Who is Treasurer of Australia? Is it Josh Frydenberg? Chris Bowen? Who knows? You can’t tell from the media release issued by Frydenberg yesterday in response to the appalling national accounts data for the March quarter.
It’s a remarkable statement — remarkable, that is, for its complete disengagement from any sense that Frydenberg might actually have any role in what’s going on in the economy. It reads like an analyst who’d cut and pasted from the ABS’ press release for his clients, reeling off statistics without any reflection that this man has been in charge of the economy for ten months and his government has been running the show since 2013.
How bad was the March quarter? GDP only rose because of the unlikely combination of floods in north Queensland in February, a hailstorm in Sydney in December, a dam wall collapse (and the loss of nearly 300 lives) in Brazil, and the continuing expansion of the NDIS. The 0.4% quarter-on-quarter growth meant annual GDP fell to 1.8% from a revised 2.4% in the December quarter. Forget 3% growth, we’re not even managing 2%.
We haven’t done as badly as this since the financial crisis.
The 0.2% contribution to growth from government spending “was the main contributor to growth reflecting ongoing delivery of services in disability, health and aged care”, according to the ABS. That’s what has been driving labour market growth in the past three years — health and social care spending, not robust private sector expansion. What other growth there was was driven by disasters and their subsequent impact. That windscreen-wrecking storm in Sydney and floods in north Queensland triggered billions in insurance payouts to households — and they won’t contribute to growth this quarter.
The rise in our terms of trade and the contribution to growth from net exports are linked to the January 25 mine dam disaster in Brazil that has pushed iron ore prices above US$100 a tonne globally. If it hadn’t been for that disaster and its impact on Brazilian iron ore exports (our major competitor in China), iron ore prices would have struggled to remain around their end of 2018 levels around US$72 a tonne.
Otherwise, the economy has hit a wall — a wall built, brick by brick, by this government and Australian business over the last six years. That wall is wage stagnation, the deliberate policy of the Coalition. The 1.2% improvement in compensation of employees in the national accounts was only due to the growth in the labour market; average compensation per employee, one of the favoured measures for the Reserve Bank, was up by just 0.4% in the quarter or 1.4% over the year. That’s even below the wage price data of 2.3% year on year in the March quarter, which has been static now for nine months.
The government’s wage stagnation policy is why household consumption cratered for yet another quarter: a tepid 0.3% expansion in household consumption in the quarter brought annual growth to just 1.8%, down from 2.2% annual growth in December. Households “reduced discretionary spending, in particular on recreation and culture, hospitality and furnishings and household equipment”, the ABS said. And right after the Productivity Commission outlined how Australia is in the grip of another — and this time real — productivity crisis, productivity declined by 0.4% in the March quarter and is down by 0.9% over the year.
“The economy does face international and domestic challenges,” Frydenberg finally admitted near the end of his recitation, as if jolted from his reverie into realising he was actually in charge. Yes, indeed, international challenges — there is Donald Trump’s attempt to completely wreck the international trade system, which Australia heavily relies on, and which we have said nothing in defence of as the world drifts toward a trade war.
But Frydenberg also has the “challenge” of having our terms of trade go up even higher after another increase in iron ore prices, pumping extra billions of tax revenue into Treasury.
As for “domestic challenges”, they are entirely within Frydenberg’s control. For six years, his government has demonised unions, established ideologically motivated regulators to attack them, opposed minimum wage rises, pushed for penalty rate cuts and endlessly insisted wages growth was picking up when it was flatlining. The impact on households compared to the end of the Labor years is clear from the ABS documents.
A small tax cut for middle income earners — literally the only current economic policy this government has — isn’t going to do much against what is going to be a decade of wages stagnation. And the economy is simply going to continue to hit the same wall that Frydenberg and co have spent six years building.