"It is essential that we have a policy environment that can enable Australia to reach its productivity potential," Productivity Commission, Chairman, Gary Banks AO has told a CEDA audience in Sydney.

Mr Banks said we should see a natural productivity recovery in the short term, but "the question is, if this is going to normalise to some rate, what rate will that be, and policy will play a key role in determining what that equilibrium rate going forward is going to be," he said.

"Most people would agree with that, but there's lack of agreement about on what matters most."

Manufacturing remains a relatively highly assisted sector and we are seeing more demands for assistance, he said.

"Job losses within manufacturing are concentrated in the least competitive industries and sectors," he said.

"Which also tells us, that industry assistance, whatever it might achieve, is not very effective at helping industries retain jobs."

"The issue is not about providing more assistance, where the costs will generally exceed the benefits ... but how we can better allocate what assistance is provided.

"Innovation is a far more prospective area to be thinking about, but we need to think very carefully about the design of those programs if they're going to generate a net social payoff.

"None of this is to deny the pressures, but rather to say that propping up the least competitive production in the manufacturing sector is not the answer.

"The best assistance is to help firms increase their productivity and their competitiveness by reducing regulatory burdens and constrains and importantly, avoiding imposing new ones."

On the importance of innovation as a key contributor to boosting productivity levels, Senator for New South Wales, Arthur Sinodinos AO said the role of government is to foster a culture of collaboration and commercialisation between academia, publically funded research bodies and the business sector.

"Our aim should be to create a culture which thrives on innovation, which rewards excellence, which appropriately balances risk and reward, and bring employees and employers together in the common pursuit of these goals," he said.

We need to remove some of the barriers in the public sector and we need the capacity to capitalise on intellectual property, he said.

We need to "move from a regulatory culture that is focused on process to one that aims to achieve appropriate outcomes at minimum economic cost to society," he said.

"It's vital that we not only maintain the openness we have now...but keep that process going.

"We should keep welcoming foreign capital and labour to Australia because they're both crucial to creating a dynamic and innovative economy."

Lowy Institute for International Policy, Visiting Fellow and Reserve Bank of Australia, Board Member, Dr John Edwards said while the Australian economy has performed very well with regards to GDP, the creation of jobs, low inflation and high business investment, the exception was productivity.

"In the long run...we need to attend to impediments, particularly infrastructure...broadband is going to be helpful to us in increasing our productivity in decades to come," he said.

Dr Edwards agreed with Mr Banks and Senator Sinodinos that we also need to ensure "we are providing for innovation and for the adoption of innovation for the Australian economy."

"The core of productivity growth is always going to be our investment in education and skills," he said.