How AI & SMEs Can Help Fix Australia’s Productivity Problem

Treasurer Jim Chalmers has doubled down on the need for Australian businesses to embrace artificial intelligence, declaring the technology may provide the answer to the nation’s productivity problems. But his own department has added a caveat, warning businesses of all sizes they must adopt AI more broadly and deeply, and change the way they work, if there is to be a meaningful impact on economic growth.

Chalmers outlined his vision in an opinion piece that serves as a teaser for his three-yearly Intergenerational Report, to be released later this month, which spells out the economic and societal shifts the federal government expects over the next 40 years. He says AI will play a starring role, compared to the 2023 report.

“Artificial intelligence is shaping up to be the biggest economic transformation in our lifetime,” Chalmers declares. “It will impact every part of our economy and society, in every corner of our country. We are well-positioned to be a big winner in this AI economic revolution if we get this right.”

The Treasurer has also hinted that support is on the way to help small and medium businesses implement AI tools within daily workflows.

Employment Hero CEO and Co-founder Ben Thompson says early adopters among his customer base are reporting clear benefits. “75 per cent of workers say it has improved their productivity. 74 per cent say it has improved the quality of their work,” he says. “The data is unambiguous. Now we need to make sure the settings are right for businesses to actually capture it.”

AI Could Help Lift Australia Out Of A Productivity Slump

Chalmers believes that the rapid evolution of AI models could make its economic impact profoundly different from past waves of technology, such as during the Industrial Revolution.

Higher productivity, higher investment and higher living standards are all there for the taking, according to Chalmers, if Australia maximises the substantial economic opportunities of this technological revolution. He says it has the potential to unlock new well-paid jobs and new ways of working, attract billions more in investment, grow AI sovereignty, position Australia as the business partner of choice in the region, and create new high-value opportunities that combine workers’ expertise and experience with new tools and training.

But while talking up potential positives, Chalmers has acknowledged what he refers to as “new risks and legitimate concerns and anxieties.” He stops short of spelling out possible downsides of AI but acknowledges he has a responsibility to ensure Australians are beneficiaries, rather than victims, of change.

“It also means encouraging investment and uptake in the safe and sustainable way that Australians expect, while ensuring the benefits are broad-based and in the interests of workers,” he says.

In relation to productivity, Chalmers says investment in AI infrastructure could push global growth 0.3 percentage points higher this year. At home, he suggests AI will be central to lifting Australia out of the productivity slump it has been in for 20 years. “Achieving a higher productivity trajectory depends on how we encourage adoption and diffusion, uplift skills, attract talent, and grasp opportunities in more parts of the AI supply chain, including training new models here,” he says.

No One Is Sure How AI Will Affect The Labour Market

The Treasurer’s remarks complement an in-depth Treasury briefing note which describes artificial intelligence as “the first substantive, credible global productivity growth accelerant in almost two decades.”

The report says AI has the potential to turn around languishing productivity growth and help Australia reach its 30-year target of 1.2 per cent. It goes so far as to illustrate an upside scenario in which productivity growth could spike to 1.5-2 per cent. However, it also offers a counter to Chalmers’s optimism. “There is a realistic downside scenario in which the pace of AI innovation and diffusion are weak, and offsetting structural headwinds keep productivity growth around its current underlying rate of 0.5-0.8 per cent,” the report notes.

The Treasury document outlines how Australia is already seeing economic opportunities from AI through investment in data centres, with 162 in operation and 130 more planned, with an estimated investment pipeline of $150 billion by 2030.

But it tempers enthusiasm by noting that a data centre building boom would likely increase competition for labour and force up the price of construction materials. This could boost the risk of inflation and require further interest rate rises.

Instead of just building data centres for overseas giants, Thompson argues Australia needs homegrown AI capabilities. “We’ve put a formal proposal to the Office of AI for a sovereign frontier AI lab, because if we build this right, a win for Australian AI shows up in people’s superannuation, not just in a headline,” he says.

In relation to jobs, Chalmers has promised the government will “measure and manage impacts on the labour market,” without elaborating on what those impacts may be. The Treasury report goes further, saying AI has the potential to automate a significant share of tasks currently performed by highly-skilled workers.

“The effects are likely to be profound,” the report predicts. “The ability of the labour market to adjust will depend on the magnitude and timing of the positive technology shock, how it is adopted and diffused throughout global and domestic economies, and how well policy settings adapt to the changing economic environment.”

Despite predictions of mass job losses, Thompson says his company’s data doesn’t support the fear. He cites survey findings suggesting AI-core businesses are growing entry-level headcount at more than double the rate of non-adopters. “Only 16 per cent of businesses cut entry-level roles. AI-related job postings have grown fivefold in under two years. The businesses going hardest on AI are hiring more, not less. The opportunity is real and we should be leaning into it,” he says.

AI Adoption Is Broadening But Needs To Go Deeper

While technology evolves at a dizzying pace, the Treasury report describes Australia’s adoption of AI as slow. It reveals two-thirds of businesses in Australia have adopted AI in some form, but fewer than 10 per cent describe their adoption as significant.

“Early uptake of AI in Australia is promising, but task automation is still at an early stage and greater reorganisation within firms is needed to capture AI’s productivity benefits,” it says.

The report also notes that larger businesses are more inclined to adopt AI faster, since smaller firms face roadblocks associated with technical skills, data privacy, computing capacity, cloud infrastructure and access to foundation models.

It says adoption is patchy. The highest rates of AI integration are in IT, telecommunications, professional services, finance and insurance, while there are avenues for rollout across health, transport, agriculture and manufacturing.

Chalmers says his government’s commitment to higher productivity “means helping more firms, especially small and medium businesses, overcome the barriers to AI adoption.” But he adds that AI alone will not solve the productivity crisis and that broader measures such as cutting red tape, lowering taxes and incentivising innovation will also be crucial.

Thompson agrees red tape is a bigger sticking point than appetite. “Fewer than one in ten businesses reporting significant AI adoption doesn’t surprise me,” he says. “Most small business owners are already juggling customers, staff, suppliers and cash flow. Then you add up to $80,000 a year in compliance costs just to stay legal. That’s the time and money that would otherwise go toward growth. You don’t close that gap with awareness campaigns or another layer of process. You close it by reducing the burden that crowds out every other priority.”

The Australian Chamber of Commerce and Industry echoes this sentiment, pushing for urgent reform to ensure Australian businesses are competing on a level playing field with international competitors. “Currently regulatory and tax settings are not where we need them to make the most of this AI moment in Australia,” says CEO Andrew McKellar. “Expecting Australian businesses to globally compete on AI while loading them up with excessive tax and regulatory burdens does not compute.”