Australia’s 2020 GDP figures will get a $5.2 billion sugar-hit courtesy of February’s additional day, but the extra cash won’t be felt by households.
Instead, that money will help government bean counters by bolstering the March quarter GDP figures at a time when economic activity has been consistently disappointing.
So how exactly will one extra day – added to compensate for the fact a traditional 365-day year is six hours shorter than Earth’s full solar revolution – make so much difference to the economy?
To understand why 29 February is so important to Australia’s economy this year, KPMG chief economist Dr Brendan Rynne said it’s important to look at Australia’s quarterly GDP.
In the December quarter, GDP came in at around $480 billion. By dividing that number by the number of days in that three month block (in this case, 92) Dr Rynne said it’s safe to assume Australia adds roughly $5.2 billion to GDP each day.
“This leap year is happening on a Saturday. It could be that a normal trading day generates $5 billion and Saturdays and Sundays generate a little bit less,” he said.
“But on average we’re making $5.2 billion per day.”
Although that’s not a huge number when compared to Australia’s more-than-one-trillion dollar annual GDP, it’s significant when considering Australia’s quarterly GDP has been growing by an average $2.5 billion for the past several months.
And with ongoing drought, devastating bushfires, and now the global outbreak of the coronavirus all threatening that $2.5 billion expansion, Dr Rynne said an extra $5.2 billion will “quite probably” mean the difference between Australia’s economy growing or shrinking.
“What we’ve had in the March quarter has been disruption to Australia’s agricultural sector and our normal business environment, particularly in rural Australia due to the drought and now the bushfires,” he said.
“Now add to that the drop-off in economic activity because of tourism slowing as a result of the coronavirus. The risk is that all of those things will add up to $2.5 billion in lost value add.
“But what we’ve got now if this extra day, and – if it follows the normal pattern of spending – that will give us $5 billion.”
In essence Australia will probably avoid a negative March quarter on a “technicality”, Dr Rynne said. If GDP figures were adjusted to account for the extra day, the numbers would be less rosy.
But what if March’s GDP figures still turn negative anyway?
“That would be a really big fall in the economy. That would show the economy is really struggling.”
Extra day a conundrum for salaried workers
Salaries are traditionally based on a 365-day year, prompting some nervous employees to question whether an extra day means a day of unpaid labour.
It’s a contentious issue which can be interpreted in multiple ways, but at its heart Dr Rynne said it’s unlikely workers are losing out.
“If you take a very narrow view, then there is probably some stock in [the idea] he said.
“But you can also take another view; that people get paid their salary – particularly long term workers – over a period of time and it comes out in the wash.
“What they’re getting paid is a gross level of income each year and if you’re in a job for four years then that sort of washes itself out.”