JACKSON HEWETT: Australia’s weak GDP figures likely not enough for an interest rate cut anytime soon

Today’s big GDP miss sends Australia further down the ranks of countries struggling to get off the canvas.

Growth of just 0.3 per cent for the quarter, equating to 0.8 per cent per year is the slowest since the pandemic. It puts us well below the 1.8 per cent average across the developed world and in the economic company of the sick men of Europe.

The US by comparison is growing at more than three times our rate.

The numbers confirm that the only thing keeping the country out of a technical recession is government spending. On a GDP per capita basis, we’ve been in one for nearly two years.

Over the last quarter, State and Federal spending ballooned to almost $200 billion, a rise of eight per cent on a year ago and the largest contribution since 2012. Government spending now equates to a record high 27.8 per cent of GDP.

Labor governments across the country have made the decision to haul to the economic left and keep people in work with government jobs, infrastructure boondoggles while papering over the inflationary cracks with cost-of-living “relief” in the form of rebates and public sector wage rises that will have to be paid back sometime.

Westpac estimates that governments borrowed an additional $40b in the three months to September, effectively putting an extra $1700 on the tab of every taxpayer. It’s a debt binge of pandemic levels, driven by fear of voter anger as much as long term anxiety about the nation’s future.

In his press conference conference today, Dr Chalmers has drawn the battle lines on economic management heading into the election.

He will cast Labor as the party of the “caring economy” and the Coalition as Thatcherites hell bent on an austerity program of slash and burn.

Dr Chalmers is still running with the line about inheriting a Coalition mess, but has decided to also go on the attack.

“We’ve got a lot of free advice to have slash and burn budgets and kind of radical austerity that would be it would have been a recipe for recession,” he said.

“When we came to office, people were already going backwards very substantially. We’ve made some progress, but people are still under pressure.

“That’s why the cost-of-living help is so important, and that’s why Peter Dutton and the Liberals and Nationals pose such a risk to household budgets.

“They don’t support cost of living help, they want to pull three $315 billion out of the economy at the worst time and send it backwards. And that’s why the biggest risk, the biggest risk by far, to household budgets and the economy more broadly.”

But according Kos Samaras, one of the country’s best pollsters, voters don’t judge the opposition, only the incumbent. And in the outer suburban and regional swing seats of New South Wales and Victoria the big issue is not the headline economic numbers that he says is “white noise”, it is the underlying problem of seven consecutive quarters of negative GDP per capita.

“Those numbers tell about us about their lived experience. They know things are stuffed, that’s their life,” he said. “The incomes they are getting and the mortgages they’re paying are not compatible. They are eating into their savings and relying on credit cards to get by.”

Samaras advises the Prime Minister and the Treasurer to keep carrying on with the “things are slowly getting better line”. If that is the approach, then Dr Chalmers may make another bet on spending before the election.

But government spending is still flowing through to inflation, economists say. The combination of a stubborn underlying inflation rate, and government jobs are keeping unemployment at a level where the Reserve Bank is unlikely to cut interest rates until well after the election.

Asked by The Nightly if he regretted the decision to spend on cost-of-living rebates, while overseeing the kind of public sector wage rises that would give the RBA pause, Dr Chalmers said he was optimistic the numbers would come down.

“We’ve seen very welcome and encouraging progress,” he said.

But those public sector wage rises mean labour costs are still too high at 3.9 per cent to give comfort to the RBA. And worse, those jobs are also in service sectors like aged care and the NDIS, meaning they are a net drain on Australia’s already poor productivity figures. Productivity is one of the measures the RBA looks at when forecasting underlying inflation.

“Labour productivity, or GDP per hour worked are at anaemic levels, and are not giving the RBA the breathing room it needs to keep inflation down,” said Fortlake Asset Management’s chief investment officer and former RBA economist Christian Baylis.

“Household savings and disposable income continue to be hit by inflation, higher interest rates and broader cost of living pressures. Overall, it’s a meagre outcome in line with what the RBA was expecting, therefore I see no change for monetary policy.”

O growth where art thou

There’s no escaping the recession we already have.

It’s masked by the 500,000 new migrants arriving here every year, something Shadow Treasurer Angus Taylor will be driving home into the election.

“We see a person arriving to live in this country every 44 seconds,” he said. That population rate growth is outpacing substantially the growth in the economy (and) that’s why we’ve got GDP per person going backwards.”

But cutting arrivals would be disastrous for the economy, and if Mr Taylor intends to do that once elected, he’ll be consigning the economy to an official recession that has little in the way of underlying momentum.

The Coalition makes the argument that government spending is crowding out growth but where is it otherwise?

Business investment is flat, inventories have been drawn down and the mining sector is going backwards on China’s weakness.

Without immigration, the population would be going backwards and as boomers retire, there will be fewer workers to support those in old age. That is already a problem throughout Europe and developed Asia.

And we haven’t even started on what a Trump presidency might mean.

The upcoming election desperately needs to be a contest of ideas about how to fix these long term problems. Unfortunately, until living standards rise, it will be a contest of who can best manage the status quo.