If Australia is to continue to grow its economy and increase individual prosperity, productivity policy should focus on key emerging trends like the shift towards service industries, according to the final report of the Productivity Commission's 5-year Productivity Inquiry.
"Australia's economy has changed. Almost 90% of Australians now work in service industries, including education, health, hospitality, retail and finance," Productivity Commission Chair, Michael Brennan said.
"It has traditionally been difficult to lift productivity in these sectors. But we are not alone. Economies around the world are grappling with the same issues. There is no easy answer, but we need to address this challenge to secure Australia's future prosperity." The Commission's 5-year Productivity Inquiry lays out a comprehensive reform agenda.
"Our report shows how productivity policy is central to a modern economy," Mr Brennan said. "Through significant consultation and investigation, the Productivity Commission has made a series of recommendations we believe will stack the odds of productivity growth in Australia's favour."
"Concentrating on five key themes can make a real difference," Mr Brennan said. "These are: building an adaptable workforce; harnessing data, digital technology and diffusion; creating a more dynamic and competitive economy; efficiently delivering government services; and securing net zero emissions at least cost."
To drive productivity growth, a services economy requires a highly skilled and adaptable workforce. This requires better teaching and innovation in schools, vocational education and training, and universities. Encouraging more tertiary education and lifelong learning can help workers obtain the skills they need for a modern economy. And more effective use of skilled migration will help boost Australia's human capital.
"Innovation can help businesses and governments deliver better services or operate more efficiently. The uptake of digital technologies – accelerated to some extent during the pandemic – holds significant promise for lifting business productivity. The potential of data sharing remains relatively untapped and increased utilisation will facilitate innovation that lowers costs while improving the quality of service delivery for consumers."
Innovation will also help drive the transition to net zero. "Australia is decarbonising and while this effort is not without its economic ramifications, it is our contribution to global efforts to reduce the costs of unmitigated climate change. It will be important to provide the right price incentives to get to net zero at least cost," Mr Brennan said.
"Over the past 35 years in Australia, the expansion of employment in the services sector has been mainly in government subsidised and regulated services, like health care and social assistance. Productivity in these areas can be hard to measure and achieve. In many cases, the goal will be to improve quality rather than reducing cost, but it remains important that we pursue productivity improvements in these areas. For example, Australian governments are reforming healthcare funding to improve the efficacy and cost effectiveness of public expenditure. We can also better diffuse best practice and reduce clinical variation in treatment."
"The reform recommendations put forward by the Commission today will help Australia overcome its productivity predicament."
For a full copy of the 5-year Productivity Inquiry: Advancing Prosperity, please visit the Commission's website: www.pc.gov.au
Accompanying material
Factsheet #1 – Competition, dynamism and investment
Factsheet #2 – Australia's data and digital dividend
Factsheet #3 – Innovation for the 98%
Factsheet #4 – Climate transition
Factsheet #5 – Migration and occupational licensing
Factsheet #6 – Workplace relations and platform work
Factsheet #7 – Schools education
Factsheet #8 – Tertiary education
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