Public spending and exports boosting GDP

Record-high government spending and a spurt in Australia’s exports propelled growth higher in the December quarter.

Treasurer Jim Chalmers holds a press conference at Parliament House in Canberra. Picture: NewsWire / Martin Ollman

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Record-high government spending and a spurt in Australia’s exports propelled growth higher in the December quarter, with Labor leaping on the numbers to claim the economy is starting to turn the corner before an imminent election.

As the government on Tuesday announced $8.4bn in additional spending to cover aged care wage hikes and a new federal funding agreement for NSW public schools, Australian Bureau of Statistics figures showed public demand rose by 1.9 per cent in the final three months of 2024.

The increase in public demand – a proxy for federal and state government expenditure – will add a solid 0.2 percentage points to Wednesday’s national accounts figures, which are expected to show that the Australian economy expanded by 1.3 per cent in 2024, growing by 0.6 per cent in the December quarter alone.

That reading would mark the fastest rate of quarterly growth since December 2022 and would be in line with the average rate recorded in the decade prior to the pandemic.

The continued strength of public spending on government services and capital works means the public sector share of the economy is set to remain at about 27.5 per cent of GDP and continues to buttress growth.

“The economy remains driven by booming public demand,” UBS chief economist George Tharenou said, calculating that the growth in public spending was running at an annual rate of about 10 per cent.

Speaking ahead of Wednesday’s GDP release, Jim Chalmers claimed the figures were likely to show that the Australian economy was “starting to turn a ­corner”.

“There are good reasons to be increasingly confident about our economy in 2025,” the Treasurer proclaimed. “We’ve got inflation down, we’ve got wages up, we’ve kept unemployment low, we’ve paid down a lot of Liberal debt and now interest rates have started to come down as well.”

But Peter Dutton slammed the government’s economic credentials, stressing that responsibility for Australia’s cost-of-living crunch should rest with Labor given its profligate spending.

“The Prime Minister presided over a lot of spending which has kept inflation higher for longer. It’s been homegrown inflation which is what the Reserve Bank governor has pointed out,” the Opposition Leader said. “Obviously, for a lot of families who are struggling at the moment, they cannot afford three more years of this government.”

To cover its spending boom, government borrowing amounted to $27.7bn in the December quarter, the ABS data showed, bringing the total lent to federal and state governments as well as public corporations to $91.7bn in 2024.

Separate trade figures, also released by the ABS on Tuesday, were similarly tipped to support economic growth, with a surprise increase in Australia’s export volumes, up 0.7 per cent, expected to add 0.2 percentage points to the December quarter GDP result.

The ABS attributed the increase to a surprise surge in chickpeas sales to India following the removal of trade tariffs and a large lift in the export of intellectual property relating to pharmaceuticals and computer software.

Economists expect Wednesday’s national accounts figures to also show a rise in household consumption, which has been crunched by elevated inflation and the RBA’s aggressive increases in interest rates in recent quarters.

Retail sales figures for January foreshadowed that expected increase, with spending supported by large-scale events including the Australian Open and test cricket helping to lift spending in cafes, bars and restaurants.

KPMG chief economist Brendan Rynne said the recovery in retail spending suggested the economy was beginning to gain momentum.

“This figure, together with the hotter-than-expected inflation figures last week, supports our forecast that the RBA will not follow up its recent rate cut with another in May,” Dr Rynne said.