On Tuesday, August 12th, Stephen Walters, Chief Economist at Optimal Economics, and Peter Achterstraat AM FAICD (Life), NSW Productivity and Equality Commissioner, shared their insights on Australia’s Productivity Crisis at our in-person event in Sydney’s CBD.
These are some of the key takeaways:
The state of productivity
- Australia is experiencing its worst national productivity performance in 60 years.
- Productivity is about combining factors of production efficiently to get more output per input, growing the economic pie for everyone.
- While US productivity is growing at approximately 2.5% annually, Australia’s has been flat.
- Business investment as a share of GDP is at 30-year lows, and productivity in construction has slumped by 30%.
Why it matters
- According to Dr Ken Henry, each Australian is $500,000 worse off over their lifetime due to poor productivity growth, around $20,000 a year.
- From 1901 to 2010, productivity gains were steady at 2–3% annually; since 2010, they’ve slowed to less than 1% and recently turned negative.
Key challenges
- The non-market sector (healthcare, aged care, NDIS) faces limits on productivity gains due to its human-to-human nature.
- Australian consumers are 4th fastest in the world to adopt technology but our businesses rank 51st.
Potential solutions
- Reform tax policy (including GST and corporate tax), invest in IT, innovation, and R&D, strengthen competition policy, and reduce red tape.
- Increase economic dynamism, more job changes, mobility between states and construction sector reform.
- Focus on 24 productivity levers, including technological diffusion, skilling, infrastructure, mental health, workforce participation, migration and planning reform.
Policy focus
- The Commonwealth Productivity Commission is prioritising five pillars: a dynamic economy, a skilled workforce, a digital economy, the care economy, and energy.
- NSW has built just 6 houses per thousand people over the last 30 years, compared to 8 in Victoria and 9.5 in Queensland, housing supply is a key concern.
Australia’s productivity crisis is a significant economic challenge with wide-reaching impacts on living standards and economic growth. The issue stems from a combination of low investment, slow technology adoption and structural challenges in key sectors like construction and care. Addressing this crisis requires coordinated reforms across taxation, innovation, workforce skills and infrastructure. If successfully tackled, productivity improvements can lead to higher incomes, stronger businesses and a more dynamic economy.
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