AUSTRALIAN business has called for key economic and workplace reforms to boost productivity growth after the federal government’s Intergenerational Report revealed a picture of falling workforce participation and slowing productive outputs.

Released every five years, the 2015 Intergenerational Report is the fourth in the series, assessing past trends and future projects in population demographics, workforce participation and productivity as key drivers of economic growth.

The latest report showed that while Australians now produce twice as much per hour in goods and services as they did in the 1970s, productivity growth has fallen to just 1.5 per cent per annum in modern times.

“During the 1990s, Australia’s productivity growth was especially high, with an estimated average of 2.2 per cent growth per year,” the report reads.

“More recently however, our productivity growth has slowed, with an average of 1.5 per cent growth per year observed through the 2000s. This is the rate of productivity growth the Intergenerational Report assumes over the next 40 years.”

The report pointed to resource industry investment as a key influence on productivity changes in recent decades, however also highlights fewer economic and labour market reforms as a negative factor.

“Productivity growth often slows during a significant investment phase as there are long lead times before increased output is achieved. That is, in the early investment phase, there will be a high level of capital input, but it will be associated with very little increased output, leading to a fall in measured productivity,” the report explains.

“There have also been fewer significant policy reforms since the early 2000s, and strong income growth, low unemployment and high rates of profitability through the 2000s may have significantly lowered the pressure on governments to undertake the necessary productivity enhancing reforms.”

Another concerning finding from the Intergenerational Report was that workforce participation was projected to fall by 2.2 per cent over the next 40 years, declining from 64.6 per cent to 62.4 per cent in 2055.

“Australia’s future growth and prosperity relies on having a sufficient workforce to fill the jobs of tomorrow, and a lower proportion of Australians working will mean lower economic growth over the projection period,” the report highlights.

“But there are clear opportunities to increase workforce participation by supporting Australians to get and keep jobs, including continued support for participation by women and youth, and embracing the potential of older Australians.”

Comparing Australia to other countries in its economic group, the report argued that ‘if Australia’s participation rates could be increased to those achieved in other countries, the size of the economy would increase’.

“For example, Canada’s female participation rate is around 4 percentage points higher than in Australia. If Australia’s female participation rate could reach Canada’s level, it is estimated that our GDP would be a permanent $25 billion higher,” the report indicated.

“Similarly, higher GDP could be achieved if Australian participation rates of people aged 65 and over could match those of New Zealand.”

The projected impact of lower productivity and workforce participation rates also contributed to a projected national debt of $2.6 trillion, or 60% of GDP, under current economic policy frameworks.

The outlook has prompted the business community to call for reform.

“The government has put its ideas on the table for returning the Budget to surplus and it is time for critics of the approach to put their own ideas forward so we can have an informed debate,” said chief of Australian Chamber of Commerce and Industry, Kate Carnell.

“Budget deficits will blow out to 60 per cent of GDP by 2055 under current policies, but we can achieve a surplus of 0.5 per net of GDP by that time with the government’s proposed reforms.

“This report shows that we need to take steps to improve our productivity and workforce participation as we adjust to an ageing population. Better labour productivity accounts for almost all our future real GDP per person growth.

“We must break through the legislative gridlock that is holding back essential reforms.”

AREEA is the resource industry’s representative in the Australian Chamber of Commerce and Industry’s member network.

To read the report in full, click here.