Is the government right to encourage the development of AI in Australia? If so, how should they do it, and do it equitably. Michael Keating examines the issues in a two-part series.

The cost-of-living crisis continues to be the number one political issue in Australia. As I have argued on numerous occasions (Pearls & Irritations, 8 October 2025, 2 April 2026, 21 April 2026), this is the obvious reason for the surge in populism and support for One Nation.

In response, Prime Minister Anthony Albanese points to the recent tax cuts that favoured those on lower incomes, the government’s $43 billion housing agenda, and the boosts in Medicare. But the size of the budget deficit, and the government’s refusal to increase taxation, means that it is fiscally limited in providing much more targeted assistance along these lines.

Instead, the only way to significantly reduce the pressures on living standards for most households is to achieve an increase in real wages, which in 2025 were slightly lower than they were at their peak four years ago (see Table 1). But real wages will only increase on a sustainable basis if productivity also increases at the same rate. Indeed, Australian productivity was also lower in 2025 than it was at its peak four years previously (see Table 1), and so the fall in real wages is not surprising.

Table 1 International comparison of real wage and productivity growth since 2019 Index values with 2019=100.0

The government has received many proposals about how to increase productivity growth, but while they may help a bit, it is doubtful that these proposals will make much difference. As can be seen from the comparison in Table 1, in only five out of 15 OECD countries with economies similar to Australia’s were real wages higher than in 2025. In only four of these countries was the increase in their real wages between 2019 and 2025........

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