The change in global weight is occurring not because the Australian economy is getting smaller. Both sides of politics, and the Reserve Bank, can lay claim to Australia’s record run without recession since the dark days of 1990-91.
One key change has been the fall in the Australian dollar relative to the US dollar, which enlarged our economy relative to others which during the global financial crisis saw their currencies shrivel.
But the other factor is that Australia, despite its growth, has simply not been growing fast enough. And, because of our stellar population growth (which in itself is accounting for much of our economic expansion), we have to share what we do produce with far more people.
To put that in some perspective. Australia’s GDP per capita (in Australian dollars) has lifted by 6 per cent since 2012.
In Spain (measured in euros), it’s climbed by 15.3 per cent. In New Zealand (in Kiwi dollars) it’s lifted by 8.5 per cent.
France, the Netherlands, South Korea, the UK, Germany and the United States are among a host of other countries where GDP per capita in their own currencies has lifted at a quicker clip than in Australia.
On the global rankings of GDP per capita, Australia is still a top-10 nation but is slipping rather than rising.
The Morrison government can, rightfully, point to Australia’s truly impressive employment performance over recent years.
Since 2013, the best part of 1.4 million extra Australians have got a job, with much of that growth among younger women and older people. A record proportion of working-age people are employed. If nothing else, the jobs story should be worn like a bikie gang’s patch on the back of Josh Frydenberg’s jacket whenever he gets up to speak about the economy and its performance under the current government.
The problem, and one that goes to the various measures of consumer confidence that despite the outward good economic news suggest the nation’s shoppers are getting by on Spam and crackers, is the lack of wage growth for most people.
The Reserve Bank’s recent monetary policy statement contained another downgrade to wages. It now believes wages will grow around 2.3 per cent for the next two years.
The gap between what it is forecasting and Treasury’s predictions in the April budget have gone beyond a joke. Treasury is a full percentage point higher next financial year than the RBA (a point of difference that will change in the budget update next month).
The government’s response to the dearth of wages growth (apart from predicting an imminent explosion) has been tax cuts. That’s why there’s active discussion of bringing forward those tax cuts planned to start in 2022-23.
But the focus on tax cuts ignores how wages growth would be preferable for most people. For instance, a person earning $70,000 is now getting the $1080 annual low and middle-income tax offset.
Yet if that person got a 3.5 per cent pay increase, their total pay would lift to $72,450. Once you take into account the tax rate, they would find themselves a touch over $1653 a year better off.
That extra pay would then be the starting point for a pay increase the following year, and the year after that, and the year after that.
In other words, giving some tax back is one thing (and not such a bad thing). But wages growth delivers far more.
This is the prime reason the Reserve Bank is cutting interest rates so low. To get the economy growing faster, to get unemployment down so low that wages growth must quicken.
And if none of this comes to pass, Australia will soon be shuffled down to 15th in the global ranking of economies.
Shane Wright is a senior economics writer.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.