Australian company lagging behind global peers on ‘productivity frontier’

The Treasury found that the same problem had developed in Australia, with slower adoption of leading technologies and processes among laggards.

“We find that Australian companies are catching up to the frontier more slowly than they did in the early 2000s. This suggests that Australian companies have been slower to adopt advanced technologies and processes, and to improve their performance in productivity more generally,” its researchers found.

Retail work has changed during the pandemic with a surge in home shopping. This may be one of the productivity changes initiated by COVID-19.

“The slowdown was most notable in industries with declining measures of dynamism and competitive pressures, suggesting that the slowdown may reflect weaker incentives and imperatives for businesses to improve.”

Research by the Productivity Commission last year found that economic growth per person over the past decade had reached its slowest rate in 60 years, both in terms of GDP per capita and income per anybody. Even excluding the impact of COVID-19, the previous nine years had been the worst in terms of income growth since the late 1950s. He noted that the decline in growth had led to a “fall” in the level of life.

The Treasury attributed about three-quarters of the slowdown in business productivity to a decline in the number of start-ups. New companies typically adopt new technologies that force existing companies to improve their operations while putting downward pressure on industry profit margins.

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He also attributed the slowdown to rising price markups, a sign of a lack of competition.

“The decline in dynamism and competitive pressures have significantly reduced the rate of firm-level productivity convergence, and thus productivity growth,” the research found.

Australian services companies were further behind the most productive companies in their sector globally than even Australian manufacturing companies compared to their global counterparts.

Independent economist Saul Eslake said that instead of rewarding small businesses with lower tax rates, more generous tax benefits should be offered to new businesses.

“It could be much more generous because there are far fewer new businesses than small ones, and may take a different form of lower tax rates or higher tax exemption thresholds, because many new businesses put time to start generating taxable profits,” he said. .

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