The Productivity Commission (PC) has used its latest report to warn that poorly designed regulation could stifle the adoption and development of AI and limit its benefits.
In its interim report into harnessing data and digital technology, the PC said that the economic potential of AI is clear, with the Commission predicting likely multifactor productivity gains above 2.3% over the next decade, translating into about 4.3% labour productivity growth over the same period.
“Australian governments should take an outcomes-based approach to AI regulation – one that uses our existing laws and regulatory structures to minimise harms and introduces technology-specific regulations as a last resort,” the report said.
Among its first of three recommendations related to AI, the PC advised that the Australian Government should continue, complete, publish and act on ongoing reviews into the potential gaps in the regulatory framework posed by AI as soon as possible, and where relevant gap analyses have not begun, they should begin immediately.
“All reviews of the regulatory gaps posed by AI should consider the uses of AI; the additional risk of harm posed by AI (compared to the status quo) in a specific use-case; whether existing regulatory frameworks cover these risks potentially with improved guidance and enforcement; and if not how to modify existing regulatory frameworks to mitigate the additional risks,” the report stated.
Its other AI-related recommendations included AI-specific regulations only being considered as a last resort where existing regulatory frameworks cannot be sufficiently adapted to handle the issue and where technology-neutral regulations are not feasible, and the government only applying the proposed ‘mandatory guardrails for high-risk AI’ in circumstances that lead to harms that cannot be mitigated by existing regulatory frameworks and where new technology-neutral regulation is not possible.
The PC’s interim report presented draft recommendations focused on four key policy reform areas: enabling AI's productivity potential; new pathways to expand data access; supporting safe data access and use through outcomes-based privacy regulation; and enhancing reporting efficiency, transparency and accuracy through digital financial reporting.
Other recommendations made by the PC included establishing lower-cost and more flexible regulatory pathways to expand basic data access for individuals and businesses; amending the Privacy Act to provide an alternative compliance pathway that enables regulated entities to fulfil their privacy obligations by meeting criteria that are targeted at outcomes, rather than controls-based rules; not amending the Privacy Act to introduce a ‘right to erasure’, “as this would impose a high compliance burden on regulated entities, with uncertain privacy benefits for individuals”; and making the necessary amendments to the Corporations Act to make digital financial reporting mandatory for disclosing entities.
The public is invited to comment on the report by written submission to the PC by 15 September 2025. From there, the PC will prepare the final report after further submissions have been received and it will hold further discussions with participants.
ACTU hits back at “knee-jerk stance” of PC
The Australian Council of Trade Unions (ACTU) said the PC has “swallowed the arguments of large multinational tech companies hook, line and sinker in its rejection of the need for appropriate economy-wide regulation to manage the risk of social harm posed by the misuse of AI.”
The ACTU’s assistant secretary, Joseph Mitchell, said rather than engage with the Australian public’s desire for appropriate regulatory responses to manage the risk of AI, the PC has taken a "knee-jerk stance" by asserting that any appropriate economy-wide regulatory response will hinder productivity.
“This report offers absolutely nothing to working people who want to get the benefits of AI in their work while being protected from its misuse by bad-faith actors,” he said.
“It offers nothing to those good employers who want to do the right thing and introduce AI in a safe and responsible way and appears to reject a pro-worker, pro-job, and pro-growth future.
“The Commission misses a vital fact on harnessing the productivity gains of AI: AI itself will not deliver productivity growth; it is the skilled use of AI by working people who are appropriately trained and supported and fairly paid that will do so. Workers must share fairly in any productivity improvements that this delivers.”
Business Council backs PC’s “sensible” approach
The Business Council of Australia’s chief executive Bran Black said that the PC was right to recommend applying existing laws and protections to the rollout of AI.
“The PC has recommended a sensible middle ground approach to regulation, using existing laws to ensure the AI opportunity is realised while providing appropriate protections,” he said.
“The PC’s approach is backed by an alliance of nearly 30 industry groups who say AI should be harnessed to boost living standards for all Australians.
“History shows the ACTU's approach of trying to cut off Australia from global technology change will not work, and it will simply mean our community misses out on the benefits.”
CPA Australia says report is a “missed opportunity”
CPA Australia’s business investment lead, Gavan Ord, also criticised the report, saying that while it lays out a sensible framework for future AI regulation, its lack of discussion on how best to encourage SMEs to adopt technology, including AI, is a missed opportunity.
“We needed the Commission to provide recommendations to government on incentives to help boost the uptake of technologies, including AI, as well as guidance on the benefits and practical support that businesses need to implement it,” he said.
“The report assumes a level of knowledge, expertise and capability that doesn’t match reality for many SMEs who focus 100 per cent of their time and effort on getting through each day with little time to consider investing in technologies, even if they think it could be beneficial to do so.
“In addition to ensuring a sensible approach to AI regulation, the government should invest in supporting business growth by offering better incentives for the uptake of technologies than is currently the case, as well as providing educational programs on how to benefit from it.”
MEAA claims proposals are “short-sighed”
The Media, Entertainment and Arts Alliance (MEAA) said it was “dismayed” by recommendations in the report, including what it characterised as the PC’s “resistance to much-needed legislation and regulation that would protect Australia’s creative and media workforce from AI theft”.
MEAA said that it rejects calls from the Commission to ‘pause’ steps to mandate the Government’s proposed guardrails legislation, as well as rejecting suggestions that existing copyright laws be rolled back.
MEAA chief executive Erin Madeley said the Productivity Commission’s interim recommendations were akin to “throwing Australia’s creative and media workers under a bus”.
“There are no recommendations in this report that protect Australian workers or creative assets,” Madeley said.
“Our members have serious concerns about the rapid and unregulated rise of AI and its impact on day-to-day work, job security, and future employment prospects, as well as the impact of the loss of human-led creativity for Australia’s unique culture.
“MEAA is calling on the government to reject the Productivity Commission’s short-sighted proposals and stand up for Australian workers by introducing AI-specific regulation as a matter of urgency.”
Academics unenthused by report
Professor Daswin de Silva, a professor of AI and Analytics and the director of AI strategy at La Trobe University, said by pushing for outcomes-based AI regulation and data sharing instead of current practice of controls-based, the report potentially takes a "myopic view" on productivity without due consideration for the risks of such practice.
“The report lacks comparison with other more advanced economies that have implemented AI regulation (EU AI Act) and universal data protections (GDPR) such as Europe vs the recently deregulated AI landscape of the United States," said de Silva.
“It is important to examine what is compromised if Australia is to adopt these recommendations to drive productivity growth.”
Dr Lev (Leo) Bromberg, a lecturer in law at the La Trobe Law School, said leaving the regulation of ‘high-risk’ AI to ad-hoc reviews of existing regulatory frameworks is, in itself, a ‘high-risk’ strategy.
“The Productivity Commission’s recommendation that gap analyses of current rules need to be expanded is an important one," he said.
"The development of Australia’s mandatory ‘guardrails’ for high-risk AI could inform and be informed by ongoing reviews of existing sector-specific regulatory frameworks that are being undertaken.
“The potential risk of adopting a ‘wait and see’ approach in relation to AI-specific regulation is that existing regulatory institutions may fail to identify, respond to and deal with material harms caused by high-risk technologies such as AI."
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