Yesterday’s national accounts show the economy grew by 2.7 per cent last calendar year – stronger than any G7 nation other than the US – and sees Australia in its 28th year of economic growth. A remarkable run, particularly when one considers that economies such as Japan and Germany experienced negative quarters of growth last year and the IMF downgraded its world economic outlook.
The fundamentals of the Australian economy are sound but we face some challenges. The impact of the drought is being felt, with farm GDP down 5.8 per cent, and exports were down 0.7 per cent for the December quarter.
Significantly, the fall in agricultural production has also extended to food manufacturing, with the fall in manufacturing detracting 0.1 percentage points from real GDP growth.
Dwelling investment has also come down from a record high in the September quarter. While still up 2.5 per cent through the year, it recorded a fall of 3.4 per cent in the quarter. This reflects a reduction in building approvals as new supply comes online.
It also underlines the danger of Labor’s housing tax and its plans to abolish negative gearing as we know it and increase capital gains tax by half. The Master Builders Association said Labor’s policy would cost 32,000 jobs and see 42,000 fewer dwellings being built, and the Property Council of Australia has surveyed existing and potential investors and found they were less likely to invest in newly built properties under Labor’s plan.
On the positive side, the national account numbers indicate a pick-up in Australia’s terms of trade: 3.1 per cent for the quarter and 6 per cent through the year. This flowed through to nominal GDP, which was up a healthy 1.2 per cent in the quarter and 5.5 per cent for the year. The nominal GDP number is important because it helps shape revenue numbers for the budget.
It is also worth pointing out that our budget forecasts for commodity prices have been prudent with MYEFO, factoring in bulk commodity prices well below today’s spot. Indeed, with strong production volumes and commodity prices, mining sector profits are up, contributing to an overall lift in company profits of 3.2 per cent in the quarter.
With nine out of 10 employees in the private sector, profitable companies are critical to the strength of our economy.
Non-mining investment is also fundamental to the economy and there were good signs in the recent capex survey of business and in the national accounts where non-mining investment was up 4 per cent across the year.
The product of this business investment is that employment growth is strong and wages are gradually rising. With unemployment at 5 per cent, the lowest level in seven years, the wages bill for the economy is up 4.3 per cent.
Living standards, as measured by real net national disposal income per capita, are up by 2.1 per cent through the year compared to negative 1.2 per cent during Labor’s last year in office.
Real net national disposable income is a much more comprehensive indicator of living standards than GDP per capita as it measures the amount of real income available for Australian residents to spend or save.
Wages growth is a core focus for this government. While the wages price index is up 2.3 per cent through the year, there is more to be done and our plan of lower taxes, more trade and significant infrastructure investment will deliver more jobs and higher wages.
The Reserve Bank governor says “wages are rising more quickly in almost all industries and in all states than they were a year ago. This is good news and we expect this gradual lift in wages growth to continue.”
The strength in our economy is the result of sound economic management. This has been recognised by the IMF and OECD – and the major credit rating agencies have praised Australia for our “robust economic performance”.
Our AAA credit rating has been reaffirmed, with Australia only one of 10 countries with a AAA credit rating from the three leading agencies. Significantly, next month we will deliver the first budget surplus in more than a decade, while continuing to provide record funding for essential services such as health, education and infrastructure that Australians need and rely on.
It is now more important than ever for Australia to stay the course, keep a steady hand at the helm and not put our economy at risk with Labor’s plan for $200 billion in new taxes.
“Next month we will deliver the first budget surplus in more than a decade”
Josh Frydenberg is the federal Treasurer.