Productivity is down and it's hurting the economy and your salary. Here's how treasurer Jim Chalmers plans to try and fix that
The Productivity Commission estimates that if Australia had been able to maintain a 2.2% growth rate between 1995 and 2023, then the average workers' income would be $25,000 higher today. Illustration: Victoria Hart/Guardian Design
A historic victory has delivered the Albanese government a mandate to shape the country and the economy based on Labor values.
Simplistically, if the first term was all about investing in important areas such as aged care, health and childcare – while cushioning the hit to households from the surge in cost of living – the second term will be about setting up Australia's economy for a clean and green future.
Putting aside the ongoing efforts towards the net zero transition, Jim Chalmers has made clear a major focus over the coming three (maybe six?) years will be on one thing: productivity.
The treasurer on Sunday delighted economists when he told the ABC: The best way to think about the difference between our first term and the second term … [is the] first term was primarily inflation without forgetting productivity, the second term will be primarily productivity without forgetting inflation.
But what do we mean by productivity?
Do they want me to work even harder? And should we care? And what can we do about it, anyway?
What is productivity?
Let's start with what it's not.
It's not working harder, or longer hours. If you work more, the increased output is not a productivity gain.
That's important, because when most people hear the word productivity they think of their boss wanting them to take on more duties for the same pay.
That's not the case. It's about getting more out of the hours you work.
Let's say you are a doctor who has just started using artificial intelligence to cut the time you need to spend on paperwork. Now, instead of seeing six patients an hour, you can see eight.
Is the doctor working harder? No. Are they getting more out of their time? Yes.
It's a productivity gain!
From this example we can see that adopting new technology and discovering new and better ways to do things is at the heart of productivity growth.
It's about working smarter, not harder.
OK, so how is productivity travelling?
Very poorly, I'm afraid.
Productivity in the 1990s grew by 2.2% a year. That slowed to 1.4% in the 2000s and 1.1% in the 2010s.
Those numbers may sound like marginal falls. But the ramifications are huge.
The Productivity Commission (PC) estimates that if we had been able to maintain that 2.2% growth rate between 1995 and 2023, then the average workers' income would be $25,000 higher today.
And that's after adjusting for inflation.
In the words of the commission: In the long run, growth in real wages is driven almost entirely by labour productivity growth.
Recent productivity performance is even worse, and hardly higher than a decade ago.
No wonder we have experienced stagnant real wage growth through a number of years leading up to the pandemic.
This is why we talk about productivity in the same breath as we talk about living standards, or about prosperity.
So what can we do about it?
There are many things we can do to lift our productivity performance, but to quote the commission again, there's no silver bullet.
The low-hanging fruit of major reforms were mostly all plucked during the 1980s, 90s and early 2000s.
The reform options today may not be as dramatic, but that doesn't mean they aren't worth doing.
After all, we have already seen that a relatively small lift in productivity growth over time adds up to a meaningful boost to our living standards.
In a speech late last year, Chalmers said there is no more important structural problem in our economy than productivity.
There is no higher priority for reform and no more important ingredient in the higher living standards we all seek, he continued.
What are we doing about our paltry productivity?
Labor hasn't been sitting on its heels, although things it calls reform (even welcome things like lowering income tax rates) are often not worthy of the title.
The Albanese government in its first term eliminated nearly 500 nuisance tariffs that gum up our trade channels. It overhauled merger rules to make it easier for smaller takeovers to proceed, and invested in vocational training through measures such as fee-free Tafe.
There's a $900m national productivity fund to be shared with the states as reward for putting in place the type of reforms that can only be done at the state level, such as streamlining commercial planning and zoning.
The March budget included plans for a national licensing scheme for electricians, in a first step towards a wider agreement that frees tradies and other skilled workers to ply their trades around the country without the need for a different licence in each jurisdiction.
A plan to get rid of non-compete clauses will stop employers from trying to strong-arm their employees from moving to a competitor, or starting their own businesses.
What are some possible other ideas?
There's a strong consensus among economists that the states and territories should get rid of stamp duty – a tax on buying a home – and replace it with a land tax.
Some states are trying this, but it is difficult to achieve and leaves them vulnerable to a big, short term drop in tax revenue as they transition from one to the other.
Indeed, when economists bemoan our political leaders' inability to deliver major reforms, they are often talking about a major tax overhaul. The experts argue that we tax income too much, and wealth too little.
The commission in July and August will release a draft report on a dozen or so practical and implementable ideas spread across five key pillars.
Together, these should give the Albanese government a comprehensive roadmap for reform, even if not every idea is taken up.
Embedding AI in our day-to-day work lives is the big hope for a tech-driven productivity boost over the coming years.
https://www.theguardian.com/australia-news/2025/may/11/labor-wants-to-boost-productivity-does-this-mean-australians-need-to-work-even-harder
