Dear Committee Secretary,
Australia’s poor economic performance in recent years, especially since the Covid pandemic, has invited questions about how the decline might be reversed. These discussions have often focused on levels and growth rates of national productivity, a concept that attempts to describe how efficiently an economy produces output with given levels of inputs.
Australia’s productivity performance has been poor recently, exhibiting sluggish or declining growth rates, whatever measure is used. But productivity, while intuitively simple, is very difficult to ascertain at a national level – increasingly so in a digital economy where inputs and outputs are hard to measure or even define.
Ireland, Luxembourg, Norway, Belgium and the United States are leaders in global productivity, according to the Committee’s discussion paper. Given those nations vary vastly in their size, taxation arrangements, and relative economic strengths, the lessons Australia can meaningfully learn from such a grouping are not immediately clear.
Moreover, productivity statistics often invite proposals for more government intervention via increased regulation or spending – typically sold as ‘productivity-enhancing’ reform – which often have the opposite ultimate effect. Universal childcare, regulations to meet net zero targets, and large government infrastructure projects are examples of programs requiring a significant diversion of economic resources into relatively unproductive uses, often justified as productivity-enhancing.
Productivity is an important indicator of broader economic performance, but it is an imperfect measure and should only be used to complement other more certain indicators of economic decline or improvement, such as GDP per capita, housing costs, and wage growth.
