Australia’s economic future and the survival of its small businesses, rests squarely on one thing: productivity. That was the blunt message from economists Stephen Walters and Alex Robson during a panel on the future economy at COSBOA’s national conference.

Both economists agreed that without a lift in productivity, living standards will stall and growth will limp along at no more than 2 per cent a year, well below the long-term average. Walters suggests “productivity is the only thing that will raise living standards over time”.

A decade of stagnation

Robson, deputy chair of the Productivity Commission, reminded the audience that while productivity surged 45 per cent from the mid-90s to the mid-2010s, it’s barely budged in the past decade.

“Two decades of growth, and a decade of stagnation, that’s the problem we’re facing,” he said.

The Commission has tabled reports on skills, tech adoption, the care economy, and energy transition, but the common thread is that Australia must work smarter, not just harder. For small businesses, that means less red tape, better tax settings, and incentives to invest.

The policy pinch

Both panellists warned that policy and regulation are stifling investment. Robson flagged that investment as a share of GDP has fallen since the GFC, while mounting compliance burdens make it harder for small businesses to adapt.

“Governments often regulate to deal with the last 20 per cent of a problem, without recognising the costs for business,” he said.

The Commission is pushing for clearer guidance on red tape reduction and has floated a cut to the corporate tax rate for most businesses, offset by a small net cash flow levy.

Walters agreed, noting that small businesses lack compliance departments and legal teams, so every new industrial relations tweak or reporting requirement lands heavily.

“It’s a real dead weight on your time,” he said.

Work, wages and unions

The economists didn’t shy away from hot topics like the four-day work week and working from home. Walters was sceptical about union claims that shorter weeks boost productivity, while Robson noted that hybrid work can bring benefits, but fully remote setups often don’t.

Unions have pushed for changes such as six months’ notice before requiring staff to return to the office, but both economists questioned whether governments should be mandating work arrangements at all.

Rate cuts and global shocks

On the brighter side, Walters tipped more interest rate cuts ahead, potentially two or three by early next year, which will ease pressure on mortgage-holders and businesses alike. But he warned that global uncertainty, from Trump’s tariffs to ongoing wars, could drive inflation back up.

Australia’s exposure to China and global trade tensions also looms large. While tariffs sometimes nudge firms to find new markets, the adjustment is costly, and small businesses often feel it most.

Future predictions

Both economists pinned their hopes on genuine reform coming out of the government’s economic roundtable. But Walters cautioned against repeating the 2022 jobs summit, which left businesses scarred by unexpected industrial relations changes.

“There’s no silver bullet,” Robson concluded. “We need lots of small, practical reforms that add up.”