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As wages, jobs and economic growth sink, the government has been forced to cut its promised surplus almost in half

Jack Derwin
  • The Australian economy been downdgraded in the government's Mid-Year Economic and Fiscal Outlook (MYEFO) on Thursday.
  • With unemployment expected to remain above 5%, wage growth forecasts were again slashed to 2.5% for the next couple of years.
  • As the economy stalls, the promised budget surplus has also been nearly halved to just $23.5 billion in 2023, as economists urge the government to forget it and stimulate the economy instead.
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It will surprise no one to hear the Australian economy isn't doing too crash hot.

The government handed down its annual Mid-Year Economic and Fiscal Outlook (MYEFO) on Monday, essentially the half-time locker room review of what's working and what's not in the economy. Predictable again was the optimism and upbeat vibe of its presentation.

"[MYEFO] confirms the resilience of the Australian economy and that the Budget is on track to return to surplus for the first time in 12 years," Treasurer Josh Frydenberg and Finance Minister Mathias Cormann said in a joint statement.

While the Coalition was always going to laud its "responsible and considered economic plan", the MYEFO numbers don't lie.

The economy grew by an anemic 1.7% in the year to September – “remarkably resilient in the face of significant global and domestic economic headwinds”, Frydenberg protested.

He has half a point. Australia had been headed for its worst economic year in nearly three decades until a series of mining disasters shut down Brazil's iron ore production, allowing Australian miners to exploit a supply shortfall. The ensuing enormous trade surplus helped ease the economy to its worst year since the GFC instead. Remarkable? Certainly. The consequence of good economic management? Hardly.

When you drill down to per capita figures, it gets worse. Australia managed just 0.2% GDP growth per capita. Compare that to 1.4% in the United States and even the Eurozone – for its many woes – managed 1%.

For an economy barely growing, it's unsurprising then that the unemployment rate is hooked at 5.3% and underemployment at 8.5%. In real terms, that means there's 725,000 Australians without jobs who want them, and 1.15 million who are working less hours than they'd like.

Those figures have many calling for the government to spend money in order to stimulate the economy, instead of cutting spending to achieve a small budget surplus.

"[The] headlines should be Government loses control of the economy: Mistakenly aims for budget surplus despite chronic economic weakness," economist and former Gillard adviser Stephen Koukoulas tweeted.

Not that there'll be much left of the surplus. Both stubborn unemployment and missing economic growth all but locks in flatlining wage growth, with the government downgrading its forward estimates. The result? The government had promised a $45 billion surplus by 2023. Not anymore. It's shrunk to $23.5 billion instead.

Of course, with unemployment not going anywhere, even those wage growth downgrades look optimistic according to Indeed Asia Pacific economist Callum Pickering.

"If the unemployment rate doesn't dip below 5% then the best we can hope for is wage growth of 2.5%. Forecasts of 3% remain delusional," he tweeted.

All in all, it makes for grim reading.