christopher kent : australian economic growth – the how, what and where address by mr christopher kent, assistant governor ( economic ) of the reserve bank of australia, to the national rsl clubs conference, hobart, 11 march 2015. * * * i thank kathryn davis, david jacobs and james wang for excellent assistance in preparing these remarks. accompanying graphs and the table can be found at the end of the speech. introduction i ’ d like to thank the board and members of the rsl & services clubs association for their invitation to speak here. i want to consider three closely related questions i am often asked : 1. how can the australian economy become more productive? 2. what will help generate additional growth ( in demand ) needed to boost employment? 3. where is that growth going to come from? in particular, which industries will have the profitable opportunities that will lead to more employment and drive investment? it is hardly surprising that australians are interested in these questions given the rise in the unemployment rate and sub - trend growth of the economy over the past couple of years. how to be more productive? from the middle of the previous decade, australia enjoyed a sharp run - up in the prices of our key commodity exports. this led to an unprecedented boom in mining investment. the benefits were spread beyond the narrow confines of the mining industry in numerous ways, with strong growth in employment and wages across a range of industries around the country. 1 but now that commodity prices and mining investment have turned down, it is natural to ask : how are we going to sustain and build on our standard of living over the longer term? this boils down to two essential elements. we can work more ( i. e. raise our labour force participation ). we can also work more efficiently. in other words, we can boost our ( labour ) productivity, which is the source of sustainable gains in wages and profits ( in the absence of a resurgence in commodity prices ). 2 i ’ ve spoken elsewhere about participation, so let me focus here on productivity. 3 there are a number of sources of growth in labour productivity ( i. e. output per hour worked ) : • technological progress, which supports new business processes and new production techniques as well as more efficient use of productive resources. in other words, an expansion of the technological, or productive frontier see, for example, bishop j and v rayner ( 2013 ), “ industry dimensions of the resource boom : “ an inputoutput analysis ”, rba research discussion

conditions for further assistance. i will be brief but positive about my second point : the need for changes in the framework. last sunday, ecb president draghi stated that mutual consensus about the need to transfer some fiscal sovereignty to the european level is growing. so we can look forward to the outcome of his report on the future of the eu framework, which will be presented and discussed at the next eu council meeting in mid - december. finally, the public debate in europe recently focused on the topic of a “ banking union ”, i. e. a single european supervisory mechanism. a banking union can very well be a major step towards breaking the link between banks and sovereigns – but by harnessing the disciplinary forces of the market, not by doing away with them. bis central bankers ’ speeches in order to minimise the risk that bank rescues pose to government finances, creditors have to be the first in line when it comes to bearing banks ’ losses. taxpayers ’ money can only be the last resort. with regard to spillovers from sovereigns to banks, sovereign - bonds need to be adequately risk - weighted to strengthen market signals and improve resilience in case of market turmoil. in addition, there should be caps on banks ’ maximum exposure to individual sovereign creditors, as is already the case with private creditors. in summary, i wish to remind you that we need both short - term crisis management as well as long - term structural adjustments and reforms, as structural problems and “ macroeconomic imbalances ” did not appear overnight. similarly, reforms will not achieve their desired effects all at once, but the time bought by short - term crisis management measures must be used wisely. remarks on german gold reserves please let me also comment on the bizarre public discussion we are currently facing in germany on the safety of our gold deposits outside germany – a discussion which is driven by irrational fears. in this context, i wish to warn against voluntarily adding fuel to the general sense of uncertainty among the german public in times like these by conducting a “ phantom debate ” on the safety of our gold reserves. the arguments raised are not really convincing. and i am glad that this is common sense for most germans. following the statement by the president of the federal court of auditors in germany, the discussion is now likely to come to an end – and it should do so before it causes harm to the excellent relationship between the bundesbank and the us fed. let ’ s get back to facts and figures : i