Productivity matters, but economic reform should be judged by whether it lowers real costs, improves household affordability and delivers lasting benefits – not simply whether it lifts output. Climate resilience and a fair transition belong inside that assessment.
Mon 26 Oct 2026 10.26 AEDT
Photo: AAP Image/Lukas Coch
OECD Secretary-General Mathias Cormann has offered a useful opportunity to sharpen the economic reform debate.
Following his Neville Kennard Address, he argued that productivity is “the only real cost-of-living policy that works”. His proposed agenda spans competition, tax, housing, energy, skills, trade and budget credibility.
In a subsequent exchange with us, Cormann agreed that productivity is a means rather than an end, acknowledged the importance of climate resilience, and affirmed that social protection and targeted support are essential.
Our disagreement is therefore narrower but important: productivity underpins prosperity, but does that make it the only policy capable of delivering lasting household affordability?
As Grattan’s recent account highlights, Cormann also argues that the grievances feeding populism are real, and that the answer is to deliver homes, lower energy costs and real wage growth. We agree. That makes demonstrating how reforms deliver those outcomes – not simply promising stronger aggregate growth – even more important.
An economy should be judged by what it delivers to its people: secure livelihoods, affordable essentials, good services and the capacity to face the future.
That should also be the starting point for Australia’s productivity debate. Instead, productivity is too often presented as the destination, with the connection to better lives treated as automatic.
It is not.
Labour productivity measures output per hour worked. It matters because producing more with the same effort can support higher incomes and better living standards. But the measure does not tell us who receives the gains, whether essential services become affordable, or whether prosperity rests on exhausting the systems that sustain it.
The practical test of reform should therefore be straightforward: does it lower real resource costs, improve household affordability and deliver durable benefits? Which measures deliver the largest net gains, how do those gains reach households, and over what timeframe?
Energy provides a useful example.
People do not need petrol for its own sake. They want mobility. They do not need gas combustion, they want heat. Not light bulbs – but light. Businesses need freight delivered and industrial work performed, not necessarily more fuel consumed.
As we argued in The Point in September, the strategic opportunity is to electrify those services, not simply replace one source of energy with another. Electric technologies can perform the same tasks using substantially less energy. The International Energy Agency estimates that electric vehicles are two to four times more energy-efficient than combustion vehicles.
That is an energy-productivity gain: less energy for the same useful service. Its contribution to wider economic productivity depends on equipment costs, infrastructure and how the technology is deployed. Turning it into household savings also requires attention to finance, electricity tariffs and access.
An efficient vehicle is little help to someone who cannot finance it or charge it. Cheap renewable generation does not guarantee an affordable retail bill. Renters should not have to wait for home ownership to gain access to efficient appliances and lower energy costs.
Access and distribution are not issues to address after the technology arrives, but should shape its deployment from the beginning.
Our recent articles have argued for reducing Australia’s exposure to imported fuel shocks, rather than repeatedly paying to sustain that dependence. Strategic fuel reserves can address immediate vulnerabilities; they should not displace investment in alternatives that reduce those vulnerabilities permanently.
We have also argued that monetary policy must distinguish an imported energy shock from excessive domestic demand. Higher interest rates cannot reopen a shipping lane. They can, however, make it harder for households and businesses to finance the equipment that would reduce future fuel exposure.
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This does not make every rebate sensible or every investment worthwhile. It means policies need assessment against their actual effects.
A payment that helps a vulnerable household through a crisis serves a different purpose from an investment that lowers that household’s bills for a decade. We may need both.
Productivity is not a substitute for affordability, distribution or social-protection policy.
Sustained productivity growth is a central foundation of rising real living standards. Competition, capable institutions and well-directed investment deserve serious attention. There is substantial common ground with Cormann here.
But “the only real cost-of-living policy that works” goes too far. The question is how productivity gains translate into better household outcomes.
Cormann rightly distinguishes a transfer from a resource saving, and acknowledges that cushioning a shock can be justified. Our disagreement is not about whether transfers create productivity gains. It is about whether reducing the resources needed to provide essentials and ensuring people can afford those essentials are the same policy objective.
His latest comments sharpen the disagreement: Cormann argues that subsidies which do not boost productivity cannot ease cost-of-living pressures. But a policy’s contribution to productive capacity, its effect on household affordability and the sustainability of its funding are separate questions. A credible reform programme must answer all three.
A cost to today’s budget is not automatically a cost shifted to the next generation. That depends on how it is financed and what benefits or obligations it creates.
Nor does identifying weak productivity establish which reform package will work best. Each proposal needs a demonstrated pathway from policy change to household benefit, with its full costs and trade-offs made clear.
The collegiate challenge is not “why productivity?” It is “which reforms, for whom, and when?”
Climate change belongs inside that assessment, not alongside it as a separate concern. A productivity agenda must consider both improvements in economic performance and protection against climate-related losses.
OECD research across 23 advanced economies finds that high-temperature days and heatwaves reduce labour productivity. Smaller and less productive firms face particularly pronounced effects. Protecting workers and adapting workplaces are therefore economic-capacity measures as well as health measures.
This reinforces the case for assessing both gains created and losses avoided in any net zero policy. A resilient electricity system, an efficient home or infrastructure designed for a changing climate should be evaluated over its useful life – not merely against its initial expenditure. Our work highlights this net zero transition through electrification and renewable energy improves energy productivity while contributing to the emissions reductions needed to limit future climate risks.
Every nation needs a reform programme that fully embraces this transition, makes useful services cheaper, shares the gains and reduces exposure to future shocks. The transition to a low-emissions economy should be central to that task.
Higher output matters. But the true value of an economy is the benefit it delivers to its people. And in our moment in history, it’s all about dramatically stopping climate change and making a better economy at the same time.
Productivity is a means to that end, not the end itself.
Professor Ray Wills, Managing Director, Future Smart Strategies; Adjunct Professor, The University of Western Australia
Professor Peter Newman AO, John Curtin Distinguished Professor of Sustainability, Curtin University; advisor-at-large, Future Smart Strategies
