None of the economic indicators released during the course of this interminable election campaign inspires confidence that Australia is making a smooth transition from the end of the mining boom. To the contrary, they tell a story of an economy struggling to adjust, of weak non-mining investment and of high-paying full-time jobs being lost and replaced by low-paying, part-time, insecure jobs. The new Australian government elected on July 2 will have a big job on its hands steering the economy through the most difficult period since the Global Financial Crisis and the ensuing global recession.
Yes, the most recent national accounts report an economy growing at a strong clip of 3.1 per cent per annum. But most of that growth reflects large volumes of iron ore and liquefied natural gas exports for which the producers are receiving declining prices. It's not a great help to everyday Australians. What about the best available statistical measure of living standards per Australian citizen? Real net national disposable income per person fell again in the March quarter, the 17th successive quarter during which it has declined or flat lined. Translated into dollars, Australians on average are $867 a year worse off than they were at the end of 2011, a fall in living standards of 6 per cent.
And despite the unemployment rate having risen only a little, from 5.3 per cent in late-2011 to 5.8 per cent in May 2016, the labour underutilisation rate has risen from 12.5 per cent to 14.2 per cent. This rate, reported by the Australian Bureau of Statistics, measures unemployment, underemployment and discouraged workers who have stopped looking for a job.
Falling living standards, a weakening jobs market and a bleak investment outlook are not the signs of a strong economy. Nor do they signal an improving fiscal balance, especially since the budget forecasts are based on optimistic assumptions about nominal GDP growth which strongly influences tax receipts. Flying in the face of global deflation, Australia's nominal GDP growth is forecast to accelerate from 1.6 per cent in 2014-15 to 4.25 per cent in 2016-17 and 5 per cent thereafter.
The incoming government brief will provide for sober reading. Yet the new government will have very few short-term policy levers at its disposal. The independent Reserve Bank appears reluctant to use up any of the remaining 1.75 percentage points of official interest rate reductions in its arsenal. While this is a very low rate in historical terms it exceeds that of almost all developed economies, ensuring the Australian dollar remains higher than it need be.
The Coalition's search for the Holy Grail of Jobs and Growth has ended in a phased company tax cut to boost foreign investment commencing in 2022. In the intervening six years a re-elected Turnbull government would presumably be counting on the excitation of foreign animal spirits to bring forward their investment decisions in anticipation of the great company tax phase-down day. These are the same animal spirits that never left the spirit house with the change of government in 2013. If Labor forms government, extra funding would be channelled into needs-based school funding which, while worthy in lifting the skills and creativity of the workforce, would also have a long payoff period.
Neither party seems interested in an investment allowance, which would have an immediate effect, though at least neither has promised not to introduce one. In lieu of it, the Coalition has announced a company tax cut for Australian businesses for the coming parliamentary term, which, under the 30 year-old dividend imputation system, will have a negligible effect on investment. For its part, Labor has announced an incentive for small businesses to employ people who are disadvantaged in the labour market.
Maybe for a time at least, this is as good as it gets – falling living standards and underemployment but no spike in the unemployment rate. But the next government can and should do better. Though they have long lead times, the policy agenda should include: a new round of national competition policy; a needs-based school-funding model coupled with an outcomes focus for education spending; efficiency reviews for major spending programs as contemplated at last year's National Reform Summit; and, dare its name be mentioned, a policy-oriented update on the archived white paper on Australia in the Asian Century incorporating implementation plans for the free-trade agreements with Korea, Japan and China completed by the Coalition government.