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Australian national accounts – the economy is grinding to a halt

I am in Brisbane today as an expert witness in an industrial hearing where the public education workers are trying to secure a wage increase in the face of fierce opposition from the Labor State government who insist on maintaining a wage cap that is depressing income growth and helping to cause the economic slowdown. The Government’s defense is that a wage rise would damage their fiscal plans which are to record recurrent surpluses of such magnitude that they can fund all capital spending out of recurrent revenue. Yes, a modern Labor government at work. They seem unable to that their suppression of wages growth is undermining overall growth, which undermines their tax revenue and makes their ridiculous fiscal goal unattainable anyway. Walking around in increasingly smaller circles. Anyway, it was a good day to be discussing these matters as it coincided with the latest release by the Australian Bureau of Statistics of the – June-quarter 2019 National Accounts data (September 4, 2019). That data shows that annual GDP growth of 1.4 per cent (down from 1.6 per cent) and now around 1/3 the historical trend rate. This is a very poor on-going result. The weaker performance started in the last 6 months of 2018 and has continued into the first six months of 2019. However, due to a fairly strong terms of trade, Real net national disposable income rose, which signifies rising material living standards. But those terms of trade gains will prove to be ephemeral and a related to disturbances in world markets (Brazil, etc). Overall, the quarterly growth rate was just 0.5 per cent. Net exports were strong (terms of trade effect) and government consumption expenditure was strong courtesy of some policy measures in disability, health and aged care coming on-line. Their boost will also dissipate fairly quickly. Longer-term worries include the weak household consumption growth and the on-going negative business investment growth. Further, the fall in the saving ratio once again illustrates the folly of suppressing wages growth through wage caps etc. It is also apparent that the positive spending effects of the large government infrastructure projects (State-level) are now working their way through the system and their impact is declining. The overall picture is not good and the future is looking rather dim at present. A major shift in fiscal policy towards expansion is definitely now required.

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