When the Government announced it would hold an Economic Reform Roundtable it featured productivity as the leading priority. The Chair of the Productivity Commission, Danielle Wood, lead the initial discussion at the conference. What is productivity and why is it important?

Productivity is the output generated from the input of capital (investment) and labour. When productivity increases, that means more output per worker so incomes and living standards can rise. When productivity declines, that means less output per worker so incomes and living standards decline.

Output per hour worked increased by 2.2 per cent per annum from 1991 to 2004. It grew 1.1 per cent per annum from 2004 to 2017. It rose until 2019 but was understandably knocked down by Covid from 2020 to 2022. It has not recovered, and the last three years have seen almost no improvement.

That’s a big concern. It’s why we have the ‘cost-of-living crisis’. We have had a ‘per capita recession’ since 2022. The Productivity Commission says if output per hour worked can grow at its historic average of around 1.5 per cent per annum the typical worker will earn $14,000 more per annum by 2035.

Productivity growth has slowed since 2004 and stopped since 2022 for several reasons. There has been almost no economic reform by governments, like the introduction of the GST.

The labour market has become less flexible because unions have been given more power. We now have much higher energy costs.  There haven’t been enough houses built to house everyone. The proportion of total output paid in taxes has recently risen from a long steady 24 to 25 per cent, to over 27 per cent.

Recent years have seen big increases in government employee numbers, both Federal and state. The public sector is less productive than the private. There has been a huge increase in the care economy, particularly the NDIS, requiring a lot of labour but producing little extra output.

We are suffering from over-regulation. Approvals to do anything take far too long. Compliance with a myriad of rules is a major cost for most businesses. Staff must be selected on equality and inclusivity grounds, rather than ability.

What can be done to boost productivity? The list of problems suggests solutions. Cut the tax take back below 25 per cent of output, reduce the cost of energy, remove minor regulations, allow more labour market flexibility. Spending more on infrastructure is also important to lift productivity. 

Unfortunately, the Economic Reform Roundtable appears unlikely to result in these serious, productivity-boosting changes.