While other big stories have tended to squeeze out economic debate in recent weeks – the demise of speaker Bronwyn Bishop, the marriage equality debate and on Thursday more stories of terror and counter-terror relating to Islamic State – the data has been telling an alarming story.
The slump in wages growth is the big one. From fairly consistent growth of around four per cent, private sector wage growth has fallen to 2.2 per cent in the latest ABS data.
When public sector wage increases (2.5 per cent) are factored in, the overall pay increase is 2.3 per cent, which is just a whisker ahead of the latest annual trimmed-mean inflation reading of 2.2 per cent. The ‘trimmed mean’ smooths out sudden spikes or slumps in prices that are expected to be short term, with petrol prices being the best recent example.
With wages just ahead of the trimmed mean CPI, it’s comforting to think that at least there is some real wages growth – in this case 0.1 per cent. However, this figure is less comforting when our still-strong population growth is taken into account.
As explained recently, total hours worked is lagging population growth.
When combined with flat real wages growth, that means that real disposable income per person continues to fall, having peaked in late 2011 (see chart below).
That’s one of the key figures reflecting how well off householders feel – the other big ones being the wealth effect flowing from house prices and the stockmarket.
Nationally, then, there’s reason to feel that we’re not as well off as we were.
But that’s not the main reason the government may not be keen to hand down another budget before the next election.
Treasurer Joe Hockey’s income tax revenues are affected by nominal wages growth, not real growth.
Mr Hockey correctly asserts that too much tax is being collected in the form of income tax. However, with the budget so far out of balance, and company taxes in the resources sector languishing, the bracket creep associated with strong nominal wage growth is greatly needed to stop the budget deficit widening further.
One suspects that if Labor were in power, it would be doing just what Mr Hockey is doing on bracket creep – complaining that it’s not fair, but banking the revenue nonetheless.
Next year’s budget, if it were handed down before an election rather than safely afterwards, would have to remove from the forward estimates a number of savings measures blocked in the Senate since the disastrous 2014 budget.
Combined with continuing growth in health, pensions, and education expenditure – population growth keeps them rising while at the same time diluting per capita incomes – some of the cost-cutting zeal of 2014 would be required in 2016 to prevent some scary deficit forecasts.
On the business side, confidence and job creation are too low, and the small-business stimulus package announced in the 2015 budget – centred on the offer of unlimited instant asset write-offs of business purchases valued up to $20,000 – has not produced the investment bonanza hoped for.
On balance, the risks of going to the polls before next May look smaller for the Abbott government than going to the polls in the months after a fairly miserable budget.
Labor already suspects this. Labor MP Pat Conroy, who sits on three economics-related committees, told me this week: “The 2015 budget was a classic election budget, with few hallmarks of a plan for the future.”
The plan for the future may well be to get through an early election, pray for better economic conditions, and restart some of the reforms the Abbott government has been unable to make so far.
Under that scenario the risk for the Coalition is that Labor leverages discontent over issues such as MP entitlements, marriage equality and climate action and unseats the first-term Abbott government.
If that happens, then yes, we’ve already seen Treasurer Hockey’s last budget.