By Leith van Onselen
Ross Gittins has done a good job today destroying the Australian Treasury’s perennially heroic Budget forecasts, which forever project an imminent ‘future boom’ for the Australian economy:
…the longer Treasury dwells in the land of hope-springs-eternal, the more it gives its political masters the budget numbers they crave: ones showing the budget deficit soon returning to surplus and staying in surplus as the net debt falls to zero…
Treasury’s response to its repeated over-forecasting is just to push the ETA of the return to strong growth out another year. Nothing fundamental in the economy has changed, nothing’s wrong with the forecasting method, it’s just taking a bit longer than we thought. This time we’ll be right.
But, you may object, if the economy’s remained so weak for so long, how come growth in employment has been strong since early 2017 and unemployment has slowly fallen to 5 per cent?
Because of high levels of immigration – high even by our standards, and unmatched by the other rich countries – and because the under-employment rate was worsening until recently.
Much of the jobs growth has come from federal government spending on rolling out the National Disability Insurance Scheme, and state government spending on infrastructure. After all, public sector consumption and investment spending accounted for more than half the surprisingly weak GDP growth of 2.3 per cent over calendar 2018.
Remember this: a strong, healthy economy is one where demand is always threatening to push inflation above the target zone. Our inflation rate’s been below the target for three years.
Too right. While most of the Budget’s domestic economic assumptions are
heroically optimistic, the never-ending forecast of a pending wages explosion is most egregious:
With the housing market (both construction and prices) crashing, and forward indicators for the labour market turning down, growth in the economy and wages will be lucky to hold current anaemic levels, let alone explode upwards as projected.
The projected surplus is built on a foundation of quick sand.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
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