Is Australia heading back into boom? Treasurer Scott Morrison certainly hopes so, saying new figures showed that, “the Turnbull Government’s plan for a stronger economy is working”. The Coalition’s election pitch relies on it.
In the year to March the economy grew at 3.1 per cent, back to a figure similar to the decade before the 2008 economic crisis. This is the strongest growth in six years. But the benefits are not flowing to workers, with wage growth still near record lows.
And there are real questions about whether this can be sustained. The gains in January to March were mainly from increased exports of gas, coal and iron ore.
This is driven by the global economic recovery. In 2017 the world economy grew at 3.8 per cent, its fastest pace since the Great Recession began in 2008. The IMF’s global economic outlook, released in May, expects this to continue into the next year.
This means other countries are buying more local commodities, in particular the gas being produced by new offshore LNG projects in Western Australia.
Forecasters at Treasury and the Reserve Bank expect the economy to grow by 3 per cent in 2018 and around the same amount next year.
The Australian economy has struggled since the mining boom ended in 2012. The Reserve Bank responded by cutting interest rates to 1.5 per cent, providing a wave of cheap credit that helped boost housing construction and drove up property prices. Over the last year the housing boom has petered out, leaving the economy reliant on government infrastructure projects and consumer spending.
This includes state government spending on projects like Westconnex in Sydney and the Metro expansion in Melbourne. Business investment has also increased outside the mining sector, offsetting big declines in mining investment.
But it’s household spending which is the big concern. Households account for almost 60 per cent of total spending, making them crucial for the continued health of the economy.
Consumer spending accounted for half of total growth in the last year. But with record low wage rises, this has relied on record levels of household debt, now at an average of 200 per cent of workers’ annual income. High debt levels make it harder for households to keep opening their wallets.
In the January to March quarter household spending grew just 0.3 per cent, mostly on essential items like food, power and healthcare.
Immigration and population growth have also propped up the economy. While household spending was up 2.9 per cent in the year to March, the population is also growing by 1.6 per cent a year.
This has economists worried that recent growth, “may be as good as it gets,” as Paul Dales from Capital Economics told the ABC.
“We doubt that the strength of net exports will be sustained as there was an element of catch-up after production problems in the second quarter and third quarter”, he said.
This is not to mention the risks to the global economy if Donald Trump sparks a trade war with China, or Italy ignites another European Union debt crisis.
The pick-up in the economy is not flowing through to workers, with wage growth still stagnant. Wages rose just 2.1 per cent in the year to March, and only 1.9 per cent for workers in the private sector, the same as inflation.
Malcolm Turnbull claims that an improving economy and lower unemployment will eventually generate wage pressures.
The Liberals boast of creating one million new jobs since their election in 2013. Given the size of the Australian economy, this is actually not such a difficult feat over five years.
A large portion of the jobs, 400,000, were added in 2017. This year, even as economic growth has accelerated, the number of new jobs has slowed, dropping to half of the figure of last year.
But business is holding down wages in an effort to hoard as much wealth as possible for itself.
Corporate profits jumped 5 per cent in the last year and the country’s 200 richest people increased their wealth by 21 per cent to $283 billion, according to the Financial Review.
Yet the aftermath of the 2008 economic crisis has seen low wage growth across the developed world. Unemployment in the US is now down to 3.8 per cent, but wages are rising by just 2.6 per cent a year.
Workers have not been able to exert enough bargaining power to force up wages.
The Centre for Future Work estimates that the number of private sector workers covered by Enterprise Bargaining Agreements, typically negotiated by a union, has fallen by 30 per cent in the last five years, to just 12.4 per cent of private sector workers. More workers are being pushed back onto lower Award wages and conditions.
Bosses won’t give us better pay rises unless we fight for them. That means organising for strikes and industrial action to demand better pay—and the right to strike.
By James Supple