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PC Productivity Update 2015

Foreword and Preamble


Productivity Commission chairman, Peter Harris

Welcome to the PC Productivity Update 2015.

Following the practice of previous publications in this series, we provide an analysis of Australia's productivity performance in 2013-14 using the latest ABS statistics.

One of the Commission's roles is to promote public understanding of productivity issues, as well as contribute to public debate and encourage policy discussions. In this edition of the Update, our feature issue is capital investment in public infrastructure. Smart investment decisions and productive use of these assets will make a big difference in future economic growth. More can be done to improve decision making in the provision and use of public infrastructure.

In 2013-14, measured productivity presented some positive news: labour productivity for the whole economy increased by 1.4 per cent and, in the market sector, by 2.5 per cent; multifactor productivity has increased, albeit moderately, for the third consecutive year (0.4 per cent). Our detailed analysis suggests that Mining may have come out of the 'investment phase' and started acceleration of production — an early sign of productivity growth.

However, productivity growth is uneven among industries and some were negative in 2013-14. Furthermore, the productivity growth witnessed in 2013-14 remained well below what is required to maintain our historical growth in living standards and we have additional challenges to confront in Australia's ageing population, resource depletion, as well the changes in the structure of Australian industry, the terms of trade and other external events beyond our control.

We welcome your feedback on this edition of the Update.

Peter Harris


This edition of the PC Productivity Update begins by providing a snapshot of key nation-wide and industry-specific trends from the most recent release of the ABS productivity statistics. In 2013-14, labour productivity growth in both the Australian economy and the 12-industry market sector (which accounts for 65 per cent of the economy) was close to the trend of the last two and half decades. But growth of multifactor productivity remains below the longer-term average. This snapshot is followed by a closer look at recent changes in measured productivity for four industries — Agriculture, forestry and fishing; Mining; Electricity, gas, water and waste services; and Information, media and telecommunications — to highlight some of the main contemporary factors influencing those changes.

Chapter 2 reports on per capita national income growth in Australia and the contribution of productivity growth to that income growth. It highlights that as the terms of trade effects associated with the mining boom taper off, it will be crucial to achieve higher productivity in order to maintain and increase per capita incomes.

Investment in new capital has consistently played a key role in lifting Australia's labour productivity and supporting the introduction of new technologies and ways of working. Chapter 3 outlines recent work by the Commission aimed at improving the efficiency of public infrastructure investment through more transparent and rigorous project selection processes.

Finally, chapter 4 outlines recent work undertaken by the Commission to unpack the specific productivity performance within both the Mining and Financial and insurance services industries. The Mining report traces the transition of Mining industries through the investment phase of the mining boom to the production phase and towards positive MFP growth. The Financial and insurance services report indicates that it is productivity growth in the Insurance, Superannuation and Auxiliary services industry that has driven recent changes in the multifactor productivity for the Financial and insurance services industry as a whole.

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