The Business Council says today’s Intergenerational Report should be a burning platform for comprehensive economic reform, with Australians already paying the price for weak productivity through lower living standards.
The BCA says Treasury’s long-term projections rely on a productivity rebound that cannot be taken for granted given Australia’s current rate has declined by 0.1 per cent for the past six years.
Business Council Chief Executive Bran Black said new BCA analysis shows real GDP per person is almost $2,000 lower today than the path anticipated at the time of the 2023 Intergenerational Report, because the expected productivity improvement has failed to materialise.
“This is not a problem that starts 40 years from now – Australians are already paying the price for our failure to lift productivity through lower living standards,” Mr Black said.
“Every man, woman and child in Australia is almost $2,000 worse off because we haven’t achieved the path anticipated in the 2023 Intergenerational Report.”
Treasury’s own analysis shows the consequences become larger over time with each person $20,700 worse of in 2065–66 if long-term productivity grows in line with recent outcomes of 0.8 per cent, rather than Treasury’s central assumption of 1.2 per cent.
“That is more than $20,000 less income for every Australian, every year, because of weaker productivity.”
Mr Black said the most concerning feature of the report was the reliance of its central projections on long-term labour productivity growth of 1.2 per cent.
Treasury assumes productivity ultimately returns to 1.2 per cent growth but Business Council analysis released last week found labour productivity has gone backwards by an average of 0.1 per cent a year over the past six years.
Simply matching the 2010s — previously the worst decade for productivity growth in the modern data — would require productivity to grow by 3 per cent a year for the next four years, a rate Australia has not sustained since around the turn of the century.
The BCA’s Global Investment Competitiveness Index ranks Australia 21st out of 42 countries overall, 37th on regulation, 38th on business taxation, 38th on investment restrictions and 17th on labour-market settings.
The Business Council has called for the cost of red tape to be cut by 25 per cent by 2030, tax reforms including an investment allowance to encourage new business investment, simpler and more flexible workplace laws, and faster pathways for low-risk investment into Australia.
As demand for care services grows, Australia’s long-term success will depend on lifting productivity through innovation, technology and better system design, so we can deliver better outcomes and more care with the workforce we have.
Mr Black said artificial intelligence represented one of Australia’s biggest opportunities to turn around productivity, but the benefits depended on businesses being able to invest in and adopt the technology at scale.
“If AI is going to help deliver the productivity growth Treasury is relying on, businesses need the confidence and the conditions to invest in it, adopt it and put it to work across the economy.”
“We should be aiming to make Australia one of the best places in the world to invest in and use AI, because if we get the settings wrong the investment, technology and productivity gains will go elsewhere,” Mr Black said.
Mr Black said it was concerning that Treasury’s central projections did not return the Budget to surplus across the 40-year projection period, with the deficit widening again to 1.8 per cent of GDP by 2065–66.
“A budget in deficit for the next four decades cannot simply become the new normal. The consequences will increasingly fall on younger Australians, who face carrying more debt, funding the growing costs of an ageing population and shouldering a greater share of the tax burden.”