A terrible set of numbers for a treasurer and Reserve Bank governor

Jim Chalmers and Michele Bullock have plenty to ponder after the poor September quarter national accounts showed an economy in real trouble.

For the treasurer, the problem is political.

Reserve Bank governor Michele Bullock and Treasurer Jim Chalmers.Credit: Alex Ellinghausen

By any measure, the living standards of most people are going backwards. Economic output per person has been falling for the best part of two years as a combination of low wage growth, high interest rates and high taxes hit households.

The slice of the Australian economic pie shared among all of us – GDP per capita – has shrunk by 2 per cent over the past year. Year-on-year, it’s more than $1600 each.

The past year has served up a combination of energy supplements, cheaper medicines, near-free public transport, the stage 3 tax cuts, a lift in wages and a jobs market so tight it’s got the Reserve Bank jumping at shadows – but none of this has been enough to get households spending over the past three months.

Household consumption – the driving engine of the economy – has fallen since March.

Instead of spending money, households have increased the amount they squirrel away in their bank accounts or under the mattress.

Immigration and public spending – including major projects such as suburban rail and defence equipment – is keeping the country barely ticking over.

Maybe people were saving so they could go on the mother of all spending sprees through the Black Friday sales, but you wouldn’t bet the government’s re-election on it.

Unhappy households aren’t often inclined to give their political leaders the benefit of the doubt. Chalmers knows that all too well.

No matter how much he tries to find a golden thread through these bleak numbers, there’s no getting away from the fact they show consumers are scarred and fearful.

At the Reserve Bank, governor Bullock can’t be feeling confident about how her institution is running the economy.

Its forecasts about economic growth and household consumption and wages growth, released just a few weeks ago, all look too high.

Fears of a wage-price spiral, which scared the bank for a year, proved ill-founded. A growing number of economists suspect the bank’s theory that unemployment needs to be around 4.5 per cent to curb inflationary pressures is incorrect.

The “narrow path” that both Bullock and her predecessor Philip Lowe talked about seems more like a single thread of old rope over a deep gorge. Economic growth has not been this poor, outside of COVID, since the 1990-91 recession that devastated much of the country.

Chalmers’ idol, Paul Keating, won the 1993 election with a million people out of work, suggesting even the largest economic difficulties can be overcome.

But in 1931, Labor treasurer Ted Theodore lost his seat as the Scullin government was swept from office after just one terrible term in power as the Great Depression began.

Theodore wasn’t helped by the central bank actively preventing him from trying to support the economy.

That’s something to ponder for both Chalmers and Bullock over the summer.

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