Urgent action needed on productivity, digitisation: IGR

Denham Sadler
National Affairs Editor

Australia is facing an enormous productivity challenge, with an urgent need for governments at all levels to drive digitisation and the reskilling of workers, the 2021 Intergenerational Report has found.

Treasurer Josh Frydenberg released the 2021 Intergenerational Report on Monday morning, prepared by Treasury and featuring the first downward revision of the country’s economic projections in two decades, thanks to slower population growth, an ageing population, and the COVID-19 pandemic.

These factors will see the Australian economy growing at 2.6 per cent per year over the next 40 years, compared with 3 per cent over the previous four decades.

This isn’t set in stone though, and efforts to improve productivity will play a crucial role in quickening the pace of economic growth, according to Mr Frydenberg.

“Further investment in skills, infrastructure and digital transformation are required together with reforms generating red tape reduction, more flexible workplaces, increased business investment and a more efficient tax system,” Mr Frydenberg said.

“With productivity responsible for over 80 per cent of Australia’s national income growth over the past 30 years, the task is obvious and the choice is clear. If we want to maintain our living standards, generate higher wages and create more jobs, Australia has no alternative other than to pursue economic reform, much of which is hard and contested.”

Treasurer Josh Frydenberg

The report found Australia’s struggles with productivity will hamper its economic recovery, and is leaving local companies behind the rest of the world.

“Australian firms appear to be slower to adopt world-leading technologies. As a result, non-mining businesses in Australia have fallen further behind global frontier firms and appear to be catching up more slowly,” it said.

The report found that Australia’s productivity growth was just 0.8 per cent in the five years to 2019-20, but predicted it would return to the average of 1.5 per cent annually in the next decade.

“All levels of government have a role to play in boosting productivity growth through policy and regulation that facilitates efficient investment in technology, improves market efficiency and competitiveness, and lifts the health and capability of our workforce,” the report said.

“By providing strong institutions and a predictable policy environment, government can increase certainty, encouraging investment and efficient risk-taking.”

These policies should include improvements to regulations around new technologies and further efforts to encourage digitisation.

“New technologies will mean jobs are redesigned to take maximum advantage of the capabilities new technologies enable. Governments will need to reduce unnecessary regulations or occupational licensing restrictions which hamper job redesign and hinder the adoption of productivity-enhancing processes and technologies,” the Intergenerational Report said.

“Businesses will also need to invest in improving managerial expertise to best manage how these enhancements are integrated into organisational work practices.

“As technology continues to reshape tasks and occupations, ‘lifelong learning’ and continual reskilling will be needed to ensure people have the skills to take advantage of new processes, jobs and occupations driven by technological change.”

The report demonstrates the urgent need for significant reforms to drive productivity and digitisation, Centre for Economic Development of Australia (CEDA) chief executive Melinda Cilento said.

“The report rightly highlights the costs of these challenges, and points out that with a solid and growing economy, we are better placed than most other countries to meet them. Now is the time to take serious action to address these challenges,” Ms Cilento said.

Returning to an average productivity growth of 1.5 per cent per year will take hard work and brave policy reform, Ms Cilento said.

“Lifting annual productivity growth to 1.5 per cent over the next decade will require sharp policy focus and depend on more Australian businesses performing at or close to the world’s best. We can’t underestimate how tough this will be,” she said.

“Business efficiency led Australia’s slide, driven by poor performance on management practices, company agility and entrepreneurship. Our rapid digitisation through the pandemic brought opportunities, but moves to establish domestic supply chains may reduce competition and scale and specialisation benefits.”

Embracing and adopting digital technologies will be the key to achieving this growth, Ms Cilento said, but much more detail is needed on the federal government’s policies aiming to do this.

“Our success in adopting new technologies will determine whether Australian businesses can compete with the best in the world. Making the most of data and digitisation is also essential to improving the quality and efficiency of care services, amid rising costs and service expectations,” Ms Cilento said.

“Australia really must become a leading digital nation if it is to meet the challenges outlined in this report. While there were important initiatives in the recent federal budget, greater clarity is needed on what it will take to achieve the government’s aspiration to be a leading digital nation.”

CEDA last month called on the government to appoint a Chief Technologist to drive its digital agenda, and provide stable and long-term leadership and guidance on innovation policies.

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