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What economic plan?

By Ken Wolff

Prime Minister Malcolm Turnbull declared that GDP growth of 3.1%, reported by the ABS on 1 June, showed that his plan for the economy was on track:

You cannot succeed without a clear economic plan. Everything we have is encouraging companies to invest, to employ.

So far so good.

This confirms the direction we are leading the country in, in terms of our economic plan, but there is much more work to do.

[from The Guardian’s live election blog on 1 June]

But did he read the fine print?

As reported by the ABC:

However, while the headline number was strong, it was driven by a rise in output, while the prices Australia got for its exports continued to fall relative to imports.

That saw the terms of trade decline another 1.9 per cent in the quarter, and 11.5 per cent over the past year, which in turn saw the real net national disposable income rise by just 0.2 per cent over the quarter and plunge 1.3 per cent over the past year.

The ABS describes this number as “a broader measure of the change in national economic well-being” and the fall in this figure indicates declining purchasing power for Australian households.

That was picked up by Labor’s Chris Bowen:

Beneath the headline figure, we know there is an economy struggling with falling demand and falling income growth. In these figures today we see the eighth consecutive decline in nominal income: living standards.

Michael Janda, the ABC’s business reporter explained that ‘real’ GDP only measures how much we have produced in goods and services. It is ‘nominal’ GDP that actually gives a measure of the value of those goods and services. As an example, the current GDP figure includes a surge in iron ore and LNG exports but we are getting less dollars for these exports than we did before:

This measure is far more important for households, businesses and governments as it better reflects how much income, profits and revenue they are getting …

Despite that, the initial reaction in the markets was that the Australian dollar rose as overseas financial markets focused only on the headline figure, as that is taken as a global and uniform indicator, but our local share market fell.

Weakness in the economy has been repeated in other recent data from the ABS.

Although the government liked to claim some success for unemployment remaining at 5.7% in April, other labour force figures associated with the release of that data showed:

    • the headline figure of 10,800 jobs created actually included the loss of 9,300 full-time positions but an increase of 20,200 part-time jobs
    • monthly hours worked in all jobs decreased 17.9 million hours to 1,613.8 million hours, the fourth consecutive decrease (the first time that had happened in three years) and a cumulative decrease of 1.0% since December 2015.

The ABC reported:

Paul Dale from Capital Economics observed that full-time employment has not increased at all over the past three months and that the average number of hours worked per employee per month is at a record low.

“In other words, the quality of the jobs being generated is deteriorating and the amount of work being done is falling,” he wrote in a note on the data.

The April figures reflected similar declines in March when 34,900 part-time jobs were created but 8,800 full-time positions lost, resulting in a loss of 17.5 million hours worked.

It also followed the Wage Price Index for March (released on 18 May) which showed a rise of 0.4%: ‘the lowest rate of wages growth recorded since the start of the series in 1997’ the ABS noted in its commentary.

The Business Indicators for March, released on 30 May, showed the trend estimate for company gross operating profits fell by 3.1% in the quarter, or 4.7% seasonally adjusted: mining fell 9.6% seasonally adjusted; manufacturing 14.5%; and electricity, gas, water and waste services fell 5.6%. There were minor improvements in construction and retail, with both growing by 0.6%. The biggest loss in seasonally adjusted profit estimates was for financial and insurance services which fell by 69.4%.

Those indicators are not good news for the government. Less hours worked translates to lower PAYG income tax revenue and the company profit estimates also indicate lower company tax revenue.

Business investment in the March quarter, as reported by the ABS on 26 May, was down 2.8% for the quarter and down 15.4% over the year. Expectations for future investment in 2016‒17 showed some signs of improvement but, in dollar terms, would still remain below the investment in 2015‒16.

While the trade deficit improved marginally in the March quarter (as compared to the December quarter) the fall in prices for our exports meant that we were still running up foreign debt — now a record $1.03 trillion, or two-thirds of our total GDP. While that is not government debt, it does leave our companies vulnerable to changes in international conditions, particularly increases on the currently low international interest rates. And, of course, if companies (including banks) are hit with higher borrowing costs for overseas loans or refinancing, that will be passed on to consumers in Australia which, in turn, could lead to lower domestic demand and more headwinds for our economy.

Some of this is not supposed to happen, according to economic theory. As a CBA analyst said of the figures:

Today’s figures confirm that the Australian economy finds itself with a unique set of circumstances that will continue to perplex policymakers and complicate the interest rate outlook.

