Budget 2018 leaves a bit to ponder
Budget night each year is usually something of a night out for economists. It is really the only day in the year when the nation listens closely to the exponents of the dismal science. While Budget 2018 had its moments for economic analysis, the reality is that it was more political than economic in tenor, which leaves us with some things to ponder, but not really a lot to analyse. Our brief analysis picks up the key points, some of which are expanded upon in this edition of Statistics Count.
Dwelling investment ~ forecast to be down 3.0% in 2017-18, growing 1.5% in 2018-19 and flat in 2019-20
Economic growth ~ GDP is forecast to be 2.75% in 2017-18, rising to 3.0% in 2018-19
Employment growth ~ forecast to grow 2.75% in 2017-18, falling to 1.5% growth in 2018-19, which as the Australian Financial Review’s Jacob Greber observed is below the rate of population growth
Unemployment ~ forecast to be 5.6% in JQ’18 and 5.25% in JQ’19
Wages growth ~ forecast to rise 2.25% in 2017-18, rising to 2.75% in 2018-19 and a solid 3.25% in 2019-20
Household spending ~ forecast to grow a soft 2.75% in 2017-18, rising to 3.0% by 2019-20
Non-mining investment ~ forecast to be up 10.5% in the current financial year, moderating to 5.5% in 2018-19
How do we encapsulate this information in a way that works for most of us?
At the outset, we can say that Australia’s economic fundamentals appear to point towards the mid-range of growth in economic activity, at a level that is unlikely to over-stimulate demand and create inflation.
The budget seems to have only limited inflationary impacts. In part this is because the expected rise in employment and wages (coupled with the modest tax cuts for those on lower incomes) is quite mild and to some extent offsets each other. That is, stronger wages growth is offset by softer employment growth.
Household spending will rise a little faster than currently, but as Greber points out:
“It’s still a long way short of the 3 to 4 per cent rates of spending growth that characterized the boom years of the early 2000s.”
Business investment, other than the mining sector has a link to the Government’s proposed infrastructure spending, which gives a clue about the extent to which Government expenditure will continue to be a major driver of the economy.
Somewhat politicized the budget circus may be, but behind the hype and announcements, the thrusts and counter-thrusts, are important data that informs the future of the Australian economy.