For all the talk from federal Treasurer Jim Chalmers about increasing economic productivity, including hosting his much-vaunted productivity roundtable, very little, if anything, has been proposed to address one of the most significant barriers to improving productivity, that being Australia’s worker shortage crisis.

Nationwide job vacancies have been above 325,000 for the last four years straight according to data from the Australian Bureau of Statistics. Prior to the pandemic, job vacancies were never higher than 233,000.

This means businesses are unable to find the workers they need to produce the goods and services that people demand. This is slowing down the economy, holding back productivity, and pushing prices up.

And, for the federal government, wages not paid means wages not taxed. In the 2023 and 2024 financial years, the worker shortage crisis cost Australians $89 billion in foregone wages and the government $11.9 billion in foregone income tax revenue.

Recently, governments have attempted to use an unprecedented influx of overseas migrants to address the worker shortage crisis. The Albanese government announced in September 2022 it was expanding permanent migration to ‘address parts of the Australian economy currently experiencing severe shortages’.

This has proven to be a total failure. Previous Institute of Public Affairs analysis found in the 12 months from April 1, 2023, 27 migrants arrived in the country for every net job vacancy filled.

Given the fact job vacancies remain elevated and increased in the last reporting period by 3 per cent, a new approach is needed, one that recognises those Australians who are here and want to participate in the workforce but are currently unable to do so because of regressive taxes and red tape.

The largest and most significant demographic of this cohort are Australian pensioners.

Australian pensioners face an effective marginal tax rate of 66 per cent should they earn over $227 per week, less than a day and a half on minimum wage. This occurs as a 50 per cent claw back is applied on their pension for every dollar earnt over $227, with normal tax rates on top.

IPA research long ago established how unfair tax rules deter Australian pensioners from entering the workforce. It’s beyond time these barriers are removed. Promisingly and unexpectedly, Industry Super Fund HESTA criticised the pension clawback rules last week in a report they commissioned, joining the fight to change this unjust tax.

Australia’s regressive pension rules mean just 3 per cent of all pensioners are in paid work today. This is despite previous research showing as much as one-fifth would like to work if the rules were changed.

Similar tax barriers are put in the way of our veterans on the services pension, and students on the youth allowance. It is a gross injustice.

Our pensioners have spent their adult lives in the workforce and are now being punished for remaining in the workforce by having their promised benefits stripped off them via the clawback. Similarly, it is wrong to punish our veterans, and it is illogical to restrict the ability of struggling students to experience the dignity of work.

Even after the tax cuts in 2026 and 2027 legislated by the Albanese government take effect, pensioners, veterans and students will still be the highest taxed Australians by a significant margin, only having had their effective marginal tax rate reduced by 2 per cent after July 1, 2027.

Underscoring this injustice is that our next-door neighbour imposes no additional taxes on retirees who work. In New Zealand, the marginal tax rate on pensioners is as low as 10.5 per cent, because there are no clawback provisions penalising them for earning income. Because of these commonsense tax policies, one in four New Zealand pensioners work.

Research by the IPA has established these policies have helped our trans-Tasman neighbours reduce job vacancies to pre-pandemic levels and is the key reason why New Zealand did not have a worker shortage crisis during and following the pandemic.

If our federal government adopted this model for our pensioners, veterans, and students, Australia could see 520,000 willing extra workers enter the labour force.

Adopting the New Zealand model by removing the regressive tax on Australian pensioners, veterans, and students is the simple and logical decision to address our worker shortage – and is obviously preferable to relying on an out-of-control, mass migration model which is making housing unaffordable and putting stress on our existing infrastructure.

Not only that; providing Australians with the opportunity to experience the dignity of work and participate in the economy is simply the right thing to do.

Saxon Davidson is a Research Fellow at the Institute of Public Affairs