Australia capital productivity plummets 18% since 1995

Economy

Written by Liezl GambePublished Feb. 19 2026Last Updated Feb. 19 2026

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Australia's economic engine is showing signs of long-term strain as new data reveals capital productivity has plummeted by nearly 19% over the last three decades.

According to the Productivity Commission's annual bulletin released Feb. 19, capital productivity fell 18.6% between 1995 and 2025, raising urgent questions about the nation's investment efficiency.

PC research economist Joseph Christensen noted the sharpest decline occurred between 2005 and 2014, a period marked by the mining boom where capital formation nearly doubled.

While Christensen clarified that declining capital productivity isn't inherently "bad" if it reduces production time, he warned it could signal a shift toward "unproductive capital" or systemic mismanagement.

Despite the slump, Australia maintains a competitive edge in labour productivity compared to global peers, suggesting high efficiency in technology integration.

However, broader metrics remain grim: multifactor productivity—the gauge of how effectively labor and capital work together—dipped 0.5% over the 2024-25 financial year.

PC Deputy Chair Alex Robson attributed the sluggish MFP growth to a "slowing accumulation of human capital," emphasising that a growing workforce is meaningless without the specialised skills required to meet modern employer demands.

To reverse the trend, the Commission is calling for aggressive reforms to tax and regulatory systems, alongside enhanced competition and better financial access to ensure capital flows toward high-performing firms rather than stagnating in less productive sectors.

Australia capital productivity plummets 18% since 1995

Frequently asked questions

Why has Australia’s capital productivity fallen 18.6% since 1995?

Is a decline in capital productivity always a negative sign for the Australian economy?

How does Australia’s labor productivity compare to its capital productivity?

What is Multifactor productivity and why did it fall in 2024-25?

What role did the mining boom play in Australia's productivity slowdown?

Why is "human capital" a concern for Australia’s future economic growth?

What policy changes is the Productivity Commission recommending to fix these issues?

What are the key risks for retail investors following this Productivity Commission report?