‘Sad economy without hope’: Deepest hit to living standards on record

The Reserve Bank is under pressure to bring forward an interest rate cut and Treasurer Jim Chalmers faces questions about his ability to manage the economy after new figures revealed the deepest hit to Australians’ living standards on record.

Figures from the Australian Bureau of Statistics on Wednesday showed if not for public spending and immigration the country would be in recession, with the economy expanding by a less-than-expected 0.3 per cent in the September quarter.

Annual growth fell to 0.8 per cent which, outside the COVID-19 pandemic recession, is the economy’s worst performance since the recession of 1990-91.

In per capita terms, the economy went backwards by another 0.3 per cent, marking a record seventh consecutive quarter of falling GDP per person. Net national income per person has now fallen by 2.2 per cent or $1660 over the past year.

Chalmers said the figures showed real incomes were growing for Australians due to a slowdown in inflation and the government’s stage 3 tax cuts which started in July.

While arguing the government was “working its tail off” to improve the economic outlook, he conceded most people continued to face substantial cost-of-living pressures.

“We [have] made some progress but we don’t pretend that when we see these welcome developments in the national data that people automatically are feeling better or faring better in communities right around Australia. People are still under pressure,” he said.

But shadow treasurer Angus Taylor said the figures proved the government and Chalmers had failed the public with an economy that was only being propped up by migrants and public handouts which were adding to the nation’s inflation pressures.

“This outcome reflects the complete and utter failure of Labor’s big Australia, big government policies,” he said.

In a sign of the pressure facing consumers, the stage 3 tax cuts helped reduce tax paid by households by 3.8 per cent in the quarter or $3.5 billion. But most of this was squirrelled away with the household savings ratio climbing to its highest level since late 2022.

Household spending, the single largest part of the economy, was flat during the quarter and has fallen over the past six months.

Spending on essentials fell by 0.1 per cent, largely due to the drop in expenditure on energy due to the federal government’s subsidies which started in July and a warmer-than-normal winter.

Spending on discretionary goods inched up by 0.1 per cent, led by extra spending on clothing and footwear.

The biggest contribution to the economy came from governments, federal and state, which lifted overall growth by 0.6 percentage points.

Energy subsidies and state government public transport assistance, such as the former Queensland government’s 50¢ fares, helped lift overall spending. There was also a 6.3 per cent jump in public investment after three quarters of falls.

This was largely due to a large 35 per cent lift in defence spending plus higher expenditure on hospitals, road and rail projects.

But business investment remained relatively strong as businesses continued to spend on equipment, machinery and computer software. While down by 0.6 per cent in the quarter, in inflation-adjusted terms business investment remained above $75 billion a quarter for the past year-and-a-half, the strongest level of sustained spending since the 2012 to 2014 mining boom.

EY chief economist Cherelle Murphy said the figures painted the picture of a “sad economy without much hope”.

She cautioned that while private business investment was at a decent level due to spending on technology and renewable energy, even that could come to a sudden halt.

Public projects such as Melbourne’s Metro Tunnel continue to help the economy grow.Credit: Joe Armao

“With a new wave of uncertainty from President-elect Trump, rising regulation, fewer migrants and a government unwilling to kickstart much-needed reforms on tax, an investment freeze is within sight,” she warned.

JP Morgan economist Ben Jarman said the figures, alongside the slowdown in inflation and ebbing wage growth, should mean the Reserve Bank started to consider interest rate cuts early next year.

The head of Deloitte Access Economics, Pradeep Philip, said the private sector was being “clobbered” with the economy “stuck in the mud and spinning its wheels”.

“With little headroom for further fiscal stimulus and with the private economy clobbered, the case for a rate cut is strong. But with the Reserve Bank of Australia maintaining a hawkish outlook on inflation, a rate cut may well come later rather than sooner,” he said.

Universities Australia said the government’s reduction of international student visas was also having an impact on the economy with education exports falling by 9 per cent over the past year.

“Our economy is stuck in low gear and the handbrake on international education is a big reason for that,” Universities Australia chief executive officer Luke Sheehy said.

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