Download: Productivity Report – ‘5 Year Productivity Inquiry: The Key to Prosperity’

Forces shaping Australia’s productivity challenge

Australian productivity growth is at its lowest rate in 60 years. This broad-based slowdown has been observed across advanced economies.

• Australia’s productivity performance in the goods sector, including mining and agriculture, is consistently strong when compared to global peers. Australia’s services — which employs almost 90 per cent of Australian workers and accounts for about 80 per cent of economic activity — are comparatively less productive.
• Australia has slipped down the productivity rankings recently and has instead maintained its rich country status largely through increasing the share of people in the workforce.

The Australian economy faces challenges bouncing back from its recent poor productivity performance. These include:

• Continuing increase in the size of the services sector, where productivity growth has historically been more difficult to achieve than in the traditional goods sectors (e.g. mining, manufacturing and agriculture).
• A fast growing, government funded and regulated, non-market services sector (e.g. aged care, schools, childcare and disability services), where a lack of competition and contestability can mask underperformance and the freedom to innovate and the sharing of new approaches can be limited.
• Impacts of climate change and the task of decarbonising the Australian economy in line with international commitments.
• Threats to open and flexible international markets for trade, capital and labour — which has benefited Australia enormously in the past — as some countries turn inwards in the face of increasing global tensions.

COVID-19 prompted an acceleration in the uptake of digital technologies across the Australian economy and showed that when governments, businesses and households worked together they could adapt quickly, including to remove long standing productivity bottlenecks.

As the economy evolves in the wake of COVID-19, increased digital capacity could lead to a productivity dividend, particular in the services sector. Taking advantage of the opportunities afforded by digital technology — such as online service delivery, artificial intelligence and data analytics — will require:

• governments and businesses continuing to adopt and adapt innovative business models.
• a suitably skilled workforce (and training infrastructure) adept in non-routine tasks.
• access to data, much of which is collected through businesses reliant on funding or regulation of governments, is not unduly locked down.

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