Productivity Commission Calls for Corporate Tax Reform, Cheaper Net Zero Policies

‘Productivity growth isn’t about working harder. And it’s not just about having more stuff. It means making the most of what we have,’ said PC chair.

Bartenders work inside a bar in Sydney, Australia, on Oct. 11, 2021.Steven Saphore/AFP via Getty Images

Australia’s Productivity Commission (PC) has identified 15 key reform areas to help pull the country out of the quagmire of sluggish productivity growth, where it has remained entrenched for a decade.

Following the release of the PC’s Productivity Pitch in December 2024, the commission collected more than 500 ideas from all over Australia about improving productivity across the economy.

It then combined the ideas, expert consultation, and the commission’s own research and expertise to develop a reform framework for Australia.

“Productivity growth has stagnated in the past decade. It’s now at its lowest ebb in 60 years,” PC Chair Danielle Wood said.

“We are grateful for the many ideas we received through the Productivity Pitch. We heard from everyone, from teachers to business owners and healthcare workers—all with their own suggestions for helping Australia work smarter to boost productivity.”

Data from the Australian Bureau of Statistics indicated that labour productivity—measured as GDP per hour worked—dropped by 1.2 percent over the year to December 2024, following a 3.5 percent fall in 2023.

Wood said improving productivity is “the only sustainable way” to improve Australians’ living standards.

“Productivity growth isn’t about working harder. And it’s not just about having more ‘stuff.’ It means making the most of what we have—the skills and experience of our workforce, new technologies, and our resources—so we can get more out of our economy,” she said.

“It’s about making it easier for businesses to harness new technologies like generative AI. It’s about giving our teachers the best resources and technology available to help our kids learn more. It’s about making it quicker and easier to build clean energy infrastructure.”

15 Key Reform Areas

The key reform areas were divided into five pillars: creating a dynamic and resilient economy, building a skilled and adaptable workforce, harnessing data and digital technology, delivering quality care more efficiently, and investing in cheaper, cleaner energy and the net zero transformation.

To improve Australia’s current economy, the PC proposed introducing corporate tax reform to incentivise business investment.

According to the commission, Australian corporates’ investment in capital assets has declined over the past decade, with non-mining private sector investment as a share of GDP falling around 3 percent since 2009.

One problem with Australia’s corporate tax system is the high tax rate.

Research from the Tax Foundation indicated that in 2023, Australia, along with Costa Rica and Mexico, had the third-highest combined corporate income tax rate among OECD countries (30 percent), just behind Portugal (31.5 percent) and Colombia (35 percent).

In addition, Australia’s corporate tax system is extremely complex, which leads to distorted business decisions and biases toward certain forms of investment.

The Productivity Commission (PC) noted that the way companies are taxed influences their investment choices and appetite for innovation.

As such, it stated that Australia would benefit from a simpler, more efficient tax system.

Another key economic reform is reducing the impact of regulation on businesses.

The PC said the government red tape in Australia has increased over the past decade.

While the commission said all regulations had costs and benefits, it acknowledged that appropriately reducing regulation can lower the costs of doing business and encourage innovation.

People eat at a beach restaurant 2023 in Melbourne, Australia, on Jan. 26. Alexi J. Rosenfeld/Getty Images

Cheaper Energy and Net Zero Transformation

To facilitate investment in cheaper energy and the net zero transition, the PC advised federal and state governments to reduce the cost of their emissions-reduction policies.

A 2023 study (pdf) by the PC revealed significant variation in the costs of policies implemented by state governments.

While some policies cost less than $100 (US$64) per tonne of carbon dioxide emitted, others may cost up to $20,000 per tonne.

Speeding up approvals for new energy infrastructure is also an issue, as the PC pointed out that solar and wind projects can be subject to complex and overlapping approval processes, which can lead to significant and costly delays.

The commission gave the example that it can take four to five years to complete pre-construction planning and approvals for some renewable projects.

While the PC acknowledged the government’s efforts to accelerate approvals for renewable energy projects, it emphasised that further progress is needed.

AI Regulation

Amid the growing popularity of AI, the PC expressed the view that it could be used to boost productivity significantly.

While the commission recognised the need to regulate AI to prevent reckless uses of these systems, it said poorly designed regulation could undermine competition and create uncertainty for those who develop and use new technology.

Therefore, the PC proposed a “balanced approach” where regulation focuses on productivity gains while providing safeguards for adverse outcomes.

At the same time, the commission highlighted the need to improve regulations around how consumer data is stored and managed to ensure it delivers economic benefits.

People stand next to a humanoid robot at an AI conference in Shanghai, China, on Feb. 21, 2025. Hector Retamal/AFP via Getty Images

Strengthening the Workforce

Regarding creating a skilled and adaptable workforce, the PC identified a link between student outcomes and the resources and support provided to teachers.

The PC found that there were significant disparities in the resources available to teachers across Australian jurisdictions, which affected their ability to deliver good learning experiences.

As such, the commission said it would explore ways to ensure teachers are well-equipped for their jobs while reducing the overlap of resources and problems within the school system.

Other key reform areas include making the post-secondary education and training system more flexible, and changing occupational entry regulations to make the workforce more adaptable to industry needs.

With the release of the 15 reform areas, the PC has opened a new consultation from May 19 to June 6 to seek input from the public.

The commission is expected to deliver an interim report between July and August.