Economics

Why Australia Struggles With Productivity?

Australia’s productivity growth has stagnated, matching levels not seen since the early 1960s. Factors include low business investment, a shift towards less productive services, housing bottlenecks, an aging population, and skill mismatches. Major parties propose various reforms, but addressing this challenge will require sustained long-term efforts and coordination.

Published

11 months ago

June 9, 2025

Productivity. It’s one of those economic terms that rarely grabs headlines, but it’s quietly fundamental to wages, national income, and the cost of living. And right now, Australia’s productivity growth is at a level we haven’t seen since the early 1960s. In this video, we’re going to break down what’s happening, what’s driving the slowdown, and what each of the major parties says they’d do about it.

What is Productivity?

Let’s start with definitions. Productivity — in this context — refers to labour productivity: the amount of output an economy generates per hour worked. If that number rises, it means workers are producing more, often due to better tools, smarter processes, or innovation. When it stagnates, wage growth stalls, living standards flatten, and economic capacity is constrained.

In other words: productivity isn’t about working harder. It’s about working more efficiently.

The Current Problem

Right now, productivity growth in Australia has effectively ground to a halt. According to the Reserve Bank, labour productivity actually declined in 2023–24. The Productivity Commission adds that we’ve now seen a full decade of below-average growth, with long-term trends clearly pointing downwards.

The last time productivity was this low was in the early 1960s — during black-and-white

TV, and before decimal currency.

What’s Causing It?

There’s no single cause behind this. Economists point to several overlapping and structural factors.

First, business investment in capital — things like machinery, software, and infrastructure — has been low since the mining boom ended. This means workers aren’t benefiting from the latest tools or technologies that would help them do more with less.

Second, Australia’s economy has continued shifting toward services — including health, education, and aged care — where productivity improvements are harder to capture. It’s easier to double output in a factory than in a hospital ward.

Third, poor planning and slow housing construction have created economic bottlenecks, particularly in major cities. Housing shortages and rising rents can limit workforce mobility and urban productivity.

Fourth, Australia’s population is ageing. This means fewer people in the labour force relative to those retired, which drags on per-worker output.

Finally, there’s an emerging mismatch between the skills workers have and the skills employers need. While migration adds to population, not all migration adds proportionally to productivity.

The implications of low productivity growth are wide-reaching. For most workers, it means slower real wage growth, even if headline wages are rising. For businesses, it means higher input costs and shrinking profit margins. And for the government, it limits the budget’s ability to fund health, infrastructure, and social services without increasing debt or taxes.

What Do the Parties Propose?

So what are the main political parties saying about it? Each has acknowledged the problem, but their responses vary in focus and strategy.

Logos of Australian political parties: The Greens, Labor, Liberal-Nationals, and One Nation displayed on colorful backgrounds.

Labor Party – Government in Power

The Albanese Government points to its housing accord, energy transition, and skills programs as productivity-boosting reforms. It’s promised to build 1.2 million new homes over five years in partnership with the states. It’s also investing in TAFE and apprenticeships, aiming to increase the skilled workforce.

Labor also argues that reforms to industrial relations — like limits on casualisation — can lead to more stable and productive employment.

They highlight the National Reconstruction Fund as a way to back strategic manufacturing and innovation.

Coalition – Opposition

The Liberal-National Coalition has criticised Labor’s industrial relations changes, arguing they increase costs and reduce business flexibility. They also argue Labor’s housing policy is too slow to deliver real outcomes.

Instead, the Coalition promotes deregulation, tax reform, and lower energy prices as ways to stimulate private sector investment. They’ve floated ideas like company tax cuts for small-to-medium enterprises and removing barriers to capital inflows.

They also stress reducing public sector expansion, saying government inefficiency is a productivity drag.

The Greens – Crossbench

The Greens approach the issue from a different angle. They argue that productivity discussions need to include environmental sustainability and wellbeing.

They support large-scale investment in renewables, public housing, and universal services — like dental and child care — as ways to both raise social productivity and reduce long-term costs.

While they don’t focus heavily on traditional productivity metrics, their policy settings aim to shift investment toward what they call ‘future-proof sectors’.

Broader Ideas Being Debated

Beyond party lines, economists and business groups have floated several reforms to improve productivity. These include speeding up housing approvals, boosting digital infrastructure, revamping education curricula, and rethinking how we evaluate public sector efficiency.

The Productivity Commission has also recommended a deeper review of competition laws, arguing that market concentration in sectors like supermarkets, energy, and banking may be limiting innovation and productivity.

What Comes Next?

Whether it’s automation, better planning, or structural reforms, the key takeaway is this: productivity doesn’t improve overnight. It requires long-term commitment, stable policy settings, and coordination between business, government, and workers.”

“Whichever party forms government, Australia’s productivity slowdown will remain a key challenge to address in the years ahead.

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