Productivity, investment and reforms key to Australia's future prosperity

• Sustained productivity growth requires investment, innovation and economic reform 
• AI can support productivity growth, but it cannot replace broader reform
• Ageing population and fiscal pressures strengthen the case for comprehensive tax reform

Australia’s largest accounting body says the Intergenerational Report highlights the growing pressures facing Australia's economy and reinforces the need for productivity, investment and tax reform to ensure Australia remains internationally competitive and prosperous over the coming decades.

CPA Australia CEO Chris Freeland said the report identified significant long-term pressures from an ageing population, slower population growth and changing workforce dynamics, but did not adequately address how Australia would respond if productivity growth underperformed Treasury's assumptions.

"The report paints a useful picture of the challenges ahead, but a report is not a plan. Australia has benefited enormously from decades of economic reform. The question now is: what comes next?"

Mr Freeland said productivity remains Australia's biggest economic challenge. 

"The report assumes long-term productivity growth of 1.2 per cent a year. A lot would have to go right for such an estimate to be achieved.

"Australia still has a productivity problem. Without stronger productivity growth, it becomes more difficult to lift wages sustainably, improve living standards and strengthen long-term prosperity.

"The report assumes stronger productivity outcomes driven by AI, but productivity cannot improve without stronger business investment.

"Recent GDP growth has been driven largely by Australians working more hours rather than producing more from the hours they work. That is not a sustainable path to stronger living standards." 

CPA Australia said greater transparency was needed around the assumptions underpinning the report and the potential impact of alternative economic scenarios. 

"Forecasting the next 40 years is inherently difficult. It’s difficult to make projections for the next 12 months ahead, so how can we forecast for the next 40 years? What happens if productivity growth disappoints, geopolitical tensions intensify or technology adoption falls short of expectations? Australians deserve to understand both the opportunities and the risks." 

While AI has the potential to support future growth, Mr Freeland warned against viewing technology as a substitute for broader reform. 

"AI has the potential to be a significant productivity driver, but AI alone cannot do all the heavy lifting.

"Getting the economy back on track requires a laser-like focus on productivity-enhancing reform. That means reducing unnecessary red tape, creating a more business-friendly environment and a tax system to support investment and growth.

"Australia needs policies that encourage business investment, innovation and entrepreneurship. Stronger private sector activity and higher productivity are essential to improving living standards and securing our long-term economic future." 

Mr Freeland said the report also highlights growing fiscal pressures from an ageing population. Australians are retiring in record numbers and living longer than ever, while the ratio of working Australians to support those in retirement continues to decline.

“Australia’s superannuation system is helping people fund their own retirements and reducing pressure on the Age Pension. But as our population ages, government spending on health, aged care and other essential services will continue to rise. The bigger challenge for policymakers is ensuring our tax system can sustainably fund those services into the future. 

CPA Australia said the nation's tax system remains overly reliant on personal income tax, with bracket creep continuing to drive revenue growth. 

"Bracket creep is not tax reform. It is tax increases by stealth. Australians deserve greater transparency about how much future government revenue relies on workers being pushed into higher tax brackets over time.

"The report shows Australia will increasingly rely on fewer workers to fund a growing demand for services. This strengthens the case for comprehensive tax reform that supports growth, investment and economic participation."

Mr Freeland said Australia should take a long-term view but avoid complacency. 

"This report should be a catalyst for action. The economic reforms of previous decades put Australia in a strong position, but we cannot assume that success will automatically continue. We need a clear plan to lift productivity, improve competitiveness and build a more resilient economy for future generations." 

Media contact

Adrienne Biscontin
External Affairs Adviser
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0429 009 691