A renewed push from the Albanese government is placing productivity at the heart of Australia’s economic strategy. But contrary to common fears, the goal isn’t to make Australians work harder — it’s to help them work more efficiently.
Treasurer Jim Chalmers has signalled a shift in focus as Labor enters its second term. While the first term was centred around tackling inflation and easing household pressures, the coming years are set to prioritise long-term economic reform, with productivity at the core.
Productivity is a key factor in determining living standards and wage growth. The Productivity Commission notes that real wage increases are driven almost entirely by gains in productivity. Yet Australia’s recent performance has been poor, raising concerns about stagnating incomes and a slowing economy.
Declining Productivity Growth Is Hurting Wage Gains
Australia’s productivity growth has fallen significantly over the past three decades. According to the Productivity Commission, the annual rate dropped from 2.2% in the 1990s to 1.4% in the 2000s and 1.1% in the 2010s.
Although these figures may seem marginal, they have long-term implications. Had the 2.2% rate been sustained from 1995 to 2023, the average worker’s income today would be $25,000 higher, even after accounting for inflation.
This decline is closely tied to the stagnation in real wage growth observed in the years preceding the pandemic. Economists often link productivity to national prosperity, as it enables better output without increasing working hours. “In the long run, growth in real wages is driven almost entirely by labour productivity growth,” the Commission stated.
Despite common misconceptions, productivity is not about working harder. Rather, it’s about working smarter — for example, using artificial intelligence to automate administrative tasks so that professionals, like doctors, can focus on core duties and increase efficiency.
Government Strategy Focuses on Structural Reform and Technology
The federal government has begun to lay the groundwork for boosting productivity through a mix of targeted reforms. In its first term, the Albanese government eliminated nearly 500 minor tariffs, simplified merger regulations, and expanded vocational training, including fee-free TAFE.
A further initiative includes a $900 million national productivity fund, designed to incentivise states to implement their own reforms, such as improving planning and zoning systems. The March budget introduced a national licensing scheme for electricians, the first step towards harmonising certification across trades to boost labour mobility.
Other proposals include removing non-compete clauses in employment contracts, which currently restrict worker movement and business creation. In addition, economists have long advocated replacing stamp duty with a land tax, though such a shift presents political and fiscal challenges.
Jim Chalmers described productivity as the most important “structural problem in our economy”, reinforcing the government’s ambition to improve living standards not by adding hours, but by enabling Australians to get more out of each one.
