Australians are almost $2000 worse off as the country has failed to materialise the expected productivity improvement, the Business Council (BCA) said, warning that the consequences could become larger over time.
The council said Treasury’s latest Intergenerational Report should be a burning platform for comprehensive economic reform, with Aussies already paying the price for weak productivity through lower living standards.
BCA analysis shows real GDP per person is almost $2000 lower today than the path anticipated at the time of the 2023 Intergenerational Report, because the expected productivity improvement has failed to materialise.
“This is not a problem that starts 40 years from now – Australians are already paying the price for our failure to lift productivity through lower living standards,” said BCA CEO Bran Black.
The consequences could become larger over time with each person having $20,700 less income in 2065–66 if long-term productivity grows in line with recent outcomes of 0.8 per cent, the organisation warned.
Black said the most concerning feature of the report was that Treasury assumes productivity ultimately returns to 1.2 per cent growth, while BCA analysis released last week found labour productivity has gone backwards by an average of 0.1 per cent a year over the past six years.
According to the council, simply matching the 2010s – previously the worst decade for productivity growth in the modern data – would require productivity to grow by 3 per cent a year for the next four years, a rate Australia has not sustained since around the turn of the century.
The report cites AI as a major driver for strong productivity growth. While the opportunities are there, the BCA stressed that benefits depended on businesses being able to invest in and adopt the technology at scale.
“If AI is going to help deliver the productivity growth Treasury is relying on, businesses need the confidence and the conditions to invest in it, adopt it and put it to work across the economy.
“We should be aiming to make Australia one of the best places in the world to invest in and use AI, because if we get the settings wrong, the investment, technology and productivity gains will go elsewhere,” Black said.
Growing pressures
According to CPA Australia, the report highlights the growing pressures facing Australia’s economy and reinforces the need for productivity, investment and tax reform.
“The report paints a useful picture of the challenges ahead, but a report is not a plan,” said CPA Australia CEO Chris Freeland. “Australia has benefited enormously from decades of economic reform. The question now is: What comes next?”
CPA said greater transparency was needed around the assumptions underpinning the report and the potential impact of alternative economic scenarios.
“Getting the economy back on track requires a laser-like focus on productivity-enhancing reform. That means reducing unnecessary red tape, creating a more business-friendly environment and a tax system to support investment and growth,” Freeland said.
“Australia needs policies that encourage business investment, innovation and entrepreneurship. Stronger private sector activity and higher productivity are essential to improving living standards and securing our long-term economic future,” he added.
