, a claim that the Commonwealth Bank strongly disputes. - read more

Ongoing Consumer Spending Surge Threatens Future Interest Rate Cuts

11 Sep 2025: Paige Estritori

Amid a period of robust consumer spending, Australia's mortgage holders may face limited future interest-rate cuts. The Commonwealth Bank has observed Australians increasing their spending over the last six months, spurred by rising incomes, a robust job market, and previously lowered interest rates. - read more

CSLR Funding Concerns as Special Levy Decision Remains Pending

11 Sep 2025: Paige Estritori

The Compensation Scheme of Last Resort (CSLR) recently highlighted potential delays in compensation payments due to insufficient special levy funds. In July, the CSLR's proposed FY2025–26 levy plan allocated $67.29 million for financial advisers, surpassing the $20 million limit set for the subsector. This shortfall of $47.29 million prompted the Treasury to initiate a consultation in August to determine funding solutions for the excess levy. - read more

Retiree Surge to Drive Demand for Financial Advisers in Australia

10 Sep 2025: Paige Estritori

A recent study by Adviser Ratings, as outlined in the 2025 Australian Financial Advice Landscape Report, indicates that the number of financial advisers in Australia will need to increase significantly. From the present count of 15,500 advisers, the industry is expected to require more than 50,000 over the next thirty years to cater to a growing retiree population. - read more

Click for more Finance News