Cutting red tape, reducing migration, and abandoning net zero are the solutions to Australia’s productivity crisis, argues IPA Senior Fellow Kevin You.
Australia’s productivity crisis has created the longest period of per capita recession on record. Australians are working harder and longer; yet benefitting less and less from every hour we work. Contrary to what some commentators have mistakenly thought, productivity is not about how long or how hard you work; but how much value is created for every hour you put in. This is usually reflected in how much money you get in return, whether in the form of wages, interest, or profit.
Indeed, the increase in the number of hours worked in Australia has actually had a detrimental impact on labour productivity. This was recognised by the Productivity Commission and reflected in observed data from the Australian Bureau of Statistics (ABS). Revitalising Australia’s sluggish economy by removing barriers to productivity growth requires the courage and political will to tackle the root causes of the problem, namely: red tape, mass migration, and the policy of net zero by 2050.
STAGNANT PRODUCTIVITY
The Institute of Public Affairs (IPA) was among the first to identify Australia’s post-pandemic productivity slump. In the report, Addicted to Migration: Australia’s falling productivity and the cost of relying on migration for economic growth, IPA analysis estimated that labour productivity for the financial year ending 2023 contracted by 3.58 per cent. This was “the most severe productivity decline since at least 1980”. Updated data show the contraction was actually even more severe, at 3.75 per cent over that period.
The following year, the financial year ending 2024, the ABS recorded a productivity growth of precisely zero. On the last day of February 2024, the Productivity Commission’s Annual Productivity Bulletin stated that:
The underlying connection between labour productivity and wages
remains intact, emphasising the importance of improving labour productivity to support a rebound in real wage growth.
This meant Australia’s productivity collapse went hand-in-hand with the reversal in Australians’ economic welfare as individuals. Real household disposable income in the financial year ending 2024 was roughly equivalent to $57,000 per person per annum. The last time per capita disposable income was this low was a decade ago, in 2014. The aggregate number of hours worked over the same period, on the other hand, had increased by 21 per cent.
Gross domestic product (GDP) per capita declined every quarter of the 2024 financial year. By 30 June, the Albanese government had overseen the only period in modern Australian history in which GDP per capita declined over the course of a government term. This has been the result of unprecedented economic and other policy mismanagement.
The Hawke-Keating government oversaw an economic realignment infamously known as the “recession we had to have”. The Rudd-Gillard government was faced with the Global Economic Crisis. The Morrison government, in its last term, went through a global pandemic. Nonetheless, each of these governments still delivered positive economic growth.
ABS data show that Australia’s economic productivity plateaued between late 2021 and early 2022, then quickly collapsed in subsequent periods. In the June quarter of 2024, productivity was comparable to what it was in June 2016, suggesting Australia’s productivity rapidly went backwards by the equivalent of eight years.
What went wrong?
On 26 October 2021, the Morrison government announced its commitment to adopting the target of net zero carbon and carbon equivalent emissions by 2050. Between winning the May 2022 election and June 2024, the Albanese government brought in roughly a million new migrants across Australian borders on a net basis. And the volume of red tape has reached a record high in recent years, disincentivising investment while inhibiting innovation, creativity, and workforce flexibility.
STRANGLED BY RED TAPE
Landmark IPA research released in November 2023, The Growth of Red Tape, applied the ‘RegData’ methodology to measure the volume of regulatory restrictions in Australian law. RegData is a statistical approach developed in collaboration with researchers at the Mercatus Center at the George Mason University in Virginia to quantify the extent of legislative and regulatory interventions within a given jurisdiction. The research found:
- The volume of regulatory restrictions in federal law, in 2023, was at its highest level in recorded history, with more than 371,000 regulatory restrictions.
- The number of regulatory restrictions in federal law had increased by 88 per cent since 2005; and 18 per cent since 2014, the last period in which a federal government, under Tony Abbott, made a concerted effort to cut red tape.
- Red tape is now demonstrably undemocratic because laws are increasingly made by the executive arm of government rather than elected legislatures. Executive-made laws have accounted for roughly 97 per cent of new regulatory restrictions since 2005.
The Closing Loopholes Act 2023 (Cth) and Closing Loopholes No.2 Act 2024 (Cth) are prime examples of the additional—in this case industrial—red tape imposed on the Australian economy which has had and will continue to have the effect of inhibiting productivity growth.
