The Australian Government has made national productivity growth a top priority for its second term, and Australia’s regional economies are well positioned to lead the way.
Simply defined, productivity growth refers to the rise in output per hour worked and is the key determinant of long-term growth in real wages and improved living standards. Australia’s productivity is worryingly in decline, falling by one per cent in the year to March 2025. It is critical that Australia’s productivity performance is reversed through a productivity-enhancing reform agenda.
Regional Australia needs to be front and centre of the national productivity discussion. The regions are home to many of Australia’s most productive businesses and industries, including in the mining, agriculture, manufacturing, tourism and energy sectors. Addressing productivity challenges in the regions in which they operate will support further growth in these sectors and deliver significant dividends in terms of jobs, output and income generation.
Federal Treasurer Jim Chalmers has commissioned advice on productivity reforms from the Productivity Commission and will host a productivity summit in Canberra in August. In the Regional Australia Institute’s (RAI) recent submission to the Productivity Commission, we argue for targeted and place-based policy reforms that recognise the unique productivity challenges and opportunities in regional areas.
Despite their fundamental importance to the national economy, regional areas continue to face persistent productivity barriers. These include limited access to key infrastructure, constrained labour mobility, skills shortages, lower educational attainment and subpar digital connectivity. These barriers must be addressed through coordinated, place-based policy interventions if regional areas are to realise their full economic potential.
The movement of people from the cities to the regions is reshaping Australia’s population distribution and bringing new momentum to regional communities. It is driven by factors including the rise of remote work, lifestyle appeal and unaffordable city living.
A key RAI recommendation is for a national population plan that includes a strong regional focus. Such a strategy should provide a blueprint for long-term regional growth, planning and investment that delivers higher levels of productivity, liveability and sustainability. Regional centres must be supported with infrastructure and services that match their growing populations. This includes transport networks, housing supply, digital connectivity and access to healthcare and education.
A significant focus of the national productivity debate will be on major nation-wide policy reforms, such as changes to the tax system and deregulation initiatives. If done well, these reforms will lift productivity rates in all corners of the country including in the regions.
A dedicated focus on regional productivity challenges is also needed. The dynamics in regional economies differ from those in metropolitan centres, as also they do with each other, with distinct industry mixes, demographic profiles and infrastructure contexts by region. Regional data and analysis should be used to identify place-based initiatives and investments that can overcome localised barriers to regional productivity growth.
On labour mobility, there are multiple obstacles preventing skilled workers from relocating to regional areas, despite significant job vacancies. These barriers include difficulties in recognising migrant and interstate qualifications, lack of housing in regional areas and underinvestment in regional workforce development. Better harmonisation of licensing requirements, improved settlement support for skilled migrants in regional communities and greater investment in training and local skills pipelines can ease these barriers.
Education is another critical productivity lever. There are longstanding gaps between regional and urban students, especially in Year 12 completion and tertiary access. More flexible, regionally tailored tertiary pathways and greater investment in regional learning hubs would support better educational outcomes in the regions, improve workforce development and drive broader socio-economic gains.
While remote work and online education have opened up new opportunities for regional Australians, connectivity continues to hold many communities and businesses back. Further investment in high-speed broadband and mobile coverage, particularly for smaller regional towns and remote areas, and adoption of national minimum connectivity standards will unlock increased regional economic activity.
Regional areas will carry the physical footprint of Australia’s shift to renewable energy which offers transformative economic opportunities. A national net zero regional development strategy can support the growth of new highly productive industries utilising access to reliable and affordable clean energy, with opportunities for increased workforce and local industry participation.
Finally, regional productivity growth can be enhanced with stronger regional decision-making. Regional communities should not simply be passive recipients of policy from Canberra or state capitals but instead should have more power to shape their own economic futures through decentralised governance, local leadership and place-based strategies.
Our submission positions regional Australia as central to the nation’s productivity future. With targeted investment, greater autonomy and more inclusive planning, the regions will drive Australia’s next wave of economic growth.
Simon Pryor
Research and Policy Director, Regional Australia Institute (RAI)