In a recent interview, Federal Treasurer Jim Chalmers declared the government’s priority in its second term will be to improve productivity in Australia.
The government hopes that by addressing productivity, it can address stagnant real wage growth and falling living standards.
So, what is productivity, and why is it an increasing problem?
What is productivity?
Contrary to what many believe, productivity is not about working longer hours for the same pay. Rather, it is about improving efficiency and embracing innovation to get more out of the hours you work.
A good way of thinking about it is working smarter, not harder.
Technology plays a crucial role in improving productivity. It can reduce the manual labour involved in completing tasks, helping to improve efficiency.
For example, a doctor may use artificial intelligence to help them fill out paperwork. This may allow them to see eight patients an hour rather than six.
What is the issue?
Since the Industrial Revolution, productivity has been a driver of real wage growth and improved living standards.
However, despite rapid advancements in technology, productivity has fallen across most advanced economies.
In the 1990s, productivity grew by an average of 2.2 per cent a year. In the 2000s, it averaged 1.4 per cent. In the 2010s, it fell to 1.1 per cent. While this change may not be seen to have much impact, it can have a significant impact on living standards.
Economists have warned that Australia’s living standards will continue to flatline unless productivity improves. Additionally, they say unless productivity improves there will be a limit on how fast the Australian economy can grow.
Some have attributed the reduction in productivity to the growth of the care economy. However, others say the country has been too slow to adapt to new and emerging technologies.
What has the government done so far?
In December last year, the treasurer asked the Productivity Commission to identify priority reforms in five key areas and come up with actionable reforms.
The five key areas identified were
• Create a more dynamic and resilient economy
• Building a skilled and adaptable workforce
• Harnessing data and digital technology
• Delivering quality care more efficiently
• Investing in cheaper, cleaner energy and the net-zero transformation.
The Productivity Commission is currently reviewing public submissions to help inform future government policy. The government will receive the commission’s full report in the second half of this year. However, the treasurer has ruled out accepting every policy put forward by the commission.
He warned that addressing productivity would be no overnight fix.
“It will take more than a couple of terms to turn around a problem that’s a couple of decades in the making,” he told the Financial Review.
“It will take longer to make progress on productivity than has taken us to make progress on inflation.
“There’s less of a sense of instant policy gratification in productivity. It’s going to take years, not quarters. If there was one switch to flick to quickly turn things around, someone would have flicked it already.”
While fixing falling productivity is no simple task, it is essential to maintain our nation’s living standards.
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Article References
Coorey, P & Read, M (9 May 2025) ‘‘I’ll need more than two terms to fix the economy’: Chalmers’, Financial Review, accessed 12 May 2025.
Commins, P (11 May 2025) ‘Labor wants to boost productivity. Does this mean Australians need to work even harder?’, The Guardian, accessed 12 May 2025.
Green, R (7 May 2025) ‘Labor says its second term will be about productivity reform. These ideas could help shift the dial’, The Conversation, accessed 12 May 2025.