Economists are warning that the federal government's assumption for Australia's rate of productivity growth in coming decades is overly optimistic and that future living standards are likely to decline.
The Abbott government's intergenerational report, released on Thursday, assumes productivity growth of 1.5 per cent over the next 40 years, down from 1.6 per cent in 2010 and 1.75 per cent in 2007.
Productivity growth accounts for the bulk of improvements in Australians' living standards, being the most important of the three drivers of long-term economic growth, ahead of population growth and workforce participation.
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But the 2015 intergenerational report – produced with help from Treasury – has assumed that average annual labour productivity growth will be 1.5 per cent over the next four decades in Australia.
Economists are warning that, though the figure is slightly lower than it was in the last report, it will be hard to meet it without serious technological innovation and economic reform.
They also warn that it is probably overly optimistic.
"The two big drivers of productivity are new technologies and new reforms, and there are risks on both fronts," Deloitte Access Economics director Chris Richardson told Fairfax Media.
"That 1.5 per cent figure assumes that something rides to the technological rescue. It also relies on new reforms, and Australia's productivity performance has always been a lagged function of the courage of its politicians."
Mr Richardson, a former Treasury official, says the assumption of 1.5 per cent productivity growth will require political bipartisanship to push ahead with competition reform and industrial relations reform, and the co-operation of a population that accepts the need for reform.
If these things do not occur, then Australian living standards could fall, he said.
Mr Richardson's view was also shared privately by Treasury officials, who warned on Thursday that the assumption of a 1.5 per cent productivity growth rate was probably too high.
Commonwealth Bank economist Diana Mousina said on Thursday that the slowdown in productivity in the 2000s – from an estimated average of 2.2 per cent in the 1990s – had reflected the surge in investment in the mining sector and parallel slowdown in economic growth because of the GFC.
"The increase in [mining] investment is only yielding the returns [from resource exports] now which has resulted in a fall in productivity growth," Ms Mousina said.
Finance Minister Mathias Cormann admitted on Thursday that the government did not know where the next technological positive shock could come from.
"We don't know what we don't know," Mr Cormann said.
"From where we sit, 1.5 per cent, we put it on the table as being the assumption we're working with and, obviously, if we can do better, we should, and if there is a technological advance that helps us improve productivity by more, even better.
"But we think we need to be open and transparent about what the current working assumption is."
