Reform, resilience, and the implications of the RBA’s steady hand
Australia’s economic future is at a critical stage, as the RBA’s decision to hold interest rates steady at 3.85% points to the urgent need for productivity reforms. The RBA’s caution signals that, without meaningful government action, monetary policy alone cannot deliver sustainable growth.
Australia’s sliding global competitiveness and persistently weak productivity growth have placed the nation’s economic future at a crossroads. Federal Treasurer Jim Chalmers has made clear that productivity reform is central to boosting living standards, lifting wages, and securing long-term prosperity.
The RBA’s decision on Tuesday to hold the official cash rate steady adds further pressure on the Government to move beyond rhetoric and deliver broad-based reforms that can stimulate productivity, investment, and economic resilience.
In his recent policy address, Mr Chalmers described productivity as “the single most important driver of long-term living standards” and called for deeper economic transformation to shape the kind of society Australians want. His remarks came as the IMD World Competitiveness Yearbook 2025 revealed Australia’s fall from 13th to 18th place globally, highlighting urgent challenges including cost-of-living pressures, housing supply, clean energy transition, and the need to revive productivity growth.
Australia’s economic performance ranking fell sharply, with business efficiency dropping from 22nd to 37th and real GDP growth per capita plunging from 20th to 60th. The message was clear: Australia risks falling behind without decisive action.
Enter the Albanese Government’s Future Made in Australia plan. Costed as part of the last budget, it will see more than $22 billion spent over the next decade to attract and enable investment in local manufacturing opportunities, primarily in the renewable energy space, in an effort designed to circumvent future supply chain issues and insulate us against the changing global economic landscape. It’s a bold plan, and time will tell how it plays out.
It will also take time to have the type of effect on the national economy that is needed now. Workforce reforms, real wage growth, budget management and continued investment in skilling Australia are important, but there are other opportunities the Government can consider and may seem open to.
The upcoming National Economic Roundtable on August 19 may be a pivotal moment for Australia. The Government has an opportunity to signal to businesses, investors, and workers alike that it is serious about addressing the country’s productivity malaise. This would require looking beyond the usual debates about income tax and GST to more holistic reforms, including modernising industry policy, ensuring regulatory efficiency, and fostering innovative ecosystems.
In a note to members CEDA CEO Melinda Cilento reinforced the need for genuine reform, noting that all levels of government must come together in the national interest. She emphasised that tax reform, regulatory efficiency, and strategic industry policy were vital levers to rebuild competitiveness.
Ms Cilento warned that while tax reform was essential, broader measures to improve business dynamism, foster innovation, and enhance public sector efficiency must also be part of the equation – and argued that state-based taxes such as stamp duty and payroll tax must be re-examined, along with more innovative approaches to address market failures and support industries that can drive future growth.
Mr Chalmers has made productivity reform central to the Government’s economic strategy, recognising that stronger productivity is essential for long-term prosperity, wage growth, and inflation control.
However, the RBA’s cautious approach may signal that, without genuine and measurable improvements in productivity, monetary policy alone may not be enough to stimulate sustainable growth or ease financial pressures.
The Treasurer warned that Australia must move beyond short-term fixes and political cycles if it is to secure its economic future.
The RBA’s decision drew reactions from key industry bodies such as CPA Australia, which called for tangible reforms at the upcoming Economic Reform Roundtable. Small and medium-sized businesses (SMEs), in particular, remained cautious amid ongoing uncertainty, with many urging the government to take decisive action to remove regulatory burdens, foster entrepreneurship, and create a more supportive business environment.
CPA Australia’s Business Investment Lead Gavan Ord said that while future rate cuts would be welcomed, substantive productivity-enhancing reforms would deliver a far greater and longer-lasting boost to business confidence – noting that without these reforms, “…many small businesses will remain in survival mode, reluctant to invest, expand, or hire”.
The biggest boost for small businesses would come from long-term commitments by the Government to revitalise the business environment by reducing regulatory burdens and fostering entrepreneurship.
Mr Ord said many small businesses had faced years of economic headwinds, and while lower interest rates might provide some relief, meaningful policy change was what would ultimately enable them to shift from survival to growth.
The RBA’s decision not to cut rates pointed to the need to align monetary and fiscal policy. As economic uncertainty persists globally, from geopolitical tensions to technological disruptions, Australia needs to strengthen its own foundations. This would mean not only investing in productivity-enhancing measures but also creating an economy resilient to shocks, adaptive to change, and inclusive in its growth outcomes.
Ms Cilento highlighted that Australia must also reconsider the role of strategic industry policy, an area that had received less focus in recent years. Done well, industry policy could drive innovation, attract investment, and position Australia as a leader in emerging sectors such as clean energy and advanced manufacturing, she said.
But she cautioned that regulation, too, must be rethought, because the current prescriptive and compliance-driven approach risked stifling innovation and slowing the pace of business transformation.
Alongside these supply-side reforms, the need for greater rigour around government spending and public service delivery was also highlighted. With an ageing population placing increasing demands on services, both Mr Chalmers and CEDA noted that the current trajectory was unsustainable.
Innovation in public sector efficiency and infrastructure delivery, they argued, would be crucial to ensuring that the benefits of productivity growth were shared broadly across the community. Of course what, exactly, public sector efficiency looks like in the context of a very unpopular election campaign by the Opposition to cutting the public service remains to be seen.
Ultimately, the shared message from government, business, and economic leaders is clear: monetary policy cannot shoulder the burden of economic transformation alone.
In order to restore competitiveness, lift living standards, and position Australia for future success, bold reforms are urgently needed – the stakes for productivity and Australia’s economic resilience have never been higher, and the time for action is now.
Contributors: Kris Doherty, Ray Jordan and Chris Leitch.
