Australia’s productivity growth has retreated over the last two decades and is now increasing at its lowest rate in 60 years, a Productivity Commission report has found.

The Productivity Commission (PC) interim report released on Tuesday – part of a five-year inquiry – found while Australia’s productivity rate had slipped to its lowest rate since the mid-20th century, improving performance was possible.

The PC said boosting productivity meant dealing with global challenges like decarbonising the economy, geopolitical tensions, supply chain disruptions as well as grappling with Australia’s ballooning services sector.

It said the country’s large and growing services sector was an area where productivity growth in the past “has been relatively hard to achieve”.

“In 2022, 90 per cent of Australian workers are employed in the services sector. This has a significant impact on how we think about productivity,” Productivity Commission chair Michael Brennan said in a statement.

“We have to look for new opportunities to drive productivity growth, including reviewing our policy levers and the industries where we concentrate our efforts.”

The overarching principle of productivity – that people should aim to work smarter, not harder or longer – was also as important as ever, the report stated.

It cited innovation, data, digital technology and cyber security, a productivity-friendly business environment, and a skilled and educated workforce as key enablers of future productivity uplift.

“These enablers are relevant to our current context – the rising services sector, the challenge of decarbonisation and continued openness to the best the world can offer,” Mr Brennan said.

“Productivity growth is essential to address the nation’s economic challenges, including rising cost of living pressures, but it is not guaranteed.”