When the national accounts were released on Wednesday, Treasurer Scott Morrison crowed that economic growth “accelerated … from 1.9 to 2.8 per cent through the year” putting us “back up towards the top of the pack for major advanced economies”.
So why doesn’t it feel like that at street level?
Partly it’s because much of that leap in growth comes from investment spending, particularly a curious 18 per cent quarterly jump in the value of non-residential construction such as factories, shopping centres or offices – that looks like a large statistical error, but we shall see.
Investment is good in the long-term, of course, but won’t help households feel particularly chipper going into Christmas.
The other reason people don’t feel like they’re at the “top of the pack” is that the consumption component of GDP is going through something of a near-death experience.
As described previously, flat-lining wages are feeding into very poor retail sales figures, and both need to rebound if Australia is to genuinely complete the transition from the mining investment boom era to a more balanced period of growth.
At face value, the national accounts might seem to offer hope that this is happening. ‘Compensation of employees’ is up 3 per cent, so you might expect people to get out and spend that above-inflation rise in income.
And you’d be wrong. With some very basic number-crunching, the dire state of household budgets becomes apparent.
Economist Jim Stanford, director of the Centre for Future Work, pointed out two really nasty numbers when I spoke with him on Wednesday.
The first, which simply confirms Tuesday’s retail figures, is the latest monthly figure for the growth in household consumption.
At just 0.1 per cent, it’s the lowest monthly figure since the depths of the financial crisis in December 2008 – as the chart below illustrates.
The second problem for the consumption side of the economy is that the aggregate ‘compensation of workers’ figure of 3.0 per cent doesn’t take account of the way the workforce has grown in the past year.
The number of workers is actually up 2.6 per cent, due to population growth and more unemployed workers swapping welfare payments for a wage.
Putting those two figures together, average compensation of employees only increased 0.4 per cent over the years – a lot less than the current inflation rate of 1.8 per cent.
So while those workers taking new jobs will see a big improvement in their household budgets, the rest of the workforce is going backwards in inflation-adjusted terms.
Those aren’t the ingredients for a happy Christmas, though we may get some better news before Santa sets out in his sleigh.
That’s because when the government hands down its mid-year budget update – possibly as early as next week – it is expected to have a lot more tax revenue in the kitty to throw around, mostly due to higher commodity prices and company profits.
The spare tax revenue could be handed back to the electorate in the form of tax cuts, which would see the money flow through to consumption spending much more quickly than, say, more infrastructure spending.
Of course, the best way to boost consumption in the short-term is to hand money back to lower socio-economic groups such as pensioners, the unemployed and low-income workers who have the greatest propensity to spend it.
And what are the chances of that? About the same as seeing a white Christmas in Darwin, so don’t hold your breath.