Katina Curtis, AAP Senior Political Writer
(Australian Associated Press)
The government is pinning its hopes on tax cut-induced spending sprees and business investment to get the economy moving after the country recorded its slowest pace of growth in a decade.
The economy grew by 1.4 per cent in the year ended June and 0.5 per cent in the quarter, in seasonally adjusted terms, Australian Bureau of Statistics data released on Wednesday showed.
Growth was driven largely by a boost in exports of coal, iron ore and liquid natural gas – which contributed 0.6 per cent to GDP – as well as government spending.
But Treasurer Josh Frydenberg was keen to emphasise the data didn’t take into account the $14 billion paid out in income tax cuts after July or the full effect of the central bank’s 50 basis points worth of interest rate cuts.
“This money is flowing through to households and will be reflected from the September quarter onwards,” he told reporters in Canberra.
Wednesday’s figures were better than some had predicted, and Mr Frydenberg said they showed the fundamentals of Australia’s economy were still strong.
“It’s a reminder of the remarkable resilience of the Australian economy and a repudiation of all those who have sought to talk it down,” he said.
But there were still challenges facing the economy in terms of productivity and household consumption, which was softer than the government would like.
The treasurer conceded the trade surplus revealed on Tuesday – the first since 1975 – was masking negative sentiment flowing from ongoing trade tensions between the United States and China.
Across the board, growth is likely to remain subdued until the early 2020s, BIS Oxford Economics chief economist Sarah Hunter said.
“While there will be some support for households from the cash rate and tax cuts, weak income growth will fundamentally constrain spending in the near term,” she said.
“But the June quarter is likely to be the trough for the (annual) growth rate … as the very weak quarters from late 2018 and early 2019 drop out of the calculation.”
Labor seized on the weak growth figures as evidence the government’s policies aren’t working.
“What we’ve had now for six years is a recipe for slowing growth, stagnant wages and high household debt,” shadow treasurer Jim Chalmers told reporters in Sydney.
“We have a bit of a sense already of part of the September quarter in the very weak retail figures that we got for July.”
Retail spending fell by an unexpected 0.1 per cent in July, missing forecasts of a 0.2 per cent rise.
Mr Chalmers again demanded the government bring forward its mid-year budget update – due in December, with extra stimulus measures – saying it could do so without jeopardising the promised surplus.
The social services sector said the weak growth figures further strengthened the case for lifting unemployment payments since people on Newstart had to spend every cent to get by.
Mr Frydenberg reiterated his call from last week for businesses to put any extra cash into boosting productivity rather than paying out to shareholders.
He noted investments in mining machinery and equipment had jumped but investment in other sectors fell.
The government is talking to business and state governments about how to increase investment but any decisions will wait until next May’s budget.
As well, Prime Minister Scott Morrison has written to the states about bringing forward infrastructure spending.
He said ahead of the national accounts’ release that the softer figures came as no surprise to him.
“These circumstances are circumstances that were taken into account in the May budget,” he said.