Australia’s economy has a grim outlook. Growth is terrifyingly low, matched only by consumer confidence, and the prospect of a dire Christmas period is looming over the nation’s retailers.
Last year, December retail spending was a nasty surprise, coming in at -0.5%, seasonally adjusted. If that happens again, it will drag all our economic problems into the new year: lower earnings, lower employment, weaker confidence, etc.
Christmas spending matters, as the next chart shows. In an average month, Aussies might spend $26 billion. In December we ramp that up by about a third, and spend $35 billion. October and November are usually dragged up by yuletide cheer too.
Let’s not forget the importance of retail spending. For all the talk of infrastructure, of mining exports, and of construction, household consumption remains the biggest part of our economy.
This is the key to our whole puzzle: our economy is weak because our household consumption is weak, which is because our wages growth is weak. But the latter two points feed into one another. Weak consumption is, in part, to blame for weak wages growth. That’s why we could really use a Christmas miracle.
Bringer of gifts
The man to deliver this gift is Treasurer Josh Frydenberg. Frydenberg controls the mid-year economic and fiscal outlook — a tool of very elastic power. Most years the MYEFO is little more than a summary of the bottom line, released in the days before Christmas when not too many people are paying attention. But it has the capacity to expand and become a mini-budget of sorts.
There is a decent case for a mini-budget. For one thing, the budget forecasts have been blown out of the water. Household consumption was forecast to grow at 2.75% over this financial year. The RBA now has that at 2.1%. Wages were forecast at 2.75% this year, the RBA now expects wages growth at 2.3%. And the course of monetary policy has changed dramatically. We have had three cuts to record levels.
In May, the RBA was hoping for wages growth. Announcing that interest rates would stay on hold at 1.5%, RBA Governor Philip Lowe said: “Some pick-up in growth in household disposable income is expected and this should support consumption”.
But by October, the tide of enthusiasm had well and truly ebbed. Announcing for the third time in five months an interest rate cut to lows hitherto unseen, Lowe’s tone was as muted as the wages growth he had expected.
“Wages growth remains subdued and there is little upward pressure at present,” he conceded.
The snooze cruise
The RBA has even said it is thinking about how it would apply quantitative easing in the case that is required. The monetary policy ship is clearly at all hands on deck! But glance across to the fiscal policy ship and, despite the growing storm, they are still snoozing in their cabins.
MYEFO presents an excellent opportunity to rouse the crew, set sails and right the course. Frydenberg can do something to save Christmas. A very smart thing to do would be to provide some sort of immediate fiscal stimulus to households.
If we want this to happen — and we should — we need to find ways for it to be politically viable. It can’t go out under the banner of “Economy doomed, Treasurer flip-flops to adopting Rudd tactics”.
Surely Frydenberg can find ways to spin it that don’t sound so much like the Keynesianism his party’s barrackers despise. When Thatcher reduced military spending after the Cold War, she called it a “peace dividend”. Maybe Frydenberg can call this “the surplus dividend”.
Obviously, once it’s delivered back to households it no longer counts toward the surplus, but that is by-the-by. In fact, it is likely revenues have been quite strong in recent months, so Frydenberg may be able to deliver a fiscal stimulus to households and also run a narrow surplus.
He can call it whatever he wants. “Australia’s Christmas bonus” has a nice simple ring to it. I can see the cartoonists drawing a red suit and a white beard on their caricatures of the treasurer already. The great thing about a Christmas bonus is that it tends to get spent, and spending is just what our economy needs.
Should Frydenberg try and spin a Christmas miracle? Send your thoughts to [email protected]. Please include your full name for publication.