The one thing to fix the Australian economy: 4 experts give their view
Economic headwinds will be a key topic at the Yahoo Finance All Markets Summit on the 26th of September 2019 in the Shangri-La, Sydney. Check out the full line-up of speakers and agenda for this groundbreaking event here.
Consumer spending is desperately weak, wage growth is going nowhere, productivity growth is below target and unemployment is up.
Fixing the sluggish economy has become a top priority for Australian policymakers.
The federal government has legislated tax sweeteners in a bid to put more money into Australian hip pockets and inject more money into local businesses. The Reserve Bank is pulling the levers to increase business investment and give consumer spending a boost.
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But, according to economic experts, there’s more the government could do to kick-start the economy.
What can be done? And what should be first priority? Here’s what four experts told Yahoo Finance:
Restore confidence in the housing and construction industry
Realestate.com.au chief economist Nerida Conisbee
The Australian economy is highly dependent on the construction sector however this looks like it will struggle over the next two years and this will make a substantial difference to GDP growth. Longer term, this will be a problem for affordability, and hence household wealth, if not enough housing is built.
There are a lot of challenges at the moment. We have just come off record levels of construction but development was driven primarily by local and offshore investors. Local investor finance activity is now down 45 per cent from peak while offshore investors have withdrawn significantly from the market.
In addition, we now have quality issues emerging including cracking towers and flammable cladding. Confidence in the sector is low and it will be difficult to get buyers back in.
Historically we can see a lot of problems emerge when housing construction reduces dramatically. Post Global Finance Crisis, we can see the impacts of low building activity in the years immediately afterwards in Sydney, compared to Melbourne where building kept occurring.
Sydney house prices surged a lot more as a result but the quality issues are now more apparent in Sydney than Melbourne. Once construction activity really kicked off in Sydney, it was difficult to get enough trades people and it became apparent there was a skills shortage. We are now seeing the impact of this with the higher number of problems with new buildings.
What can be done to fix it? Confidence needs to be restored, particularly for off-the-plan apartments. This is the job of developers but also government. We also need to ensure planning controls are straightforward for developers to navigate so that when demand kicks off again, we are not left with prolonged lags between demand and development.
New approaches to supplying rental housing such as “build to rent” need to be encouraged so we are not so reliant on offshore and mum and dad investors to provide all of our rental housing.
Jim Stanford, director and economist at the Australia Institute Centre for Future Work
My top priority: boost wages.
Consumer spending accounts for over half of all GDP. It’s the biggest single category of spending in our economy. And consumer spending is now weaker than any time since the GFC. It’s no mystery why: since 2013 wages in Australia have been growing at the slowest pace since the end of the Second World War.
With wages creeping along at barely 2 per cent per year, workers’ incomes aren’t even keeping up with the cost of necessities (like food, energy, and shelter). So it’s no surprise that spending on durable or discretionary items (like cars) is falling.
For years the government has been telling Australians to be patient and just wait for better wage growth around the corner. That hasn’t happened – and in fact it is now clear that wage growth will get weaker before it gets stronger. The latest economic and labour market data has been very disappointing: unemployment and underemployment are up, job vacancies are down, private sector wage growth is going nowhere.
Instead of just hoping for better wage growth around the corner, here are three things the Commonwealth government could do right away to strengthen wages.
Restore penalty rates for hospitality and retail workers. They are some of the lowest-paid workers in the whole country, but they copped a big pay cut when their penalty rates for Sunday and holiday work were cut by as much as 50% of base wages. The government could fix this quickly with new directives to the Fair Work Commission.
Lift the minimum wage to a living wage level. At present a single person earning minimum wage will be stick in poverty, even if they work full-time year-round. The minimum wage should be set at a level that allows a single person to at least get out of poverty.
Eliminate the 2% cap of wage gains for Commonwealth public servants. It’s incredible the government keeps promising better wage growth around the corner, but strictly caps wage increases for its own workers to 2%. (Canberra is one of the biggest single employers in the country.) They should set an example for other employers and allow a normalisation of collective bargaining and decent wage gains.
We’ve done some research at the Centre for Future Work on the benefits of these 3 measures. Once fully implemented, we estimate they would inject a $10 billion boost in national wages – and lift the pay of over 3 million Australians. Instead of wringing hands over the negative impacts of wage stagnation, the government could really do something about it.
Metropole Property Strategists CEO and Yahoo Finance property expert Michael Yardney
While the RBA has been trying to boost the economy by lowering interest rates in order to increase employment and in turn wages growth, this is unlikely to have the desired effect. It hasn’t worked overseas and is unlikely to compensate for the job losses in the construction and retail sector.
We need more fiscal stimulus from the government to boost consumer and business confidence and improve our economy.
Sure the government is spending on infrastructure, and that’s great in the long term, but currently we need the type of stimulus that will encourage small and medium size business to take more risks, grow, employ more people and take on more inventory.
A great starting point would be to lower corporate tax rates to give business the extra cash flow necessary to grow as well as offering incentives to employ more people or buy new equipment.
However one of the fastest ways to improve our economy is to increase migration and bring in more well educated, highly skilled and affluent consumers.
Think about it… A great way to boost the economy quickly is to have more people who need to set up a new home in Australia and buy new cars, new clothes and a household full of items.
For an economy to grow either people need to become more productive, or you need more people in in the workforce who in turn boost the economy and pay taxes.
Currently the RBA is trying to lift our economy by increasing wages growth. This often happens due to improved productivity – but we’re not really becoming more productive at the moment.
The easier way to improve our economy is to add more people who are working, paying taxes and spending.
Fortunately Australia has the space and the capacity to welcome people who can make a contribution to our economy and we have a waiting list of people who would like to move here.
Just a bit of patience – and more investment in infrastructure
CommSec chief economist Craig James
We just need a little patience. And there needs to be a broader appreciation of the economy’s performance.
Interest rates are at record lows; the Aussie dollar is near decade lows; the minimum wage was lifted; tax cuts are flowing through; home prices are lifting again in Sydney and Melbourne; and the transport infrastructure boom continues.
Unfortunately the US-China trade war has led to a weaker global economy. And Australia is getting back on its feet after the first half 2019 slowdown ahead of the election.
Economies go through periods of faster and slower growth. A year ago the economy was growing at a fast 3.1 per cent annual clip. Now we are growing near 1.4 per cent.
What would help at present is to ensure that state and federal governments are not dragging their heels in getting infrastructure projects underway.
The Yahoo Finance’s All Markets Summit will take place on the 26th September 2019 at the Shangri-La Hotel, Sydney. Check out the full line-up of speakers and agenda here.