Tight labour laws and excessive government regulation have stifled productivity in this country. But the massive growth of the financial sector is likely a factor too.
Underpinned by valuable implicit guarantees that give banks artificially cheap access to loans, banks’ size rose to unprecedented heights, drenching the economy with loans in the process. The total value of loans in Australia, about $2.1 trillion, as a fraction of national income has risen from around 80 per cent fifteen years ago to above 140 per cent today.
Government subsidies helped too. The Productivity Commission shows the finance sector receives more federal government budgetary aid than the car industry: $615 million last year.
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