The legislation undermines the longstanding principle of freedom of contract and creates workplace uncertainty by empowering the unelected Fair Work Commission, an arm of the executive government, to rewrite workplace contracts. It restricts workplace flexibility, which is instrumental in driving productivity growth. And it widens the gap between the powers of big businesses, which can afford expensive human resource departments and employment lawyers, and mum-and-dad operators who now conduct their businesses in an increasingly precarious legal environment.
Environmental red tape is another key impediment to productivity growth and economic prosperity. At the state level, the Great Barrier Reef Protection Measures and Other Legislation Amendment Act 2019 (Qld) and the Vegetation Management and Other Legislation Amendment Act 2018 (Qld) continue to wreak havoc on Queensland’s agricultural sector. The Western Australian Aboriginal Cultural Heritage Act 2021 (WA) threatened to do the same. Thanks only to the relentless advocacy of grassroots organisations, such as the Pastoralists and Graziers Association, the WA law was finally repealed. Red tape—whether industrial, environmental, or any other kind—is detrimental to productivity growth because it disincentivises investment and inhibits innovation. It also creates a class of regulatory enforcers, whose job it is to put out sparks of innovation and dynamism in the economy.
Burdekin Shire Councillor Dr Kaylee Boccalatte wrote in the Summer 2022 issue of the IPA Review:
Significantly, the type of labour necessarily engaged to ensure compliance with the host of rules, requirements, and regulations threatens economic prosperity … there is a disproportionate growth in the unproductive workforce engaged in bureaucratic work in order to comply with the onerous requirements of increasing government red tape and regulation.
BHP’s Olympic Dam in South Australia is the world’s largest known single deposit of uranium.Image: Google Earth
Record Migration
The unprecedented, record-breaking migration intake of the financial year ending 2023 coincided with the historic collapse in Australia’s productivity. A key contributing factor is the fact that the incoming workforce brought in over the course of the financial year were significantly less productive than the general Australian population.
A commonly used proxy to measure a nation’s overall economic productivity is a metric called ‘labour productivity’. This is defined as the output produced by a country divided by the number of hours worked over a period, such as a financial or calendar year. Australia’s labour productivity in the financial year ending 2023 was approximately $112 GDP per hour. The overwhelming majority of new immigrants who settled in Australia came from countries with considerably lower labour and workforce productivity.
The South Asian countries of India, Nepal, and Pakistan, for example, contributed to roughly a quarter of all new migrants to Australia in the financial year 2023. On average, their labour productivity was just 13 per cent of Australia’s labour productivity at the time. Introducing a less productive workforce into a host economy with much higher productivity, all else remaining the same, results in the lowering of the overall productivity of the host economy.
Red tape is detrimental to productivity growth.
But migration from these countries does not necessarily have to result in falling overall workforce and economic productivity. The effects of new migrants on labour productivity would be negligible, if not positive, if and only if, as it is often claimed and assumed, they are simply international students who come to Australia to study rather than to work. This is because genuine international students should not make any significant impact, if at all, on the number of hours worked in Australia on account of the fact they are in Australia to study—not to work.
Indeed, most recent migrants over the said period came on student visas. On the basis of the assumption that international students do not engage in paid employment, the Department of Foreign Affairs and Trade and the ABS claimed that every dollar spent by international students in Australia should count towards Australia’s export figure. In the financial year 2023, this totalled $36 billion (it was estimated to be more than $50 billion in the 2024 financial year).
IPA research, however, along with analyses from Macrobusiness and Fresh Economic Thinking, noted this assumption is entirely detached from reality. International students do, in fact, work in Australia and earned approximately $12 billion over the 2023 financial year. Their participation in the labour market, as workers with low productivity, had the effect of dragging down the overall productivity of the economy.
One week after the publication of IPA’s research on international students’ export valuation, the ABS was forced to publish a clarification regarding the erroneous claims about international students’ export value:
While it is not possible to be precise, ABS estimates suggest around a quarter of the expenditure (around $13 billion in the 2023-24 financial year) is funded by international students working in Australia for Australian employers.
By participating in Australia’s labour market through taking unskilled and low-skilled jobs, international students contributed significantly to Australia’s productivity decline.
