Lacklustre December productivity growth spurs PC to double down on reform calls

The Productivity Commission (PC)’s March 2026 quarterly productivity bulletin has revealed that Australia’s labour productivity has fallen back to levels seen two years ago, with productivity growth remaining “well below” its long-term average.

PC deputy chair Dr Alex Robson said that the December quarter data had “[continued] to disappoint,” and that Australian policymakers would need to take decisive action on productivity if any progress was to be made.

“Australia needs a growth mindset, elevating economic growth and its benefits in policy decisions,” Robson said.

“In December 2025, the PC released five reports that show what that would look like … The PC’s roadmap is by no means exhaustive, but it gives government a good place to start.”

In the December quarter, labour productivity growth was flat, the commission found. Over the year to December 2025, productivity increased by 1 per cent, only just recouping the 1 per cent decrease observed over the year to December 2024.

“This year’s growth means we are back where we were two years ago,” Robson said.

Non-market labour productivity was of particular concern, falling by 0.7 per cent in the December quarter. It settled at a level 0.7 per cent lower than in December 2024, despite some jumps throughout the year.

Market sector productivity growth was more encouraging, with 0.3 per cent growth over the December quarter and 1.5 per cent growth over the 12 months to December 2025.

In its search for solutions, the PC recalled policies pursued by the government throughout the 1990s and early 2000s, a period when Australia enjoyed particularly strong productivity growth.

This golden age was partially driven by private sector decisions and developments in global trade and technology, the PC acknowledged. However, it also highlighted significant pro-productivity reforms that preceded this period.

These included open trade policies, reforms to improve access to higher education, such as the Higher Education Contribution Scheme (HECS), financial market reforms to better connect savers and borrowers and industrial relations reforms, such as decentralised wage bargaining.

Competition policy was also strengthened in the mid-1990s through the Hilmer reforms which structurally reformed public monopolies, allowed third parties access to government infrastructure and required competitive neutrality between government and private business.

The PC said that a “new wave of reforms” would be necessary to change Australia’s grim productivity outlook, and said the PC’s 47 recommendations stemming from five inquiries were a “good place to start” for policymakers looking for ideas.

These included reforms to reduce the corporate taxation of normal returns, such as cutting the corporate tax rate to 20 per cent and implementing a five per cent net cash flow tax on company profits.

The PC also urged the government to regulate with growth in mind, warning that poorly implemented regulations acted as a handbrake on productivity.

“Australia is not alone among developed economies in our productivity struggles. But reduced government appetite for reform, and policy choices arguably less focused on growth, are factors in our poor productivity performance,” the PC’s bulletin read.

“Productivity growth is not necessarily in the direct control of government, but it can be supported by deliberate policy choices.”