Australia does not have the luxury of avoiding reform

After watching yet another morning television program invite politicians on to “debate” the state of the economy, I found myself increasingly frustrated by what passed for serious economic discussion.

The format was familiar. The questions were predictable. The talking points were rehearsed. The accusations flowed freely.

What was missing was any serious discussion about solutions.

Rather than confronting the structural challenges facing Australia, each side seemed more interested in attacking the straw man it had constructed of its political opponents. One blamed the previous government. The other blamed the current one. Both appeared convinced that, if Australians would simply accept their preferred version of events, everything would somehow work itself out.

Yet for those of us operating in the real economy, that story feels increasingly disconnected from reality.

As a business owner and mortgage and finance broker, I spend my days speaking with Australians who are employing people, carrying debt, investing capital, building businesses and trying to create opportunities for themselves and others. They experience the economy through their cash flow, borrowing costs, margins, tax obligations and capacity to invest, not through media appearances, political strategy meetings or opinion polling.

The more I listened to the debate, the more compelled I felt to lean into my journalistic curiosity and ask these simple questions:

• What if both sides are debating the symptoms while avoiding the causes?
• What if our fundamental economic challenge is not simply the latest inflation figure, interest-rate decision, energy announcement or political controversy?
• What if the deeper problem is Australia’s long-term productivity slowdown, the continuing expansion of government expenditure and employment without sufficient measurement of outcomes, a tax system that discourages productive risk-taking, and a political culture increasingly reluctant to pursue difficult reform?

Instead of examining those issues, we argue about who deserves the blame.

That may be effective politics. It is not effective economic leadership.

The first uncomfortable truth is productivity

Productivity is not about forcing Australians to work longer hours or asking employees to do more for less. It means producing more value from the same labour, capital, technology and resources.

It is how businesses can sustainably pay higher wages without simply increasing prices. It is how governments can fund better services without permanently imposing higher taxes. It is how Australia improves living standards rather than merely distributing the proceeds of population growth and commodity exports.

The evidence is sobering.

The Australian Bureau of Statistics reports that Australia’s 20-year average annual labour-productivity growth rate declined from 1.8 per cent in 2003–04 to 0.8 per cent in 2023–24. The Parliamentary Library reports that the decade from 2010 to 2020 produced Australia’s weakest average productivity growth in 60 years. It also noted that labour productivity accounted for more than 70 per cent of real gross domestic product (GDP) growth per person over the preceding 40 years.

The latest annual market-sector data are equally concerning. In 2024–25, market-sector multifactor productivity fell by 0.5 per cent and labour productivity declined by 0.2 per cent. In the year to June 2026, the economy grew by 2.1 per cent, but GDP per hour worked fell by 0.2 per cent.

Those figures should be at the centre of the national economic debate.

Without sustained productivity growth, Australia cannot indefinitely deliver rising real wages, improved public services, greater business investment and higher living standards at the same time. Eventually, governments are left trying to redistribute a pie that is not growing quickly enough.

The second uncomfortable truth is that government cannot remain exempt from scrutiny

The latest available ABS Public Sector Employment and Earnings release recorded 2,597,300 public-sector employee jobs in June 2025. That was an increase of 3.3 per cent in one year. Public-sector cash wages and salaries reached $249.5 billion in 2024–25, an increase of 7.6 per cent.

State governments accounted for 77 per cent of public-sector employment, the Commonwealth accounted for 15 per cent and local government accounted for 8 per cent. This is not simply a Canberra issue. It exists across every level of government.

These figures require careful interpretation. The current ABS series measures employee jobs, not necessarily unique individual workers, and it should not be casually compared with separate measures of the labour force. The methodology also changed when the ABS moved to Single Touch Payroll data, meaning long-term comparisons across the old and new series must be treated cautiously.

Nor do the figures prove that every additional public-sector job is unnecessary. Many are teachers, nurses, police officers, emergency workers and other essential front-line employees.

