The last decade saw Australia experience its lowest productivity growth in 60 years, and the Albanese government is concerned it will continue if the country does not adjust to large structural changes in the economy, including the transition to net zero.
The latest intergenerational report – to be released in full by the treasurer on Thursday – shows productivity growth remaining a problem, with Australia no more immune to sluggish growth than other major economies around the world.
Over the 10 years to 2020, average labour productivity growth fell to just 1.1%, compared with 1.8% over the 60 years to 2019-20. A productivity commission inquiry released in February found the same thing, with the report concluding Australia needed “policy settings that foster a flexible and dynamic economy”.
The report calls for “reforms that reduce entry and exit barriers for firms” with the idea that more competition will lead to “greater dynamism” within the economy. That includes encouraging worker mobility “by better matching workers with a broader spectrum of emerging employment opportunities”.
The report pushes for Australia to be at the forefront of innovation, such as cloud computing, machine learning and artificial intelligence, while also seizing the opportunities in the net zero transformation.
“The net zero transformation is creating new markets, disrupting trade patterns, and introducing opportunities to lower electricity costs. Rising temperatures also present a range of challenges to productivity growth, which increases the importance of planning and investing in adaptability and resilience,” an extract from the IGR reads.
“Amidst these structural changes Australia also has opportunities to increase economic diversity and grow the share of higher productivity industries.”
The Albanese government is laying out five “key pillars” of economic growth as a response, which aligns with the IGR’s call for “new frontiers for innovation and investment” and helping people upskill throughout their careers.
Chalmers said the government is “refreshing and renewing our economic institutions” as well as working to expand housing supply and create more sustainable infrastructure pipelines as part of a focus on “economic dynamism and resilience”.
Data and digital technologies and a “skilled and adaptable workforce” remain focuses, along with building the nation’s care economy and government services. The fifth focus is Australia’s transition to renewables, with the aim of “becoming a renewable energy super power”.
“The intergenerational report will make the critical point that the trajectory of productivity growth in the future is not a foregone conclusion, and it will depend on how we respond to the big shifts impacting our economy,” Chalmers said.
“Our approach is all about investing in our people, skills, innovation, technology and cheaper and cleaner energy – not about making people work harder for less.
“By maximising the opportunities of the energy transformation, embracing new technology, by investing in our people and their skills, we can build a more productive and prosperous economy.”
Chalmers said boosting productivity was “vital to boosting wages and living standards” which is why it was taking the message of the latest IGR seriously.
The IGR is released about every five years and is Treasury’s attempts to forecast what the next four decades will look like, with the report informing, but not deciding, government policy.
