The latest national accounts figures for the December quarter, as boring as they may be to some, caused the Treasurer, Scott Morrison to be upbeat about the direction the Australian economy is heading. He is being premature.
Trying to gloss over a disturbing trend by remarking on how much better we are performing above the OECD average is very short sighted.
The December quarter showed that real GDP grew by 0.6 per cent in the three months to December 2015 (down from 1.1 per cent in the September-quarter), driven largely by private consumption.
Two points worthy of note here. Firstly, the December quarter includes Christmas spending which has a one-off impact and does not suggest a continuing trend. Secondly, it is being funded by a declining saving ratio and rising private indebtedness. This we know because of declining real wages growth and declining real net national disposable income overall.
Rising private debt is simply not sustainable.
The government sector was responsible for 50 per cent of the total growth in the December-quarter. Allowing for a likely fall in domestic spending in the March 2016 quarter and an overall lack of interest coming from the corporate sector, government spending will be the main driver of the economy in the short term.
However, government spending is barely keeping pace with employment growth which means existing unemployment and underemployment will probably rise in the coming months. If the increase in the unemployment level in January is followed by a further increase in February, we can assume a trend is evident as the government looks for ways to curb spending.
This is the opposite of what they should be doing.
For all of Scott Morrison’s upbeat response to the December quarter figures, it suggests he is hiding what should be some concern for what lies ahead. Preparing the May budget is underway and future projections about private sector investment should be critical to the bottom line.
However, given Treasury’s past record of inaccuracies, one can’t have much confidence in the figures they will produce. Economist Bill Mitchell says, “The negative growth in private investment means that potential output in Australia and future growth rates will be lower than otherwise. Again, not a positive sign.”
The temptation to pad the budget figures ahead of a general election, perhaps a double dissolution election in July, will be strong. But if that deceitful option is taken, it will not hide the fact that we are currently in an income recession.
Bill Mitchell warns, “Real net national disposable income fell by a further 0.1 per cent over the quarter and 1.1 per cent over the last year. The data continues to confirm that Australia faces a very uncertain outlook and with the annual fiscal statement coming up – now is not the time to be cutting net public spending.”
If the government plans to go to an election on the strength of a deliberately constructed May fiscal statement (budget), that projects less than honest forward estimates, they will be shooting themselves in the foot.
It may buy them the 2016 election, but the state of the economy will deteriorate progressively over the next two years such that chronic unemployment will be far worse than now and we will see a significant decline in our GDP.
This is the price we will pay for re-electing a government that does not know how to restore a failing economy, whose only interest is in being re-elected and who will stop at nothing to achieve that end.
Is this what we want?