Productivity stakes couldn’t be higher at roundtable

At the National Press Club last week, Treasurer Jim Chalmers promised that productivity would be the primary focus in the Albanese government’s second term. That cannot come soon enough.

The government’s first term saw Australia enter a worrying ‘per capita recession’, with seven consecutive quarters of declining GDP per person. Reinforcing this concern, in the recent March quarter, GDP per capita growth again turned negative.

This is not just a statistical curiosity — it represents real declines in people’s living standards.

Underlying this malaise is stagnant labour productivity. Despite high levels of immigration and government spending, the economy has not been firing on all cylinders.

Rather than raising our productive capacity, we have seen ‘capital shallowing’ — a diluting of productive capital per worker, largely due to population growth outpacing business investment.

This is not just about numbers. Productivity is the foundation of sustained wage growth, improved public services, and a higher standard of living.

Without it, economic policy becomes a zero-sum game of redistribution, not wealth creation.

So it is welcome that Dr Chalmers is talking up productivity — but talk must be matched by sound policy.

The story of the government’s first term is discouraging. Nearly half the additional jobs created during the term were in sectors highly reliant on government spending — health care, education, social assistance such as the NDIS, and public administration.

While these roles are important, they are typically lower-productivity-growth areas.

Indeed, the health and social assistance sector, although vital, is not where we expect the next wave of productivity gains.

What Australia needs is a thriving private sector that can generate innovation, investment, and higher output per worker. Yet, the government’s main policy settings will not achieve this.

Take industrial policy. Canberra has declared an ambition to transform Australia into a green energy superpower and rebuild domestic manufacturing.

These are lofty goals, but they have been pursued through old-school, top-down interventionism — think taxpayer-funded assistance to Whyalla’s steelworks, rather than addressing the underlying problem of high energy costs caused by bad policies, and targeted support to select ‘priority’ sectors.

The results so far are underwhelming. Manufacturing employment has barely budged.

Worse, these efforts ignore one of the basic lessons of economics: letting markets allocate resources typically delivers better outcomes than government picking winners.

When we direct billions in subsidies to politically favoured industries, we risk wasting taxpayer money while crowding out more productive investments.

Also troubling are the government’s industrial relations reforms. Rather than supporting productivity, these policies have made our labour market more rigid and less adaptive.

Changes to gig work, casual employment, and labour hire arrangements have been overly prescriptive, undermining the flexibility businesses need to operate efficiently.

These reforms, championed under the banner of ‘fairness’, may score political points, but they deter job creation and innovation.

By adding layers of compliance and reducing options for workers and employers to agree on mutually beneficial terms, the government is actively undermining its own productivity agenda.

So what should Canberra do instead? First, stop making things worse.

It must resist the urge to expand government-subsidised services further or extend its interventionist policies in energy, IR, and industry.

It needs to get the NDIS under control, but it appears to lack the urgency or willingness to do so. In his Press Club address, the Treasurer celebrated that the government is on track to meet its 8% annual NDIS growth target. But this is still much faster than nominal GDP growth of 4-5% and means the NDIS will keep expanding as a share of the budget and economy, compromising productivity growth.

Second, it should look to reduce the tax burden where possible. That means curbing excessive spending and using savings to support meaningful tax reform and cuts.

Indexing tax brackets to stop bracket creep would be a start. In an inflationary environment, failure to index tax thresholds means more Australians are pushed into higher tax brackets without any real increase in purchasing power.

This is a hidden tax increase and a disincentive to work and invest.

Third, we must improve our education and training systems. Productivity growth depends on human capital, and we are not doing nearly enough to build it.

Early screening for numeracy issues, better teacher training, and more rigorous curricula can help raise the overall quality of our workforce.

Finally, it’s time to tackle the regulatory thicket that chokes business efficiency.

Many regulations may have had good intentions initially but now impose costs that far outweigh any benefits.

A full-scale review and rationalisation of Australia’s regulatory environment is overdue. Reducing red tape would free businesses to grow, innovate and hire.

Australia has immense economic potential. We are resource-rich, educated, and globally connected. But we cannot coast on these advantages.

If the Albanese government is serious about lifting productivity, it must make tough, perhaps unpopular, choices — abandoning policies that play well with vested interests but drag down growth.

The stakes could not be higher: Australia’s long-term prosperity depends on it.

Gene Tunny is an Adjunct Fellow at the Centre for Independent Studies, and the founder of Adept Economics.

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