Productivity and Intergenerational Equity in Australia – (“The Future Dividend: Productivity, Fairness, and Australia’s Next Generation”)
By Julia Patterson
It is no surprise that the recent Productivity Commission placed heavy emphasis on intergenerational equity. The two issues are closely linked and technology, particularly the adoption of AI, has the potential to reshape both in profound ways.
At the centre lies the question of Australia’s long-term economic prosperity and social stability. For more than two decades, Australians have enjoyed the benefits of both. This continuity was a major factor in my own decision to remain here and raise a family.
Productivity is often described as the engine of economic growth. In Australia, its trajectory has fluctuated since Federation. The two world wars left different legacies shaping global demand for resources and altering workforce participation through changes in the male–female balance.
The post–World War II period ushered in a protectionist era. While this helped secure economic security for the majority, the expansion of the social safety net gradually constrained growth. By the late 1990s, reforms had boosted productivity and GDP. Tariff reductions, labour market deregulation, and competition reforms freed up resources for more productive sectors of the economy.
This coincided with rapid technological change: computerisation, digitisation, and better communication tools made white-collar work more efficient, while advances in mining techniques and automation lifted resource-sector productivity.
By the early 2010s, however, productivity growth slowed, and more recently it has declined sharply particularly after COVID-19. According to the Australian Bureau of Statistics, multifactor productivity (MFP) a key measure of how efficiently labour and capital are combined has stagnated.
Several factors explain this trend:
- Low investment in R&D: Australia spends less on research and development (as a share of GDP) than the OECD average, with much of the innovation pipeline now coming from the US or China.
- Brain and capital drain: Many of our best ideas and talent head offshore to access larger markets and investment.
- Slow adoption of technology: Australian companies are often hesitant to embrace new tools, compounded by a shortage of local expertise.
- Resource misallocation: Government spending surged during the pandemic and has not returned to pre-crisis levels. Rising labour regulation and resistance to technological change also hinder growth.
The lesson is clear: when productivity rises, the whole economy benefits. A bigger “pie” reduces tension over how resources are divided. When productivity falters, debates over inequality, wealth distribution, and fairness become far more heated.
Intergenerational equity is about fairness between generations ensuring future Australians are fairly burdened by today’s decisions. The challenge here is complex:
- Aging population: As the share of older Australians rises, so too will demand for healthcare, pensions, and social services. Without careful planning, the younger generation will shoulder the cost. Sound fiscal policy is essential to balance this.
- Environmental sustainability: Climate change, water scarcity, and biodiversity loss threaten long-term economic and social resilience.
- Public debt: Government debt has increased significantly, particularly post-COVID. While emergency spending was necessary, the long-term sustainability of this debt remains uncertain.
Perhaps the most visible flashpoint for younger Australians is housing affordability. While not strictly an issue of intergenerational equity, it generates deep resentment. Zoning and planning restrictions, combined with tax policies that favour existing homeowners over new buyers, have created a system where one generation has gained and is now reluctant to vote away its own advantage.
Another concern is Australia’s relatively closed banking system, which delivers outsized returns for minimal risk. This dynamic rewards shareholder but pushes the cost onto working-age mortgage holders, further undermining young people’s ability to secure housing.
Productivity growth is always positive, but sustainable productivity growth is better. Investments in education, skills, and innovation are essential, as is securing future energy in ways that support both national prosperity and planetary health.
Rising government deficits also highlight the intergenerational challenge. If future Australians must bear the cost of higher taxes to repay debt, that spending should at least fund nation-building projects such as infrastructure and innovation investments that generate productivity gains.
Compulsory superannuation plays a critical role here, easing the tax burden on future workers while delivering dignity in retirement. But the care economy, if overly government-administered, risks dragging down productivity. Innovations such as robotics and AI could help by reducing the time required of human carers.
There are ongoing debates about whether superannuation capital could be channelled into nation-building projects. While fund managers’ fiduciary duty is to maximise returns, infrastructure investment offers a natural alignment: no currency risk, inflation-linked returns, and tangible productivity benefits. Venture and innovation investing is harder to justify in the short term given quarterly performance pressures, but it may be vital for long-term national competitiveness.
Key questions remain:
- Can tax policy be reshaped to favour productive investment and workers over entrenched capital?
- Can labour regulation be balanced to allow capital to flow to the most productive areas of the economy?
- Can short-term politics and capital markets rise to meet long-term challenges?
Globally, democratic systems are under strain, with voters increasingly prioritising self-interest over the collective good. Australia is not immune. The test will be whether we can make long-term, nation-first decisions in an environment dominated by short-term pressures.
Ultimately, both public and private institutions are only as strong as their leadership. Boards and management teams must be willing to set long-term strategies in a short-term world. Having the right people around the table is critical, leaders who can balance innovation with discipline, seize opportunities while managing risks, and guide organisations through uncertainty.
That is why Blenheim Partners has worked closely with organisations across industries, supporting them with key leadership hires to help navigate complex challenges and position themselves for sustainable success. If you would like to discuss how to prioritise long-term decision-making in today’s environment, please get in touch.
Julia Patterson
Partner, Financial Services