NET ZERO GROWTH
In his magnum opus, Slavery, Freedom and Business Endeavour (Palgrave Macmillan, 2022), management historian and IPA Adjunct Fellow Professor Bradley Bowden presented the truth about the exceptionalism of Modern Western Civilisation, namely that it was the first to have broken through the Malthusian Trap—the default state of constant hunger and starvation and living at the absolute mercy of mother nature—to achieve prosperity for the broadest section of its population.
A critical aspect of modern Western Civilisation which has allowed for this to occur was the development of an ‘energy-intensive’ economy—that is, the burning of hydrocarbons, such as coal and natural gas. The use of fossil fuels, and later nuclear energy, drove economic productivity to unprecedented levels.
The adoption of a net zero target, however, threatens this progress. Australia’s contribution to achieving the world’s net zero target alone is estimated to carry a $9 trillion price tag between 2023 and 2060. The benefit from this, namely the implication for the climate of reductions in carbon dioxide (CO2) and CO2-equivalent emissions, is still unclear and highly contested.
The increase in CO2 emissions in the atmosphere has coincided with what the National Aeronautics and Space Administration (NASA) characterised as a rich period of global ‘greening’. Geologist Professor Ian Plimer contended that cutting CO2 emissions will risk plant growth, jeopardise agricultural productivity, and impair the operation of the electricity market, which has hitherto been the engine of productivity growth in much of the industrialised world. His concern in Australia has been echoed by American atmospheric physicists Professors William Happer and Richard Lindzen.
Adoption of a net zero target threatens progress.
The highest emitting sectors in the Australian economy also happen to be our most productive sectors. Australian mining, electricity generation, and agriculture and related industries, for instance—the three highest-emitting sectors—are more productive than the lowest-emitting sectors such as the arts, recreation, and hospitality.
High-emitting sectors also happen to be the most fundamental to the rest of the economy. An economy cannot run without mining and energy, for example. Humans cannot survive without the food produced by our agricultural sector. The transition towards a net zero economy poses a serious risk to economic productivity, security, and survival.
A STRAIGHTFORWARD SOLUTION
Fortunately, addressing Australia’s productivity crisis is straightforward. Unfortunately, it requires courage, conviction, and political will: attributes politicians from both major parties, and most of the minor parties and independents tend to lack.
The Morrison Coalition government signed Australia up to the policy of net zero emissions by 2050. The Albanese Labor government entrenched it in legislation, through the passage of the Climate Change Act 2022 (Cth). For Australia to move forward and meet the challenge of declining productivity, the legislation must be repealed and the policy cast aside.
Energy is fundamental to Australia’s productivity growth. The extraction of resources containing raw energy, namely coal mining, and oil and gas extraction, is one of the most productive activities in the economy—as is the production of processed energy such as electricity generation. Lifting the ban on nuclear energy generation, which is currently enshrined in section 140A of the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act), in addition to scrapping state-level nuclear prohibitions, would also help to reinvigorate the economy.
Jabiluka in the Northern Territory is one of the largest and richest uranium deposits in the world. Uranium mining, uranium processing, and nuclear energy generation in the area, in addition to the establishment of a Northern Australia Economic Zone, would attract investment from across the globe and create an economic boom from which the rest of the nation would benefit. It may also assist in the economic development of neighbouring countries such as Papua New Guinea and Timor Leste by directing foreign investment into the region.
Short-term action is needed, however, to set Australia up to reap these long-term rewards. The repeal of the Climate Change Act and reform of the EPBC Act can be a part of a broader red tape-cutting measure, such as the implementation of parliamentary repeal days, where parliament sets aside sitting days exclusively to remove, and not add to, legislation and regulatory constraints.
The unnecessarily complex industrial relations system can be addressed by repealing the Fair Work Act 2009 (Cth) and returning industrial relations powers back to states and territories.
The solution to Australia’s productivity crisis is also clear.
In the immediate term, net migration intake should be returned to the post-war, pre-pandemic average of roughly 112,000 net migrants per annum. A conversation should be had about pausing net migration, until such time that public and social infrastructure such as roads, schools, housing, and hospitals are built to accommodate further migration intake.
The root cause of Australia’s productivity crisis is clear: red tape, mass migration, and the policy of net zero emissions by 2050—as well as the associated renewable transition that comes with it. The solution is also clear: cut red tape, reduce migration, and abandon net zero. Courage, conviction, and political will from our elected representatives are all that is needed. As members of the public, we have an active role to play in holding them to account.
This article from the Autumn 2025 edition of the IPA Review is written by IPA Senior Fellow Kevin You.
