Australia’s capital productivity has fallen 18% since 1995: Productivity Commission
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The news: Capital productivity in Australia has fallen 18.6% between 1995 and 2025, according to the Productivity Commission’s (PC) latest annual bulletin.
The context: PC research economist Joseph Christensen flagged that “most of the decline” was between 2005 and 2014 when capital input growth was relatively higher than the decade prior and gross capital formation was nearly double, driven by the mining boom.
He said that “declining capital productivity is not necessarily a bad thing” as it could be used to produce the same output in less time. However, the decline could also be indicative that “we are investing in unproductive capital or mismanaging the capital we already have”.
When taken in conjunction with labour productivity and compared with a selection of other countries, Christensen said Australia “has slightly lower capital intensity but higher labour productivity, suggesting we are better than average at effectively allocating and managing our capital or investing in technology”.
In order to improve productivity, the PC reiterated recommendations that “governments improve Australia’s tax and regulatory systems to support innovation and provide free or low-cost access to research to increase the diffusion of ideas across all firms”.
Christensen also called for a strengthening of competition and increasing access to finance to stem a slowdown and decline in the efficiency of capital moving from less productive firms to more productive firms.
PC deputy chair Alex Robson highlighted that multifactor productivity, a measure of how well labour and capital combine to produce outputs, has fallen 0.5% over 2024-25 according to Australian Bureau of Statistics released in early February.
“There are many possible reasons for Australia’s recent poor track record of MFP growth. One possible reason is slowing accumulation of human capital — while our labour force continues to grow, we also need a skilled workforce that can adapt to changes and meet employer demands,” Robson said.
The source: Productivity Commission annual productivity bulletin 2026
