National Accounts data for the December quarter shows Australia is growing faster than every G7 economy resulting in an encouraging 2.4 per cent growth rate through the 2016 calendar year.
Our growth continues to sit above the OECD average and confirms the successful transition that is occurring in our economy as we move from the largest resources investment boom in our history to broader-based growth.
While this growth result is welcome, it can’t be taken for granted. We also recognise it’s not being experienced by all Australians in all parts of country in the same way.
What is particularly encouraging is that economic growth in the December quarter was broad-based across each of its components.
Firstly, the result is principally driven by a solid rebound in household consumption, which rose 0.9 per cent in the quarter and contributed 0.5 percentage points to growth, double the result in the last quarter. Consumption rose 2.6 per cent through the year.
Despite subdued wages growth, Australian households are continuing to express confidence in our economy. This is also reflected in the lower household savings ratio.
Continued growth in consumption spending is supporting our economy as we absorb the significant changes that are taking place as we move from once in a lifetime mining investment boom to a broader-based economy.
Similarly, dwelling investment rebounded in the quarter increasing by 1.2 per cent in the December quarter to be 5.6 per cent higher over the year. Increases in housing supply are expected to continue for several quarters as there remains a considerable pipeline of work yet to be commenced.
Most significantly, after 12 consecutive quarters of decline it was encouraging to see new business investment increase for the first time in the quarter, up almost 2 per cent. This included a 1.3 per cent improvement in new engineering construction and 5 per cent increase in new building construction.
This positive development reflects the improvement in business sentiment we have been seeing in recent months. The increase in new business investment follows a weak outcome in the September quarter that was weighed by temporary weather-related disruptions in the construction sector.
While we welcome this result, to lift wages and increase jobs we must continue to pursue policies that encourage investment. Our enterprise tax plan, combined with our innovation and science investments, infrastructure spending to lift productivity and our defence investments are all designed to drive investment.
Donald Trump and global competition
The case for the Turnbull Government’s enterprise tax plan is only made more urgent by plans in the U.K. and U.S. to dramatically reduce corporate tax rates.
In his first speech to Congress this week, U.S. President Donald Trump said he would reduce the company tax rate so U.S. companies “can compete and thrive anywhere and with anyone”.
Of concern in these accounts is that compensation of employees declined by 0.5 per cent in the quarter, but was up 1.5 per cent higher through the year. While we saw more jobs in the quarter, with modest wage increases and compositional changes this quarter’s result was disappointing.
This is why the core task remains to increase what hard working Australians can earn. This means generating more hours and more jobs in our economy. You can’t achieve this outcome without growth and business investment.
You can’t get a job in a business that is closed or not hiring. You can’t get a pay rise in a business that is not earning a profit.
That said, the improvement in the terms of trade has also benefited national income. Real net national disposable income per capita – a measure of living standards – increased 2.5 per cent in the quarter to be 5.3 per cent higher over the year. This represents the strongest annual growth in our income in five years.
However, we cannot be complacent and rely on commodity prices remaining at current levels to do the hard work. We cannot base our budgets and economic plans on volatile commodity prices. We must continue to take the necessary steps to keep our expenditure under control, to boost investment, to maintain our AAA-credit rating and ensure that we are able to sustainably fund necessary government services not just now but in the future.
The December National Accounts are a positive sign that our economy is maintaining the solid momentum that has already delivered us more than 25 years of continuous growth. But as the last quarter reminded us, it cannot be taken for granted.
Scott Morrison is the federal Treasurer.