Treasurer flags Productivity Commission shake-up ahead of report

The Treasurer wants to modernise how the nation’s productivity is recorded, as new report shows it is at the lowest rate in decades.

The federal Treasurer has flagged a shake-up of the way the nation’s productivity is calculated, ahead of a report showing Australia’s productivity growth has fallen to its lowest level in 60 years.

Jim Chalmers will on Friday release the latest Productivity Commission five-year report showing productivity growth has averaged just 1.1 per cent a year.

In a speech to the Committee for Economic Development of Australia (CEDA) in Brisbane on Thursday he said the report showed “Australia has a productivity problem”, blaming the coalition government for a “wasted decade.”

“We all want to turn the headwinds described in this report into tailwinds in our economy,” Dr Chalmers said.

“We all want better living standards. We all recognise the central role of productivity growth in that endeavour and in that effort.

“How we go about it is contested, as it should be, when so much is at stake.”

Improvements to the nation’s productivity could see “sustainable wage increases”, according to the Treasurer. Picture: Dan Peled / NCA NewsWire

Productivity is a measure of how the goods and services produced by Australia increase over time and can be affected by technological improvements, workforce skills, management practices and changes to capital.

Boosts in productivity growth are seen as the driver of long-term improvements in living standards, according to the Productivity Commission.

The trend has seen Australia slip 10 places in productivity ratings, falling from sixth to 60th in the OECD from 1970 to 2020, now sitting at 22 per cent lower than the United States, according to Dr Chalmers.

But in his speech, Dr Chalmers touched on the need to “renovate economic institutions,” such as the Productivity Commission, which are established then treated as “set and forget.”

“Its structure and remit hasn’t changed in 25 years, but our productivity issue has,” said Dr Chalmers.

“We also need to think differently about productivity in our economy … we’ve got all these advances in technology which don’t seem to be captured … and this is one of the reasons I want to renovate our economic institutions, including the Productivity Commission.

“If we can empower the PC to think about the data we have differently … then maybe we can recognise some of the great work done by the care economy.”

The report shows the care economy has averaged zero productivity growth since 2000, and “will naturally expand and drag on productivity as our population ages”, Dr Chalmers said.

“In the medium and longer term, our success will be determined by whether or not we can lift living standards – and that will be determined, in turn, by whether we can put the woeful productivity performance we saw during the wasted decade behind us.”

“If we’d kept up with the 60-year average for productivity growth, national income would have been around $4,600 higher in 2020,” Dr Chalmers said. Picture: Dan Peled / NCA NewsWire

If productivity remains at its current levels, the report projects that future incomes will be “40 per cent lower and the working week 5 per cent longer.”

But Dr Chalmers said the issues Australia needed to tackle in order to boost productivity were “complex” and won’t respond to “whack-a-mole policy making”.

The move toward net zero emissions by 2050 was also flagged in the report, with the transition to require billions in investment.

“This will help us avoid some of the worst impacts of climate change by creating new sources of growth that will lift our productivity performance over time,” Dr Chalmers said.

The Treasurer also hinted at what was to come in the May budget, saying that restraint and cost of living relief where we can afford it will be the guiding principles behind decision-making.

“This won’t be easy or quick, but together, we can begin to methodically turn it around,” he said.

Dr Chalmers will release the 1000-page report, consisting of nine volumes, in full on Friday. He has flagged that the government won’t follow through on the 71 recommendations.