Political will needed to improve productivity, says Ai Group

One employer association has stressed the need for policymakers to demonstrate the will to “turn things around” amid deteriorating national productivity.

Australian Industry Group (Ai Group) chief executive Innes Willox (pictured) said productivity weakness is reflected through the country’s unsustainable wage growth, cost-of-living pressures, stretched public budgets and weakened industrial competitiveness.

“Productivity growth averaged 1.2 per cent a year in the decade before the pandemic, but since 2020, it has limped along at just 0.2 per cent. That is not a blip – it is a structural decline that touches every part of the economy, from construction and manufacturing to healthcare and education,” Willox said.

“Both the Reserve Bank of Australia and Treasury have already downgraded their long-run productivity assumptions and economic forecasts as a result.”

Regulatory burden: A corrosive force

Willox said that since the causes are multiple, the solutions must be too, calling regulatory burden one of the most corrosive forces.

“In the care economy, construction sector and across our supply chains, fragmented and overlapping rules are consuming resources that could otherwise drive innovation, workforce development and service quality,” he said.

Willox noted that the nation’s effective company tax rate is the second highest in the Organisation for Economic Co-operation and Development (OECD), deterring the foreign investment needed in clean energy, advanced manufacturing, and technology.

“Stevedores have increasingly pivoted their profit models away from competitive shipping-line business towards captive landside charges on trucking operators – with terminal access charges far outpacing actual capital investment,” Willox said.

“Operating profits have reached record highs, not because of improved productivity, but because of unchecked market power.”

Empowering workplaces

Willox said that although recent legislative changes have focused on delivering secure and better-paid jobs, they have largely ignored the sustainability of these outcomes.

“Productivity cannot be legislated into existence – it has to be earned through workplaces that are empowered to innovate, bargain genuinely and reward performance,” Willox added.

“None of this is insurmountable. Australia has lifted productivity before, and the policy levers are well understood.”

Recommendations

The Australian Industry Group’s select committee on productivity recommended that the government enhance ABS resourcing and methodology for better outputs, prioritise productivity in the non-market sector, reform regulatory frameworks, streamline care economy regulation, and improve national consistency in the National Construction Code.

Further, the committee recommended that the government create a seamless single national market, strengthen the adoption of international technical standards, clarify ESG supply chain compliance expectations, and enhance transparency and predictability for foreign investment.

Finally, the committee recommended the expansion of the Australian Business Growth Fund through redirection of National Reconstruction Fund capital, the establishment of a National Technology Uplift Network, and the encouragement of business investment into AI.

“We need the political will to pull these levers and improve productivity, which then means higher living standards and wages for every Australian,” Willox said.