On Wednesday we learnt that our economy was only just avoiding a recession. If the Albanese and state governments weren’t spending madly, we would be uttering the R-word! This led to Treasurer Jim Chalmers telling us that we need the private sector to lead the economic recovery.
However, the bosses of two of our biggest businesses i.e. BHP and Wesfarmers, which owns Bunnings — told him that his industrial relation laws and tax system are making it very hard to rescue the economy.
The National Accounts this week revealed that the September quarter economic growth came in at a weak 0.3%, when economists tipped a 0.5% number, which was a big miss. It brought annual growth in at 0.8% rather than the 1.1% pace predicted by the economic number-crunchers. Again, this was a big miss!
As the CBA’s Gareth Aird noted, it was “the weakest rate [of growth] in 3½ years and to lows last seen in the early 1990s recession. In fact, it was the slowest pace since December quarter 1991 outside of the Covid-19 pandemic and was well below the decade average rate of 2.3%.”
Without government spending, we’d be in a recession. Here’s Aird again: “The public sector’s spending share of GDP accelerated back above 28% and is expected to continue to rise ahead of the federal election due in the first half of 2025.”
A group of AFR journalists has surveyed the latest numbers and the reactions of big business CEOs and found the following:
1. Wesfarmers chief executive Rob Scott said the latest National Accounts figures were “very concerning”.
2. He said reduced regulation and red tape was needed to encourage business to invest.
3. He added that the tax system was “uncompetitive”.
4. BHP Australia president Geraldine Slattery also inferred the policy setting wasn’t favourable for businesses to risk investing.
5. Changes to employing workers have made labour more expensive without offsetting productivity pay-offs.
6. The AFR reported: “BHP estimated last year that the federal government’s labour hire laws would add an extra $1.3 billion a year in operating costs.”
“The golden goose that produced our fair and prosperous society is gasping for air,” consultancy group, McKinsey, warned in a report. Australia is now ranked 30th out of 35 wealthy countries in the OECD in terms of productivity growth.
“McKinsey said Australia’s high effective corporate tax rate – 27 per cent after deductions and before dividend imputation – had contributed to a decade-long decline in foreign direct investment and a drop in international competitiveness,” the AFR team reported.
The best summing up of what’s going wrong with our economy came from Deloitte Access Economics partner Stephen Smith, who told the AFR that the economy was leaning heavily on public sector spending and population growth, while grappling with stagnant productivity.
“Without a shift in this growth mix, achieving stronger and more sustainable economic growth will remain elusive,” he said.
He didn’t say this but it’s economics 101 to assume that without better growth unemployment will eventually start rising. That’s when the RBA will be forced to cut interest rates.
You don’t have to be an economist to work out that the Government has played nice and decided to reward workers with big pay rises, ignoring that this represented cost increases to business, at the same time as interest rates went up 13 times, hot on the heels of inflation that topped 7%. Plus, a lot of businesses that produce 33% of our GDP i.e. small businesses, have had to cope with the above plus the hangover of the lockdowns of the Covid era.
It was a perfect storm that has hit those businesses that don’t have pricing power.
This week I attended a breakfast with Opposition leader Peter Dutton, who was asked about the Government’s lack of support for business. He actually praised Anthony Albanese for looking after his constituency — “the unions” — but he said the PM and his government hasn’t gone out of their way to help business.
The Treasurer this week said he wants the private sector to kickstart the economy, but the private sector is telling him: “Give us a break!”
Given the budget deficit blow out and an election to win, I can’t see a real lot to help business before May next year.