Real reason Australians suddenly feel so poor

Australia’s GDP is more than healthy yet everyone feels squeezed – but the story of the Aussie economy isn’t as simple as it may first seem.

ANALYSIS

In the overwhelming majority of the past 124 years, Australia has generally earned its moniker ‘The Lucky Country’. Over most of that period, Australians have seen their incomes and their purchasing power rise, helping Aussies to become one of the wealthiest nations in the world.

But in more recent times, that progress has largely stalled for Australian households and the forward momentum and progress that had become very nearly taken for granted has evaporated.

Yet this is not the story the headline economic growth numbers tell us. Instead, the last decade of economic data, excluding the pandemic, tells us that the lowest level of annual GDP growth in the economy was 1.7 per cent in the April quarter of 2019.

On paper that sounds pretty decent. 1.7 per cent growth isn’t great by any stretch of the imagination but as low point over an entire decade, most nations would be very happy with that economic report card.

But that figure and the graph above isn’t representative of the outcomes being experienced by households. The International Monetary Fund defines GDP as, “the monetary value of final goods and services — that is, those that are bought by the final user — produced in a country in a given period of time.”

So, while the average Australian may not see the direct benefits of abstract GDP contributors such as the explosive rise in Liquefied Natural Gas (LNG) exports, it can and does contribute significantly to headline economic growth.

Enter politics

For the longest time, the generally robust and widespread nature of Australia’s economic growth made things relatively easy for politicians on any given day. While there were recessions, in the post-World War Two era, they were almost always followed by strong recoveries and robust levels of wages growth.

But in the past decade outcomes began to diverge significantly, on one hand households saw their real disposable incomes fall to 2008 levels in per capita terms and on the other headline GDP growth continued to power ahead.

This has left politicians from both sides of the major party divide in a challenging political position. If they focused on the actual economic outcomes being experienced by households that would leave them conveying quite a bit of less than positive news to the electorate.

So instead, the public has seen an increasing emphasis on headline economic indicators, rather than ones adjusted for inflation or population growth. By focusing on headline GDP growth or aggregate job creation, it can appear that the economy is actually performing relatively robustly compared to historic economic outcomes.

Taking the Government to task

Three days prior to the last federal election, then Shadow Treasurer Jim Chalmers and several other members of Shadow Cabinet released a stinging statement directed at the Morrison government. In the statement it was noted: “With inflation running at 5.1 per cent, today’s data shows that real wages went backwards by 2.7 per cent in the last 12 months.

“Since Scott Morrison became Prime Minister four years ago, Australian workers’ real wages have not gone up at all.”

When contrasting Labor’s press release with data from the ABS, these assertions are absolutely correct. Chalmers and the other members of then Shadow Cabinet were right to focus on inflation adjusted wages and the real outcomes being experienced by households.

Earlier this month, this tweet was posted by now Treasurer Jim Chalmers:

Securing meaningful, responsible, sustainable wages growth is central to the @AlboMP Govt’s economic plan & our approach is tailored to support lowest-paid workers doing it toughest. New analysis shows wages are growing faster under Labor than they have in nearly 15 years #auspolpic.twitter.com/GPWRoIjQfz

— Jim Chalmers MP (@JEChalmers) January 7, 2024

While the assertion that wages are growing at the fastest rate in 15 years is correct, like the claims about accelerating wages growth made by former Prime Minister Scott Morrison in the run up to the election, they are only part of the story.

In inflation adjusted terms real wages have undergone the largest fall since the wage price index began in 1997.

In fairness to the current government, the decline in real wages was already well and truly underway when they entered government and a degree of downward trajectory during the Albanese government’s term was practically assured.

However, the same forthright commentary that Labor produced prior to the election has often been replaced by the same focus on headline figures the Morrison, Turnbull and Abbott governments had before them.

The Other Side Of The Story – Struggling Households And A Distorted Economy?

Famed 19th and early 20th century American author Mark Twain once said: “There are three kinds of lies: Lies, Damned Lies, and Statistics.”

While over a century has passed since Twain’s death, headline statistics remain part of the tool kit that can be used to flatter the reality of a situation, even when things are significantly more challenging for individuals experiencing those outcomes.

In Australia and around the world, this is not a partisan thing. As inflation and population adjusted outcome growth has deteriorated throughout much of the Western world, a focus on headline figures has become the norm from the Presidential politics of the United States to the Westminster system of Great Britain.

With the Australian economy widely tipped to extend its ongoing recession in GDP per capita terms and the possibility it could take over a decade for households to regain lost purchasing power, one imagines that the focus on headline statistics may continue well into the future, regardless of who is in government in Canberra.

Ultimately, Treasurer Jim Chalmers’ initial instinct in opposition to be forthright and real with the Australian people about the true state of the economy at an individual household level was the right one from the perspective of transparency.

But whether that is the right call in the strange and at times distorted world that is Australian politics, that is for the electorate and the individual voter to decide.

Tarric Brooker is a freelance journalist and social commentator | @AvidCommentator