GDP growth is running at an above trend pace and the unemployment rate has been declining. In isolation two highly desirable outcomes. But wages growth is at its lowest level since the 1990s recession and consumer inflation has been falling. On the surface, these four outcomes occurring simultaneously is bizarre. [emphases in original]

[from the Canberra Times ‘Markets Live’ blog on 1 June]

It does go on to suggest that the ‘anomaly’ can be explained by the negative terms-of-trade, soft domestic demand and historically high under-employment, which means there is spare capacity in the labour market.

Most analysts were predicting that GDP growth would come in at 2.8%, so an actual increase of 3.1% was a ‘pleasant’ surprise. Normally such an increase in GDP would be welcome and would indicate a robust economy but all the other data show that the increase in GDP is not being reflected in other improvements, like full-time employment, wages, even business investment, and so is not being reflected in improvements in our standard of living which it normally would.

Of course, Turnbull and Morrison give the figures a positive spin and also offer the line that only their approach will help overcome the poorer aspects but in a report in The Guardian on 1 June, the Council of Small Business Australia estimated that only 4.6% of small businesses would take advantage of the Turnbull/Morrison company tax cut to reinvest and expand their operations. The Council suggested that the instant asset write-off was a better mechanism to encourage expansion — the government is keeping the $20,000 asset write-off until 30 June 2018, instead of ending on 30 June 2017, and will expand it to businesses with a turnover of up to $10 million (currently $2 million).

Also, Goldman Sachs, at which Turnbull was chairman and managing director in Australia between 1997 and 2001, found that 60% of the benefit of Turnbull’s company tax cut would flow to foreign investors, 10% to domestic investors, and only 30% would boost the Australian economy.

Turnbull’s and Morrison’s plan to boost the economy is under pressure. The impact of the tax cut is being questioned, not by Labor but by people in the market that it is aimed at. The economic indicators are mixed but more heavily negative and the benefits of economic growth are not being seen. So where is the economic plan to turn this around and ensure that people actually benefit from an increase in GDP growth? All the growth Turnbull and Morrison promise from their tax cuts and innovation agenda will mean nothing unless they can turn around the other indicators and growth actually provides benefits for all.

The fact is their plan isn’t working and isn’t a plan that will benefit all Australians through a rising standard of living. It is time they found another plan!

What do you think?

How can Turnbull claim his plan will boost the economy in the face of the economic indicators?

If his plan does not lift our standard of living, is it worth the paper it is written on?

Will Turnbull’s blindness as regards social policy come back to bite him?


This article was originally published on TPS Extra.



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  1. Steve Laing -

    Over here in WA, not a day goes by without me hearing about another professional being made redundant. The car parks in the CBD which you couldn’t find a place to park not a couple of years ago, have spaces aplenty. The freeway is no longer gridlock. There are spaces on public transport. 20% of CBD office space is currently unoccupied.

    And yet according to the Liberals, the Australian economy is booming. Do they just stick their heads in the sand? Do they actually believe their own bullshit? It’s like mass hypnosis. Turnbull fiddling whilst the economy burns.

  2. Jaquix

    Turnbull is just spin, spin, spin. Makes me giddy watching it all. Anyone who only watches him making these announcements might believe it all, but you dont have to delve elsewhere for information and its a whole different ballgame. Thanks AIM for doing lots of delving !

  3. nexusxyz

    You will have to get used to the dumb mantra….jobs and growth, growth and jobs, jobs, growth and innovation. There is no history and tradition of government planning in Australia let alone economic planning. So the idea that Turnaround has suddenly come up with, found one, etc. is laughable. More so with village idiot he has a Treasurer. Their whole focus will collapse the little competitiveness the Australian economy still has and will only benefit their ‘mates’. People are beginning to realise that ‘globalisation’ and neoliberal economics is a massive con and benefits only a very small percentage of the population. Its all too late in some ways as thousands of jobs are being lost.

  4. OldWomBat

    The GDP – ‘measures everything except that which is worthwhile’

    The above comes from a speech Robert Kennedy gave on March 18 1968 in which he said:

    “Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product – if we judge the United States of America by that – that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage.

    It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl.

    It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman’s rifle and Speck’s knife, and the television programs which glorify violence in order to sell toys to our children.

    Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials.

