The latest Closing the Gap data contains some significant gains, but advocates say it still paints a "sombre picture".

Released on Wednesday evening, the Productivity Commission's 2026 Closing the Gap report found that, of the 15 targets assessed, only three are on track to be met: employment, land and sea rights, and legal rights and interests.

In a landmark achievement, a fourth target — preschool enrolment (Target 3) — has already been met, with more than 95 per cent of First Nations children now enrolled, up from 61.3 per cent in 2016.

However, five targets — life expectancy, Year 12 or equivalent attainment, tertiary qualifications, youth engagement in employment or education, and appropriately sized housing — are improving but remain off track. Meanwhile, suicide rates, adult imprisonment, children in out-of-home care, and the proportion of children developmentally on track continue to worsen.

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Catherine Liddle, chief executive of SNAICC - National Voice for our Children, welcomed the achievement of Target 3 but said the data presented two very different stories.

"Meeting the Closing the Gap preschool enrolment target is a milestone worth celebrating and is further indication that when early education becomes more accessible, our families eagerly take it up," she said.

"It shows what's possible when governments invest in Aboriginal and Torres Strait Islander children early, but it also shows the devastating cost of failing to carry that investment in developmental outcomes, school readiness and through the rest of childhood."

Productivity Commission commissioner Selwyn Button said the Closing the Gap Agreement was clear.

"The best way to make progress is through governments acting on the four priority reforms: sharing decision-making, building the community-controlled sector, transforming government organisations and sharing access to local data," he argued.

"Where governments have started sharing power with communities, progress has followed."

The figures on children being removed from their families continued to worsen. The rate of First Nations children in out-of-home care now stands at 52.2 per 1,000 children — 11.5 times the rate for non-Indigenous children.

Sue-Anne Hunter, the National Commissioner for Aboriginal and Torres Strait Islander Children and Young People, said the data was "upsetting, but it is not surprising".

"Governments do not need to design something new. They need to fund and follow what is already working in the areas where our children are still being removed, still being detained, and still going without," she said.

"Every year these targets stall or regress, a generation of young people carries the cost, and the same gaps pass to the next generation. That tells our children something about whether these systems were built for them."

She said First Nations children aren't "falling through the cracks". Rather, "they are being failed by systems designed without them".

"That is our Closing the Gap reality, and it is within the power of our governments to change," Commissioner Hunter said.

The report comes in the wake of the Northern Territory Government passing legislation that experts argue will enable more Indigenous children to be removed from their families.

Ms Liddle said the child removal data should be a red flag for governments across the country, arguing: "We cannot remove our way to better outcomes for children."

"We need greater investment in Aboriginal community-controlled early intervention and family support services that keep children safe at home, connected to kin, culture and community," she said.

"This report is both a proof point and a warning. When governments partner with Aboriginal community-controlled organisations, children thrive. When they don't, the consequences are written across the targets that continue to stall and worsen and felt every day in the lives of our children and families."

Speaking on ABC Radio National on Thursday morning, federal Minister for Indigenous Australians Malarndirri McCarthy said the preschool enrolment target should be celebrated, while acknowledging much more work remained.

"It is important to see this milestone achieved, and that is because of the work of the Aboriginal and community-controlled sector and those involved in the preschool sector," she said. "Clearly, the challenges with all the other targets remain, but I do take heart at the fact that this has been achieved."

Asked about the other target failures, including incarceration, the Minister said: "It's very, very difficult to deal with these situations where you have particular pieces of legislation that see the high incarceration rates of First Nations people."

"What that means is that we have to go harder; we have to keep pushing the states and territories around the justice factors."