Small business explainer: What’s Going On in the World in 2025? Part 3 – Australian Productivity

About the Author: Ashley Thomson
Ashley Thomson

In the final of our 3-part series for Tenfold clients and other small-medium businesses, we’re turning to the topic of Australian productivity as we address the questions: “What is going on in the world? What does it mean for Australia, and how might it impact my business?”

As a refresher, part 1 I explored issues in China, what the impacts of those issues mean for Australia, what signal to watch, and what to do as a business owner. You can revisit the article here: Small business explainer: What’s Going On in the World in 2025? Part 1 – China

In part 2 we turned our focus to the US and at how changes touted by President Trump might impact Australian business. Reread that article here: Small business explainer: Part 2 – Trump’s US

I encourage Tenfold clients and other small business coaching prospects to think about your business as you read these briefings. My intention is to supply information that is relevant and cuts out the noise, along with practical advice for how to apply these insights to your business.

I’ll summarise the key points then I’ll explain what it means for Australia, what signal to watch for and what to do as a business owner. References have been included at the end, if you want to read more. If you’d like to share this briefing with other business owners in your network who would find it useful, please do so and let them know they’re welcome to reach out to us to discuss their business.

Understanding World Changes in 2025 and What They Mean for Your Small Business: Part 3 – Australian Productivity

So let’s round out this series by doing a deep dive on the Australian economy. It has been well publicised that Australia has been the beneficiary of China’s mineral imports. This started around 2005 and has been maintained for the last 20 years. Australia’s tax income has benefited greatly from this export boom, yet government spending has gone up at a higher rate than government income. The excess in government spending has been financed by government debt.

However, with record tax income and increased government debt, there is one key metric of the health of the Australian economy that hasn’t improved: productivity.

Point 1: Australian public sector productivity has declined

The way to think about productivity for the Australian economy is the same as the way you think about it in your business: how much income do I generate from the billable hours of the people I employ and the machinery I run? Australian businesses have achieved a modest improvement in productivity over the last decade (with a hiccup during COVID), but public sector productivity has declined over the last 5 years. Government departments, hospitals, schools and other public services have actually gone backwards in their output per hour worked.

The following graph shows the increase in the wages paid by each state government in blue. This compares with the size of each state economy.

Chart of Growth in Wages Bill vs State Economy [Australia]

Source: https://www.macrobusiness.com.au/2024/11/australian-economy-hamstrung-by-bureaucratic-bloat/

As business owners we know that if our wage bill increased at a rate double the increase in our revenue, we’d have significant productivity issues.

Point 2: Things to look for in the federal election

Australians will go to the polls this year, so these are some areas to watch for in the federal election:
Tax changes. Don’t expect tax reform to mean you’ll pay less tax. We’re likely to see discussions regarding a redistribution of taxes, shifting more tax paid on investments (for instance, capital gains tax and land tax) and less tax payable on income (for instance, income tax on salaries).

There will be a big push to use the tax system to promote more home ownership. Corporate and community leaders have been pushing for this and politicians know it is necessary, but it will be a difficult challenge for them to sell it across the Australian voting population.

Industrial relations changes. Depending on the outcome of the parliamentary mix there may be a movement to modify the Fair Work Act 2009 and change award conditions to assist productivity. There could be some positive outcomes for small business regarding award simplification and possibly an expansion of the definition of a small business, up from 15 employees.

The rise of the voting power of Millennials and Gen Z. These demographic groups now represent a voting bloc approaching 50% of the electorate, and their needs and demands are different from Generation X, Baby Boomers and the Silent Generation. Expect to see debate regarding productivity related discussions including expanded childcare subsidies and enhancements to maternity leave support.

Business regulation. Elon Musk has been vocal in the US with his proposed ‘Department of Government Efficiency’. There will likely be a push to do something similar in Australia, especially relating to the property and construction sector. There could be a situation whereby the federal government proposes the states change their taxes and regulations and incentivise them with federal government grants.

Signal to watch: Australian federal election

What we can expect: Don’t expect to hear much of substance before the election but watch the announcements that happen after the election once the balance of power is decided.

What to do as a business owner

Keep reading these briefs and discussing broader changes with your coach.

Stay ahead of your competitors by keeping on top of information about changes to tax, industrial relations and regulations, and adjusting your strategy and big picture plans accordingly.

Related articles: Part 1 – China | Part 2 – Trump’s US

Additional reading on the topics covered in Part 3: Australian Productivity:

I know there’s a lot of info to digest in this 3-part series. As coaches, we’re monitoring the landscape of issues that may impact your business.

Thanks to those who have taken time to provide feedback on these briefings. The reason I do them is to give you insights and keep you informed, so I’m glad we’re hitting the mark.

Cheers,
Ash