Understandably the Morrison Government has not made much of a fuss about the official statistics that show Australian households have been experiencing a nasty squeeze on their household budgets over the past four years.
You can’t blame them really, given that it has been the government itself that has been applying the pressure from one side, ramping up income taxes even as household budgets were already under severe pressure from sluggish wages growth and high debt levels.
Bracket creep and improving data matching and enforcement measures from the Australian Tax Office have been steadily increasing average tax rates across the board, despite the latest “cuts’’ which really only hand back a little bit of this extra tax.
Official figures back earlier predictions
The Australian Bureau of Statistics (ABS) figures for 2018-19 add some much-needed detail to these broad-brush observations, finding that Australians have been forced to run down their savings by an incredible $46.5 billion over the past four years to make ends meet.
The figures also show labour productivity has turned negative for the first time at the same time as the nation’s dependence on mining exports has reached a record high.
With the economy only growing at 1.9% in 2018-19 – the worst result since the global financial crisis – the lack of wages growth has been something that has long worried the Reserve Bank.
It is not hard to see why, with net household savings falling by $7.8 billion in 2018-19, meaning that the total savings fall since 2014-15 has reached $46.4 billion.
Looking at it another way, savings have halved and are now at their lowest level since 2006.
Higher taxes and slow wage growth tell the story
The ABS wasn’t shy about where the blame lay, saying that: “This gradual fall has been driven by strong growth in income taxes payable, combined with continued growth in household final consumption expenditure outweighing modest growth in primary income receivable, including compensation of employees and gross operating surplus on ownership of dwellings.”
That really summarises down to a gradual squeeze on household budgets, with wages fairly stagnant, taxes and debt up and savings being run down to make up the difference.
There were other factors at work, with employee wages making up just 52.1% of national income which is the lowest for a decade.
Business, on the other hand, was doing much better with its profit share reaching its highest level since 2006-07.
In some ways the slow growth in wages was understandable because productivity was going backwards, falling 0.2% in the last financial year.
Rising productivity is a key ingredient in any growing economy and when it is falling, that is an ominous sign of where the economy might be going.
Mining rides to the rescue
So how did the Australian economy keep growing during the past year, despite these negative forces?
The answer basically lies in our mining sector, which exported its head off at a time of solid price rises which resulted in a breakthrough year.
For the first time mining exports overtook the value of all other exports as a share of GDP.
The value of mining exports rose 26.3%, while non-mining exports lifted by a much lower 7.8%.
Strong prices for mining exports may not last forever, but because they were around for the past year, the mining sector once again rescued the Australian economy at a time when taxes were growing but productivity and wages were soft and savings were being used up.