The latest official statistics confirm Australia’s economy is back among the global leaders. Alan Austin suggests it is time for reform.
*Also listen to the audio version of this article on Spotify HERE.
VIRTUALLY ALL measures of a healthy economy have improved markedly over Labor’s nine months in power. The nation is not yet ranking number one in the world, as it did for most of the Rudd/Gillard Labor period, but it’s on track.
The foundation has been laid already for significant economic and social reform.
Solid economic growth
Growth in gross domestic product (GDP) for the last three months of 2022 was reported last Wednesday at 0.48% for the quarter and 2.66% for the year. These numbers from the Australian Bureau of Statistics (ABS) were the lowest since September 2021. But that is to be expected given the current sharp global downturn.
Among the 33 developed members of the Organisation for Economic Cooperation and Development (OECD) which have posted GDP data for last year’s fourth quarter so far, Australia ranks a creditable ninth on both quarterly and annual GDP growth, with both measures well above the OECD averages.
Of those 33 advanced economies, six reported zero quarterly growth, including Canada, Sweden, Switzerland and the United Kingdom.
Disturbingly, nine economies went backwards, including Germany, South Korea and Italy. Of those nine, Finland, Czechia, Estonia and Hungary have now copped two consecutive negative quarters, and are in recession.
Clearly, last year’s fourth quarter has been the toughest since the first quarter of 2021 when the pandemic was still causing economic mayhem.
Signals from the national accounts
The positive news in last week’s data includes more homes being built, more spending on travel and continuing robust trade.
Challenges ahead are signalled by persistent inflation, increasing interest rates, softening consumption growth, declining corporate investment in infrastructure and machinery and a sharp reduction in savings as mortgage payments increase.
Interest rates and inflation
Australia’s cash rate at 3.35% is now the highest in more than ten years. But it is better than the OECD’s average of 4.6%.
Poland, Iceland, Turkey and Czechia are now above 6.0%. Mexico, Hungary, Chile and Colombia are all above 10%. Virtually all European Union countries are at 3.0%, having risen fairly steadily from 1.0% or lower in the first half of last year. Japan is stuck at -0.5%, where it has been since 2016.
Inflation in January was 7.8% to the end of December but declined to 7.4% in January. This ranks 14th in the OECD, where the average is 11.2%.
Treasurer Jim Chalmers acknowledges this is his major worry:
“Inflation is still the defining challenge in our economy and it is still the primary focus of the Albanese Government’s economic plan... I’m confident that the worst of inflation is behind us rather than ahead of us.”
Strong jobs market
Australia’s latest unemployment rate was a creditable 3.7% in January. This is slightly higher than levels through the last six months, but that is consistent with jobless rates rising worldwide. Australia ranks 11th among the 38 OECD members, virtually unchanged over the last six months.
Healthy budget position
The Treasurer’s October Budget projected spending at $644.1 billion this financial year, with spending to the end of January set to be $369.1 billion. According to the latest Finance Department monthly update, actual spending to January has been just $364.0 billion. So he appears to have saved $5.1 billion already.
Chalmers talks up 'well-being' budgets, but Labor still needs to deliver
In his recent essay for The Monthly, Treasurer Jim Chalmers laid out his blueprint for abandoning the neoliberal era of "supply-side" economics, to a new concept of "values-based" capitalism. The question remains: whose values?
On the other side of the ledger, budgeted income to January was set at $327.2 billion, while actual receipts have been $335.6 billion. That’s an improvement, seven months in, of another $8.4 billion, bringing the total turnaround to $13.5 billion. This is not bad, given the deficit for the full year was budgeted at $36.9 billion.
Net debt is reducing, at just $566.5 billion in January. That is well below the peak of $626.3 billion in August 2021 and lower than last January’s debt of $609.4 billion.
Share of the income pie going to wage and salary earners
Compensation to employees has increased significantly under Labor already. Overall compensation rose 2.0% in the December quarter, the highest for any December quarter since 2010. Simultaneously, corporate income increased 3.2%, a much higher rate than workers enjoyed.
This knocks aside the suggestion, which Chalmers was quick to ridicule last week, that inflation is due to wage pressures.
The income share going to workers still remains far too low. This is the result of decades of wealth and income shifting progressively from workers to corporate profits. See blue chart, below.
Historically, the share of national income going to workers has averaged 54.7%, which sounds healthy enough. Since 2016, however, this share has tumbled, hitting an all-time low of 48.8% in June last year, the last quarter of the Coalition Government.
The pressure is now on the Albanese Government to get this level back where it should be, above 55%. So far, the start has been slow, as the graph indicates. But it is early days.
Substantial reforms now affordable
Recently-announced changes to superannuation are most welcome. When bedded down, there is room to go further.
The Government is now in a strong position also to raise pensions and benefits, increase the minimum wage, expedite some of the infrastructure projects neglected by the last administration, and build new social housing, both for ownership and to rent.
The capacity to deliver these will be enhanced further with more effort towards reducing corporate tax evasion. These can be done. They should be done.
*This article is also available on audio here:
Alan Austin is an Independent Australia columnist and freelance journalist. You can follow him on Twitter @alanaustin001.
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