It's not as bad as you might think
Despite Australia's sluggish economic growth and record-high government spending, a closer look at the data reveals that the situation may not be quite as dire as it seems.
Australia's National Accounts data for the September quarter were released this morning, and let's just say they weren't pretty. Real GDP increased by just 0.8% from a year ago, levels usually only seen prior to or following recessions. Worse, the growth was entirely due to state and federal government spending, which made its largest contribution since 2012:
"As a result, new public demand will climb to 27.8% of GDP in Q3 – a new record high. This quarter was not only about spending. Governments also borrowed big to pay for this additional spend, with net public borrowing a whopping $40bn in Q3, the largest quarterly borrowing amount since the lockdowns in 2021. This equates to around $1.7k in borrowing for each member of the working age population."
So much for the "temporary and targeted" increase in the public sector's share of spending in response to the pandemic:
But governments borrow to invest in the future though, right; surely this spending will pay for itself many times over? Probably not this time:
"A raft of state and federal government cost-of-living measures, rising public sector wages and the expansion of the care economy are undergirding persistent growth in public consumption which rose 1.4% for a second consecutive quarter and is up 4.7% over the year to the September quarter.
The quarterly public impulse was made even more significant by significant upward revisions to the level of public spending over the prior year. In total, the upward revisions total nearly $34bn or around a 5 percent upgrade to annual spending over the 2023-24 financial year."
All of this has happened amidst an inflation problem caused by too much spending (or as economists would say, aggregate demand-induced inflation) with an unemployment rate hovering at multi-decade lows. What I want to know is if this is what our state and federal government politicians do in normal times, what can we expect from them if we were to encounter an actual crisis?
Now, you might be tempted to say that times are already tough; that Australia's growth is slowing and the real per capita recession ticked into a seventh consecutive quarter in September, contracting -1.5% from a year ago. And you would be correct:
But I worry that the per capita data might be leading people astray.
