Australia Has Lost a Decade of Productivity Growth. Where Did the Gains Go?

Australia's economy is getting bigger, but its ability to produce more from each hour worked has barely improved. New Productivity Commission data reveal just how serious the problem has become.

Between June 2014 and June 2026, Australia's labour productivity increased by just 3.6%. That is equivalent to average annual growth of approximately 0.3% over twelve years.

For an advanced economy, this is a deeply disappointing performance.

The Productivity Commission's latest figures reveal an even more interesting divide. Productivity in the market sector increased by 7.5%, while productivity in the non-market sector — dominated by government-funded services such as health, education and public administration — declined by 2.5%.

In other words, the parts of the economy largely exposed to commercial pressures have performed considerably better than those predominantly funded by taxpayers.

There are important measurement difficulties. The value of government services is harder to calculate than the output of businesses selling goods and services in competitive markets. Nevertheless, the divergence warrants serious investigation.

Why Productivity Matters

Productivity is the foundation of sustainable improvements in living standards.

When workers produce more per hour, businesses can afford higher real wages without necessarily increasing prices. Governments can also fund better services without continually increasing the tax burden.

Without productivity growth, economic expansion becomes increasingly dependent on employing more people, increasing working hours or accumulating additional capital.

Australia's latest national accounts illustrate the distinction. Real GDP increased by 2.3% in 2025–26, but GDP per person increased by only 0.8%. Annual labour productivity improved by a modest 0.5%.

The economy is growing, but the gains per person remain limited.

The Policy Challenge

Australia's productivity problem cannot be solved simply by increasing government expenditure or stimulating demand.

It requires examining why investment, competition, innovation and the efficient allocation of resources are failing to deliver stronger output growth.

That means scrutinising regulation, taxation, infrastructure investment and the performance of publicly funded services.

The central economic question is straightforward: If Australians are working more and spending more, why are we producing so little additional output per hour?

Until that changes, sustained real wage growth and stronger living standards will remain difficult to achieve.