But acknowledging the importance of those workers does not mean abandoning scrutiny of the size, composition and effectiveness of government.

The proper question is whether Australians are receiving measurably better services and stronger national capability from this growth.

In the private sector, a business that continually increases its costs without improving its output or value eventually fails. Customers leave, capital moves elsewhere and jobs are lost.

Government does not face the same discipline. It can increase taxation, borrow more or redirect expenditure. That makes transparent measurement and accountability more important, not less.

A successful modern economy needs an effective public sector. But it also needs a productive private sector capable of generating the employment, profits, wages and taxable income that support that public sector.

The third uncomfortable truth concerns interest rates

The Reserve Bank of Australia is correct that monetary policy affects the broader economy. The cash rate influences other interest rates, borrowing, lending, spending, economic activity, employment and inflation.

However, its immediate cash-flow burden is not distributed evenly.

When interest rates rise, the most direct impact falls on people carrying debt. That includes mortgage holders, farmers, property investors, entrepreneurs and small-business owners. A business owner may face higher repayments on commercial finance and a home loan simultaneously while also dealing with weaker consumer demand and higher supplier costs.

The RBA’s research confirms that small-business conditions and confidence, although improving during 2025, remained weaker than those experienced by larger businesses. It also found that small businesses continued to report difficulty obtaining finance on terms that suited their needs. The RBA specifically recognised that difficulty accessing finance can restrict business growth and innovation.

The argument is not that interest rates affect only borrowers. They clearly influence the wider economy. The point is that the direct financial pressure falls most heavily on leveraged households and businesses, including many of the people investing, expanding and creating employment.

As a finance broker, I see this reality firsthand. Monetary policy may operate across the economy in aggregate, but borrowers experience it as a very personal monthly cash-flow challenge.

The fourth uncomfortable truth is taxation

Australia’s tax system has become a collection of concessions, thresholds, exemptions and political compromises. Governments speak frequently about encouraging enterprise, employment and innovation, yet genuine tax reform remains largely absent from mainstream political debate.

A modern tax system should raise the revenue needed for public services while minimising barriers to work, investment and productive risk-taking.

Tax reform should not be code for simply collecting more revenue. It should involve simplifying the system, removing inefficient taxes, broadening appropriate tax bases, lowering unnecessary compliance costs and improving incentives to invest in businesses, skills and technology.

The OECD’s Revenue Statistics 2025 country note for Australia provides a detailed comparison of Australia’s tax structure with the OECD average. That comparison should form part of a serious national reform discussion, rather than another contest in which each party identifies one politically convenient tax concession while refusing to examine the system as a whole.

None of these reforms will be easy.

Meaningful reform creates visible costs before its full benefits emerge. It challenges protected interests. It requires governments to close ineffective programs, remove unnecessary regulation and explain difficult trade-offs honestly. It requires oppositions to offer credible alternatives rather than exploit every difficult decision.

Most importantly, it requires politicians to stop treating Australians as voting blocs to be purchased and start treating them as adults capable of understanding economic reality.

Australia remains a prosperous, capable and resource-rich country. We have strong institutions, skilled people and remarkable potential.

My concern is not that Australia faces an immediate economic collapse. It is that we are becoming comfortable with gradual decline.

A little less productivity.

A little more debt.

A little more spending without measurement.

A little more taxation without reform.

A little less competitiveness.

A little less ambition.

Over time, those individual compromises accumulate into a much larger problem.

Australia’s greatest economic challenge is not simply the inflation figure, the interest-rate cycle or whichever political controversy dominates tomorrow’s headlines.

It is whether our leaders still possess the courage to undertake reforms that strengthen the country’s productive capacity and secure its prosperity.

Because eventually, every nation confronts the same reality: You cannot sustainably spend what you do not produce. You cannot tax economic activity that is never created. And you cannot build long-term prosperity while continually avoiding the difficult decisions required to sustain it.

Trent Carter is a partner of Accendo Financial.

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