Productivity review to sound alarm bells for economy

Few surprises are expected in the five-yearly review of Australia's productivity performance but the final report will likely sound alarm bells for the nation's sluggish productivity growth.

The comprehensive report, which will be released later in the week, is expected to build on the Productivity Commission's last review that offered a list of recommendations to turbocharge productivity. 

An interim PC report found Australia's productivity growth had slowed significantly and fallen to its lowest rate since the 1970s.

Deloitte Access Economics lead partner Pradeep Philip said the downward trajectory for productivity observed in many advanced economies - not just Australia - had not gone unnoticed.

Domestically, it spurred the first of the national productivity body's five-yearly reports, Shifting the Dial, which was released in 2017 and spanned everything from education to innovation. 

From a global perspective, Dr Philip said the dominant narrative for slowing productivity was due to the ending wave of growth after World War II.

"Economies are, right now, in this kind of period of transition," he told AAP.

"It's why things like decarbonisation, technology like artificial intelligence, enormous sectors like space, offer enormous opportunities to remake economies into the future."

Independent economist Stephen Koukoulas also said advanced economies had stopped manufacturing in-country and were relying on cheaper imports in countries such as China.

"As (China) was automating, educating their workforce, getting their skills and training, becoming more efficient with their massive infrastructure spending over the last few decades, the productivity was absolutely phenomenal," he told AAP.

"And in a funny way, we rode off the back of that - we didn't need to manufacture stuff because it was much cheaper and easier just to buy it from a Chinese manufacturer."

Dr Philip said a lack of investment was behind about two-thirds of the decline in Australia's productivity.

He pointed to a sustained lift in the profit share among businesses over the past 25 years but said little of that was being translated into greater investment, with the mining sector accounting for the bulk of increasing profit share and investment.

"In some ways, the mining boom has masked the underlying issues around investment and profitability in the private sector in Australia," he said.

Mr Koukoulas said Australia's productivity issues largely stemmed from a failure to invest in productivity-enhancing capital, machinery and equipment, as well as inadequate skills and training.

"When the unemployment rates started falling and falling very sharply, and firms couldn't get the skilled workers that they needed, productivity stalled as a result," he said.

The last five-yearly report also flagged the importance of the public sector in Australia's productivity story.

Mr Koukoulas said failing to invest in public infrastructure could serve as a handbrake on the economy, with a poor train service, for example, dragging out commute times and weighing on productivity.

Dr Philip said there was "not much more they can say" about the nation's stagnant productivity performance and that the next report will likely just "ratchet up the alarm bells for the economy".

"It's just that people haven't been listening for the past decade or more, and the short-termism that dominates policymaking is actually hampering future growth and incomes and jobs for Australia."

He said there had been some movement on recommendations related to human capital, such as improving access to childcare, but there was little progress in many other important areas.

"We're not shifting the big things, which is, how are we incentivising investment? How are we truly making skills industry-focused? And how are we reforming public administration?"

He also said productivity was important because it was central to future prosperity, with a sustained period of slow productivity growth leading to less prosperous societies in the future than in the past.

While not formally due until May, the treasurer has brought the publish date of the expansive PC review forward to late this week.

Dr Chalmers has also flagged a "renewal" of the commission and a possible expansion of its mandate.