Economic resilience starts with productivity: Australia’s defining challenge

Productivity has slipped from the national conversation – yet it remains the cornerstone of Australia’s long-term economic strength.

In brief:

• Labour productivity growth has fallen from 2.3% in the 1990s to near zero today, as investment stalls and tax and regulatory settings lose competitiveness.
• Momentum for reform is growing. Smarter tax settings, stronger R&D incentives and private capital can turn stalled productivity into sustained growth.
• Australia’s opportunity is clear: invest in innovation, skills and capital now to restore productivity and secure long‑term economic resilience.

Australia can no longer rely on the advantages that once defined us as the ‘lucky country’. Labour productivity growth has slowed from 2.3 per cent in the 1990s to just 1 per cent in the 2010s and now sits at virtually zero. Business investment remains barely above recession levels, and our tax and regulatory settings are increasingly out of step with global peers. Without decisive reform, we risk embedding a decade of lower growth and declining competitiveness.

Across the economy, businesses are calling for more decisive and timely action from Government to match the scale of the challenge. Encouragingly, momentum is building. Recent initiatives, including the Economic Reform Roundtable and the Productivity Commission’s five‑pillar inquiries, reflect a growing recognition that coordinated action is needed. But while Government must lead, improving productivity is a collective responsibility shared by business, investors and the community. 

The recent “What Not to Ignore in 2026” EY event brought business leaders together for candid discussions on practical solutions to Australia’s productivity and investment challenges. The conversation demonstrated that the solutions are within reach, if we stay focused and are willing to act boldly. So, what do we need to do?

Understanding the real constraints on productivity

Australia’s productivity problem is not the result of a single issue, but the accumulation of many. Several industries that underpin national competitiveness, construction and mining among them, have seen their productivity decline recently. Meanwhile, regulatory complexity continues to grow, decision‑making timeframes have lengthened, and risk appetite across government, business and even individuals has fallen. When risk aversion becomes ingrained, innovation slows, investment is paused and business dynamism stalls.

If we want to shift our long‑term trajectory, we must clear the structural brakes preventing capital and ideas from flowing at the pace our economy needs. That includes slow and inconsistent approvals, planning bottlenecks and a tax system that no longer reflects the needs of a modern, competitive economy.

Reforming our tax system for growth and resilience

Reforming our tax system is essential to lifting Australia’s competitiveness. Our 30 per cent corporate tax rate, well above the OECD average, combined with heavy compliance obligations, is deterring the very investment we need to strengthen key sectors. At the same time, our R&D incentives are outdated and internationally uncompetitive, contributing to R&D investment reaching its lowest level in 20 years.

To improve our attractiveness to global and domestic investors, Australia needs competitive tax settings. They should include permanent, targeted incentives such as reduced corporate tax rates and incentives for investment in capital assets, plant and equipment, and technology, which could prioritise strategic industries. Investment allowances or bonus deductions would lower the cost of capital and reward productive activity. Competitive R&D incentives as well as reduced tax rates would encourage the commercialisation of intellectual property in Australia and prevent it from moving offshore.

While ideas such as the Productivity Commission’s proposed net cash flow tax (NCT) aim to encourage investment, any changes must improve international competitiveness and avoid adding unnecessary complexity. Ultimately, tax and innovation settings must work together to drive investment, unlock collaboration between business, universities and investors, and enhance Australia’s ability to be a globally competitive destination for new ideas, new industries and new jobs.

Attracting private capital to power national ambition

With government budgets constrained, private capital will be essential to financing the next wave of national priorities. Australia’s superannuation funds have a clear appetite to invest more domestically, and international investors are looking for stable, high‑performing markets. Global capital will flow to where risk‑adjusted returns are strongest.

Australia’s current ranking of 79th out of 104 countries for regulatory barriers to foreign direct investment highlights the urgency of the challenge. Recent updates to the Foreign Investment Review Board, including automatic approvals for low‑risk investors and reduced reporting requirements, are welcome steps. Continued reform will be essential to attracting the scale of capital required to drive productivity and innovation.

Investing in innovation and technology

A renewed national focus on technology innovation will be fundamental. Only a third of Australian workers have formal AI training, a capability gap that will increasingly hurt our global competitiveness. With the right digital and technology capabilities, workers can hand off low‑value tasks and focus on high‑impact work that drives sustainable growth.

There are strong reasons for optimism. CEOs across Oceania are already seeing real gains from early AI adoption including sharper decision making, better customer experiences and measurable productivity uplift. The January EY 2026 CEO Outlook showed these initiatives are outperforming expectations, with 90 per cent of CEOs prioritising responsible and ethical AI. The conversation has clearly shifted from job displacement to capability building.

This is where Australia can regain momentum: by backing the skills, technology and investment that accelerate innovation rather than hold it back.

Government has a critical role to play in creating the ecosystem for innovation, but business must match that ambition with investment, experimentation and a willingness to scale new ideas.