Sluggish growth of the economy is Labor’s Achilles heel

Whatever achievements the Albanese government wants to boast about in the upcoming federal election campaign, managing the economy is unlikely to be one of them. The Australian economy is suffering such feeble growth that the less said the better.

The latest National Accounts from the Australian Bureau of Statistics are bad news for Labor. Australia’s economy grew by a less than expected 0.3 per cent in the September quarter and dragged annual growth down to just 0.8 per cent for 2023-24. It’s the weakest rate of annual GDP expansion outside the pandemic since 1991-92, the year that included the gradual recovery from the 1991 recession, and the seventh straight quarterly decline per person.

Government spending was the single biggest driver of economic growth in the September quarter, as public servant pay rises, lifts in defence, hospitals and road project spending and household energy bill subsidies pushed state and federal expenditure to a record share of GDP. The figure represented an 8 per cent increase on the same time last year – far higher than the 5.3 per cent average annual growth rate in the decade before the pandemic.

But household spending, the single largest part of the economy, was flat despite pay rises and stage 3 tax cuts. Spending on essentials fell by 0.1 per cent, largely due to drops in expenditure on electricity, gas and other fuels. This was caused by the federal government’s energy subsidies which kicked in from July and a warmer-than-normal winter. However, spending on discretionary goods edged up by 0.1 per cent, thanks to extra spending on clothing and footwear.

Since winning government, Labor has spent a lot of time promoting itself as better economic managers than the Coalition. Three months ago, Treasurer Jim Chalmers turned his ire on the Reserve Bank of Australia, saying 13 consecutive interest rate rises were “smashing the economy”.

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Now Chalmers has been forced to admit the National Accounts figures were below expectations but, switching into election mode, he rounded on the opposition, holding out the possibility that without Labor they could have been more wretched.

“If the Coalition were in charge and had implemented their reckless approach to slash and burn in the budget, incomes would be much weaker and growth would be non-existent,” Chalmers said. “Today’s data is another demonstration that our balanced approach is the right strategy for Australians and the Australian economy, given the risks and challenges we face.”

There is no running away from the obvious that these are weak figures. Labor has avoided Australia slipping into recession thanks to population growth from immigration fuelling the job market and government spending. But consumers and businesses have borne the brunt and now demand has flatlined.

The expected tentative recovery in private demand failed to arrive in September. Should it not improve solidly in the December quarter, the Albanese government will face a hard task explaining its handling of the economy to consumers and electors in a tight election campaign.

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