Australian workers have lost about $500,000 of potential pay rises over the past 25 years because of the economy’s abysmal productivity performance and policy paralysis, former Treasury boss Ken Henry has warned.

A failure to reform the tax system, broken environmental laws and undisciplined government spending that is breaching the legislated Charter of Budget Honesty is partly responsible for the collapse in productivity and shortfall in real incomes, Henry told the National Press Club in Canberra on Wednesday.