06 September, 2016 | Government & Social
Official figures released today by the Australian Bureau of Statistics (ABS) show that we are finally beginning to recover from the downturn following the end of the mining investment boom. GDP in the June quarter grew by more than 3% over the year, buoyed by exports and government spending.
However, these numbers continue to hide the underlying weakness in the economy. The ABS data show that economic welfare (as measured by real net national disposable income per capita) rose by a paltry 1% over the year, well below trend. In fact, this is the first quarter in almost four years that we’ve had a pay rise as a nation.
Today our incomes (in real per capita terms) are 4% lower than they were in December 2011. This means that what we earn today buys us 4% less things than it did in 2011. 4% less for food, housing and education. No wonder that despite the numbers, we’re still not feeling well off!
The last time our incomes fell like this we were in the middle of Paul Keating’s recession we had to have in the early 90’s. This time around our incomes have fallen by almost as much despite GDP growing by 12%.
The thing that saved us from a technical recession in recent years is that the mines built during the investment boom started production, helping boost our export sales. Without this boost from exports our GDP would almost certainly have moved into a recessionary two quarters of negative growth at some time over the last four years.
The thing with mining exports is that they benefit the owners of capital (often offshore). With falling commodity prices, mining detracts from income because there is a reduction in royalties and taxes paid to Government, and mines start claw back expenditures on wages, contractors and other services. Mines also employ very few people during production, so that as the construction phase winds up, the sector actually detracts from employment.
Our economy is significantly more flexible than it was, and our policy makers have learned from the 90’s recession. As a result, the economy has been able to readjust quickly to the current downturn. A less rigid labour market and flexible exchange rates, combined with some nimble monetary policy has meant that many of the workers lost from the resources sector have been absorbed by other parts of the economy.
To do this, we’ve all had to take a pay cut. And pay cuts hurt. Hopefully, the first green shoots we’ve seen in the recent national accounts data will continue to flourish and we’ll avoid the long hangover that we experienced after the 90’s recession, when unemployment remained stubbornly high for nearly a decade.
So, while it’s all very well for our leaders to crow about our economy’s ability to weather the strong headwinds blown our way from the global economy, it’s about time we also acknowledged that the economy has dealt us a serious cut to living standards, and that the recent downturn has felt like a recession to many people even if it wasn’t actually called one.
06 September, 2016 | Government & Social