Agenda, Volume 12, Number 3, 2005, pages 253-266 Is Australia’s Productivity Surge Over? Dean Parham ustralia’s productivity growth surged in the 1990s. Growth in both labour productivity (output per hour of labour input) and multifactor productivity (output per combined unit of labour and capital) lifted to record highs between 1993-94 and 1998-99 (Australian Bureau of Statistics, 2004). However, there have been signs that Australia’s productivity growth has since slowed. The average rate of productivity growth is down markedly — although it still falls into line with the historical average. With declines in recent quarterly productivity estimates, some commentators have declared that Australia’s productivity surge is now confirmed as over. That productivity growth would come off its record highs could well be expected. But does the evidence now available signal that Australia’s productivity growth has ‘permanently’ dropped to unremarkable rates, somewhere around the long-term historical average or even below? The issue matters. A substantial and long-lasting drop in productivity growth would mean less growth in a major foundation for improvement in Australian living standards. From a policy point of view, it is now generally accepted that a series of policy reforms played an important role in driving and enabling the lift in productivity performance in the 1990s. A transitory surge would imply that the productivity payoff from policy reforms — whilst significant — has come as a ‘step-up in levels’ effect, rather than as a long-term increase in the rate of growth. Such a view has led some commentators to call for further policy reforms in order to reinvigorate productivity growth. This article presents a preliminary and partial examination of the topography of the productivity slowdown and the factors that have contributed to it. The objective is to determine whether or not Australia’s experience of generally stronger productivity growth has drawn to a close. Framework and Focus Productivity growth in the 2000s has not received as much attention as that of in 1990s. Most analysts and commentators have been reluctant to consider the average rate of productivity growth since 1998-99 as a true ‘underlying’ rate, given an important ABS convention adopted to abstract from volatility in annual productivity. The Bureau calculates underlying productivity growth as the average annual rate between peaks in productivity cycles (points where the level of multifactor productivity (MFP) reaches a local high above a calculated trend series). Although MFP reached a new high above trend in 2003-04, the ABS did Dean Parham is Assistant Commissioner, Productivity Commission, Canberra. A