Australia surges to 13th in latest global productivity rankings but CEDA warns against thinking problem fixed

Australia’s global productivity ranking has soared to its best in 13 years but experts warn against presuming the nation’s sluggish growth has been resolved.

The latest edition of the long-running World Competitiveness Ranking by Swiss-based Institute for Management Development puts Australia in 13th position, up from 19th of 64 in 2023.

Australia’s strengths are in its effective legal environment, policy stability and predictability, reliable infrastructure and skilled workforce, but is poorly perceived for its tax regime, research and development culture, industrial relations and economic dynamism.

The rankings, compiled annually since 1989 and released on Tuesday, come amid ongoing debate on productivity after years of lagging growth, and calls from the Reserve Bank governor Michele Bullock for people to not focus too much of quarterly or even annual productivity data.

Some analysts have suggested the rise of artificial intelligence may reignite growth but Committee for Economic Development Australia senior economist Melissa Wilson said the nascent technology remained a “massive unknown” for productivity.

Ms Wilson said it could lead to productivity gains similar in scale to the introduction of electricity or desktop computers, but there were no guarantees.

“It depends on how quickly we adopt and adapt that technology,” she said. “We’ve been pretty slow at doing that.

“Up to one-third of adults lack basic digital literacy skills.

“It’s got big potential but it’s not a guaranteed silver bullet. There’s some work to be done to maximise the benefits.”

It was crucial the potential for greater productivity growth was harnessed, she said. Over the past 30 years, productivity was responsible for 70 per cent of the growth in real incomes but government forecasts had revised down future expectations for growth. If realised, this would Australians would 20 per cent poorer in 40 years’ time.

Ms Wilson also said large scale tax reform needed to be embraced to help free up businesses from restrictive regulation.

“A complicated tax system draws resources from businesses away from what they do best, which is innovating and creating value for the economy,” she said.

“A complicated system is not helpful. It’s about getting the incentives right. The tax system is powerful and could be doing more of the heavy lifting.”

She added productivity was not solely a problem for governments to resolve alone. Australia was ranked 52nd this year on perceptions of large corporations, workplace productivity fell to 48th and just 37th on use of digital tools and technologies.

Singapore was ranked top of all countries, followed by Switzerland and Denmark.

“When governments or the public sector consider new regulation, they need to have a healthy consideration of the additional burden they’re adding on to businesses and weigh up the broader costs,” Ms Wilson said.

“There are times when it’s worthwhile but there are also times when they need to step back and think ‘is this a good idea?’

“Business leaders are really time-poor and are running as fast as they can for just business as usual — there’s no time or resources to take a breath and look long-term at the things that could save time.”

Ms Wilson said despite businesses taking a hit from high inflation and interest rates, the Australian economy had proved comparatively resilient. On economic performance, Australia jumped from 10th to seventh, thanks to high commodity prices, strong trade and a robust local economy.