Pundits berating the Labor Government over productivity are getting it all wrong, as Alan Austin reports.
THE ALBANESE GOVERNMENT is under pressure to do something about productivity in Australia. It is committed to so doing.
But what if, in fact, all is well? What if the economy is humming along nicely, but the agencies are just not measuring things accurately?
Definitions and history
Labour productivity is defined by the Bureau of Statistics (ABS) as ‘the ratio between economic output and the total input of factors required to achieve it’. They calculate it quarterly by dividing gross domestic product (GDP) by total hours worked.
Historically, this has not been an important metric and seldom a topic of political point-scoring. It has generally increased steadily regardless of the party in power, with occasional blips due to global recessions or local events such as extensive floods.
Between the 1996 first quarter (Q1) and Q4 of 1999, there were 15 straight quarterly rises. Then, between 2011 Q1 and 2016 Q2, only one of those 21 quarters was a significant dip. So, as automation and I.T. have advanced, ever-increasing productivity has been taken for granted.
If we examine the 38 developed OECD members today, some still enjoy this benign situation. The chart below shows five economies with productivity rising from 2016 to 2025, albeit with a bit of a mess in the middle due to COVID.
If that is normal, then Australia’s experience since 2016 is seriously weird. After steadily rising since records began in the 1970s, productivity plateaued between 2016 and 2019. It went crazy during COVID with an aberrant surge and has declined since then. It has flatlined at 99.5 index points for the last three quarters, well below 2020 levels.
This is nothing like the progress of the countries in the first graph. Bizarre! See chart below. (Graphs here are all courtesy Trading Economics.)
Naturally, stalled productivity from 2016 to 2019 gave fuel to critics of the Morrison Government that it was failing. They already had plenty of other ammunition, with the economy suffering more than 60 all-time worst outcomes.
Since the change of government in May 2022, productivity has again slumped alarmingly, as the graph reveals. This has provoked condemnation of Labor.
Albo and Dr Jim under sustained attack
Headlines published in recent weeks include:
- ‘Worst productivity in nation’s history: Labor’s economic management criticised’ — Sky News, June 2025;
- ‘Chalmers’ super tax will send productivity backwards’ — Financial Review, 23 June 2025;
- ‘Australia’s energy policies are driving down productivity and living standards’ — Canberra Daily, 25 June 2025;
- ‘Stop profligate spending: Chalmers’ productivity roundtable shows he is “desperate” for money’ — The Herald Sun, June 2025; and
- ‘Australia is trapped in a productivity death spiral’ — Macroeconomics, 1 May 2025.
Some of these are constructive essays, while others are diatribes from partisan nutters. All assume Australia’s current experience is aberrant and undesirable.
Indicators that all is well
In fact, Australia’s economy is booming. Never before since records have been kept has inflation been below 3% and the jobless rate below 4.2% for ten months straight. Spending on dining out, cosmetics, jewellery and other luxuries is at an all-time high. Sales of houses, new cars and private aircraft keep setting records.
Australia is now the world’s only economy with its jobless rate below 5%, and median wealth per person above $400,000. It is the only economy with triple-A credit ratings, inflation below 2.4%, and continual GDP growth for the last three years.
Such a profile is improbable if productivity had fallen off a cliff nine years ago. It is more likely Australians are just as productive, but the formula no longer reflects this.
Experience abroad
Adding weight to this thesis is observing that several comparable economies share Australia’s peculiar productivity trajectory. These include France, Canada, the United Kingdom and Italy. See blue chart, below.
In all five of these economies, productivity flatlined from 2016 to 2019, spiked during COVID, then declined after 2022. Graphs for New Zealand, the Netherlands, Belgium, Germany, Luxembourg and Greece are similar.
Economies whose productivity did not flatline before COVID but did fall dramatically after 2022 include Austria, Estonia, the Czech Republic and Lithuania.
Making sense of the chaos
So it is pretty clear the pre-2016 era of near-universal straight line increases is over and whatever ails Australia is at work elsewhere.
One theory is that substantial productive work has shifted into private homes since 2016, particularly after COVID where it is not so readily measured.
Australia’s National Disability Insurance Scheme (NDIS) has enabled millions of hours of highly valuable home care for patients with illnesses and people with disabilities. If no money changes hands, the Stats Bureau may not record this.
The same could well be happening with Britain’s National Health Service (NHS), Canada’s healthcare system and equivalent schemes elsewhere.
Other non-salaried occupations include home schooling, childcare, home-stays and some home-based businesses in the service sector. These are all productive – and often highly remunerative – but not always reflected in the data.
The way forward
A clue to the plausibility of this theory appeared in the national accounts published in early June. The ABS advises it ‘will commence publishing estimates of labour productivity for the total non-market sector in the June quarter 2025 publication’. This is due in September.
Meanwhile, Treasurer Chalmers has called a roundtable for August, which will hear a range of views. His consultation process welcomes public submissions via the Treasury website.
Let’s see if they receive input from economists who have studied the global situation in some depth.
Then let’s hope the process is productive.
Alan Austin is an Independent Australia columnist and freelance journalist. You can follow him on Twitter @alanaustin001.
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Australia License
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