Senate Economics Legislation Committee, , 3:53:46 to 3:58:15
RBA officials explain the downgrade of productivity growth assumptions and compare them with Treasury's long-term forecasts.
Topics: Agricultural productivity, Government spending
Speakers: Dr Sarah Hunter, Hon Matthew Canavan, Senator Lisa Darmanin
Yeah, so uh so yes, you're right, we downgraded that technical assumption uh just over a year ago, August 2025. Uh that was really based on um an observation of what we had seen happening at a macro level, so looking at labor productivity outcomes over a number of years, so going back 5, 10, even 20 years, and we'd seen um a slowdown in that uh pace of growth. Uh we also um supplemented that sort of more macro analysis with some more bottom-up industry-based work where we could see that certain um sectors had uh had seen shifts in their productivity trends, mining um it's a particular example. Uh and so once we put those two uh sort of approaches together, um, the overall outcome was that yes, we downgraded our our assumption from one percent to 0.7%. Uh the only final point I'd make is that for us our forecast horizon is uh sort of two to three years. It's what you see published um in the statement of monetary policy. So we're really making um a technical assumption that applies over that uh kind of time horizon. We're not making um a judgment or an assumption about five, ten, uh twenty and beyond years into the future.
Um is that are those forecasts for productivity stable at the moment, or are you expecting any further downgrades?
Uh we're always watching, uh as with all of our technical assumptions. They're always under you know constant review, if you like. Uh we haven't downgraded or changed that assumption um since August last year. Uh, but all of our technical assumptions are always under review and and that includes productivity.
So the the your assumptions uh are well below that in the budget, um less than well, sorry, about half I think what's in the budget. Have you discussed with Treasury why there's such a large gap between your forecasts and those of the Australian government?
So we do have a number of conversations with our Treasury colleagues on uh on an ongoing basis. Uh obviously questions about their assumptions um definitely should be directed to them, and I wouldn't want to speak for them. Uh but my understanding is that um their assumption uh that you mentioned, I think it's a 1.2% applies to uh what we would call it the the long run, so beyond well beyond the kind of forecast horizon um that we that we focus on. That's uh again it's a two to three year horizon. Uh I I think our assumptions uh or the at least what we're both sides are projecting um, if you like, for that two to three year horizon are much closer together, but I I don't have the Treasury numbers to hand, so I can't comment further on that.
Right. Okay. Um so you don't you haven't done any work on the long term?
Couple more questions. Um I've got one from Senator Sharma.
Thanks, Chair. Sorry, sorry, it might we're just um I'm getting uh indications a couple more questions. So you don't do any work on the long-term uh potential for long-term estimates of productivity growth?
So um in the context of um uh setting monetary policy and the time horizon that the tool works across, which is as I said, that two to three year horizon, that's really where we concentrate our efforts. So um, yes, it's true that we've not um sort of focused beyond that horizon. Um aspects of our work um and our understanding of the economy obviously do go beyond that two to three year horizon. Um there was uh some earlier discussion around the impact of of climate change. Uh, if we're thinking about even the data center boom, for example, we're getting projections from the hyperscalers that go beyond that two to three year horizon, and so we're aware of those and tracking those. But as a as a specific focus point, uh no, we don't look beyond the two to three year horizon because that's the horizon for our uh policy instrument.
Okay. Um do you see anything currently in government policy that would uh indicate you could lift your productivity estimates soon?
Uh I think that question's probably best. Yeah, I think that question is really best directed to to the government. So um obviously Treasury would have a view on that and and other um government institutions that the governor mentioned, the Productivity Commission earlier on. They really are the experts in this space. We don't pretend to be experts in productivity. Um it's not something that monetary policy has a significant impact on. So we really do rely on and work closely with other bodies that um have much more expertise than we do in this area.
Okay, thanks, Chair.
Thank you. Senator Sharma.