Deloitte Access Economics Business Outlook: Productivity promise

Although the global economic and geopolitical environment is becoming increasingly fragile, there are still reasons to be optimistic that the pace of Australian economic growth will strengthen through the remainder of 2025 and into 2026.

In the latest edition of Business Outlook, Deloitte Access Economics is forecasting economic growth in Australia to accelerate from an estimated 1.3% in 2024-25 to 2.1% in 2025-26, before lifting further to 2.4% in 2026-27. 

An important combination of lower inflation, declining interest rates, rising real wages, solid government spending growth and a robust labour market is expected to provide the basis for a gradual improvement in domestic economic fortunes in the near term.

Despite those positives, economic growth hit a speed bump at the beginning of 2025 as a combination of ex-Tropical Cyclone Alfred, other weather events and a dip in government investment constrained growth in the March quarter. 

While growth is forecast to pick up in coming years, it is expected to remain weak by historical standards. Economic growth averaged around 3.1% per annum in the four decades leading up to the COVID pandemic. Over the next decade the forecast average is just 2.2%. 

For much of the last 40 years, the global economic backdrop has broadly played to Australia’s comparative advantages. 

Significant structural forces – the mega-trends of globalisation, demographics, financialisation and technological change – have helped to boost growth and prosperity in a manner and magnitude so profound that it has permanently lifted Australian living standards.

In several important ways, however, the economic tailwinds generated by those forces are now fading. That is a reminder that Australia cannot simply rely on the global economy to drive prosperity. Instead, domestic economic policy settings are the key to long-term success. On that score, Australia has faltered. Productivity growth has slowed, with real wage growth following.

In this context, it is no surprise that the proverbial pet shop galah is talking about the need for reform. After a poll at which the Labor Party was returned with a significant, expanded majority, the possibility that the economic policy might finally become more ambitious has come to define the post-election zeitgeist. 

To its credit, the Federal Government has leaned into the discussion. Successive speeches at the National Press Club by the Prime Minister and the Treasurer, and the announcement of a looming productivity roundtable in the Cabinet Room, have raised hopes of meaningful change.

The Treasurer’s speech at the National Press Club made clear that ‘consensus support’ for a policy change will be required. Given almost every meaningful reform would inevitably create both winners and losers, achieving a consensus may prove an impossibly high bar. That would be a deep disappointment after the government has stoked anticipation for change.

One of the most significant levers to drive investment, productivity and a more efficient allocation of resources in the economy is the tax system. Deloitte Access Economics has long advocated for significant tax reform, most recently in modelling published in the twice-yearly Budget Monitor. That modelling includes tax changes such as:

• Increasing the rate of the goods and services tax (GST) and broadening the base to include fresh food and education
• Fully compensating households in the lowest two income quintiles for the effect of the higher GST on the cost of living
• Flattening the personal income tax schedule by raising the tax free threshold and instituting only two marginal rates
• Reducing the capital gains tax discount from 50% to 33.33%.

Importantly, this package of reforms would be accretive to the Federal Budget and grow the economy. That is, modelling demonstrates that tax reform can be positive for the economy, positive for the budget, and positive for Australian people. 

That is why the Treasurer’s promise to approach reform ideas from a “practical, pragmatic and problem‑solving middle ground” has the potential to be so significant.

This newsletter was distributed on 25^th June 2025. For any questions/comments on this week's newsletter, please contact our authors:

This blog was co-authored by Alex Scaife, Manager at Deloitte Access Economics

Click on the links below to read our previous Weekly Economic Briefings:

• Tax in Australia: one more piece of sticky tape (16 June)
• Australia’s housing conundrum (11 June)
• Retail Forecasts: Rain check? (04 June)
• Slowing productivity? AI might need to take the wheel. (28 May)