    It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile.

    And it can tell us everything about America except why we are proud that we are Americans.”

    The same is true for Australia.

  5. jimhaz

    [Michael Janda, the ABC’s business reporter explained that ‘real’ GDP only measures how much we have produced in goods and services]

    It includes rent. The higher housing prices go the higher rents go due to price gouging as multi-mortgage with no capital speculators inflate prices by maximising rents.

    With bubble level housing prices and a trillion dollar OS debt as a result, I no longer consider GDP growth as being ANY form of reliable indicator that we have had increases relating to productive investment.

    “Housing is a major part of both current consumption and private investment. In 2000, the combination of consumption
    and private investment spending on housing represented 14 percent of GDP (Table 1).
    Construction of new homes is part of the investment component of GDP.
    Residential fixed investment (RFI) totaled $425 billion in 2000, representing 4.3 percent of GDP and 24.1 percent of gross private domestic investment”

    “Prices in Sydney jumped 3.1 per cent in May and 6.6 per cent over the previous three months, the strongest gains nationwide”

  6. Kaye Lee

    An excellent article Ken and a great reminder OldWomBat.

    When will we start realising that investing in society pays far greater dividends than investing in big business?

  7. PC

    Some one on The Guardian said.. The LNP is a militarized political party who treats elections as a conquest and the office they gain as the spoils of war.

    How true that is.

  8. Anomander

    Too true PC.

    And the poor, the disabled, the unemployed, the disadvantaged, the elderly and the young are but collateral damage in their endless battle.

  9. Ken Wolff

    Thank you for your comments.

    OldWomBat: I know that quote from Robert Kennedy well and have used it before when explaining GDP. One thing that always amazes me about GDP is that it counts the rebuilding and reconstruction after bushfires and floods but there is no capacity to measure the losses. Also a reason why climate change doesn’t count: we will eventually count our efforts to ameliorate climate change but there is no way to measure what we are losing. In that sort of economic thinking losses and suffering don’t get a look in.

    Kaye Lee: thank you.I recently did another piece on TPS ( ) that looked at Turnbull’s blindness to social policy. He seems to completely overlook that a strong ecnomy is underpinned by strong social policies.

    Steve Laing: Yes, I think that is being seen in a few states. The old adage is that politicians shouldn’t “talk down” the economy but Turnbull and Morrison seem to be taking “talking up” the economy to a new irrational level.

  10. Steve Laing -

    The Libs are more than happy to talk down the economy – when they aren’t running it! Unfortunately they were too stupid to realise that it wouldn’t miraculously improve when they got into power, as they simply assumed! Abbott and Hockey were economic vandals, quite happy to destroy consumer and business confidence in exchange for getting into power. As a business owner, I noticed the economy start to slide about two months before the 2014 budget when all the new costs for the public started to be announced. At that point, peoples wallets started to shut, and they haven’t really opened since.

  11. Ken Wolff

    Steve Laing: couldn’t agree more as regards Abbott and Hockey and the way they ‘talked down’ the economy when in opposition.

  12. michael lacey

    I love the way the coalition sit at the bottom of the table like dogs waiting for a crumb of good news to fall so they can gobble it up! The one piece of good news is economic growth; It was largely driven by strong exports growth (and declining imports growth). In addition, private household consumption maintained a (declining) contribution as did public consumption. We do still however have negative growth in private investment meaning that potential output in Australia and future growth rates will be lower than otherwise. Not a positive sign. The other notable result was the increasing evidence that Australia continues to be in an income recession. The data continues to confirm that Australia faces a very uncertain outlook and the dependence on the volatile exports. The next one should be interesting!

  13. Pete Petrass

    Some would say just how stupid can people be when they believe the bald faced lies trotted out by Turnbull. I mean just look at his statements above on his economic plan or the truckies road safety tribunal that he abolished. Trouble is there are a lot of stupid people out there these days. You would never hear people like Piers Ackerman trying to explain how it is good that our future digital economy has been trashed by Turnbull’s MTM, or how as if by magic the cost of the ALPs NBN doubles in sync with the cost of the MTM, or how doubling the deficit took it from emergency status to fantastic, etc, etc. They never, ever talk or explain stuff like that, instead manufacturing lies about what the ALP is doing or has done. And his readers actually believe this stuff! How do you even explain Abbott supporters??? Perhaps WTF and OMG for starters.

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