To lift Australia's productivity, the labour market must become more flexible and competitive, University of New South Wales, President and Vice Chancellor, Professor Fred Hilmer told a CEDA audience in Sydney.

Governments need to provide businesses with incentives to increase productivity, he said.

The golden years of the 90s where productivity was growing by two per cent per annum are over, and we have gone back to 0.2 per cent improvement in productivity, he said.

Competition and product market regulation has increased in the last five to six years and government's focus has shifted, he said.

"In the 90s, people were talking about what are you doing to increase shareholder wealth," he said.

"Governments today are driven by conformance and compliance, and risk management, rather than improving the wealth of enterprise, which is code for improving productivity and investment opportunities," he said.

He said education and infrastructure were important enablers of productivity, but weren't enough.

"We can get the best education in the world, but if managers in workplaces don't make these things happen then productivity won't improve," he said.

Like Professor Hilmer, COAG Reform Council, Chair, Paul McClintock said you must make sure there are incentives for productivity to remain high and without it, it becomes about performance verses compliance.

"If you do not drive this then everyone will default to compliance," Mr McClintock said.

He said state government views on productivity must align to achieve national productivity reform.

Having a shared vision on competition reform and productivity will deliver savings and lower costs to businesses, he said.

Mr McCintock said governments' productivity, in many areas, has a long way to go.

He said hard work needs to be done by officials.

"Accountability measuring performance has got to be done, and universities have to be part of deciding how you sensibly measure performance," he said.

"There is no point rewarding and punishing, if we don't have a system that everyone expects to be accurate."

If incentives are not in place then it's really hard to see how this is going to drive the results we are all hoping for, he said.

Politicians and officials who drive the details of complex reforms need to see the clear, measurable productivity gains, he said.

"If you're going to drive productivity in the public sector internally, then you have to be willing to look at functions as well as structures," he said.

Sydney Water, former Managing Director and Commission of Audit, former CEO, Dr Kerry Schott who led the recent audit of the NSW public sector, said if we want to increase productivity, we need systems to ensure accountability is in place.

She said of the 110 recommendations made of the Commission of Audit, the NSW Government accepted all to assist in improving productivity.

From the audit, she advised the NSW Government to follow themes around expenditure including:

• Partnerships and outsourcing;
• Workplace flexibility;
• Transparent and evidence based decisions;
• Collaboration and coordination;
• Prioritising the cost benefit as well as the analysis; and
• Then taking a "just do it" approach.

The Productivity Series is supported by Microsoft and University of Technology Sydney.

The fourth and final session: Productivity - A Key concept in economics will take place on Monday, 26 November 2012.