Australian incomes fall as population rises, masking weakness

Average incomes in Australia are declining as the nation’s population rises “masking underlying economic weakness,” says a Queensland University of Technology (QUT) study.

Dr. Mark McGovern found that over the past two decades Australia’s economy as a whole has grown, but during that time there have been periods of per capita income declines, indicating that all is not so well with the economy as people had assumed.

The study, titled “Subprime agriculture, and Australia?” has been published in the journal Economic Analysis & Policy.

Dr. McGovern said:

“Looking at national income figures in recent years shows our economy is under stress.”

Australian Bureau of Statistics figures show that GDP (gross domestic product) per capita reached a peak in the June 2008 quarter, then declined for three quarters, and did not reach that 2008 high until September 2010, i.e. six quarters later.

Dr Mark McGovern, QUT

Dr Mark McGovern says Australian average incomes are falling. (Photo: QUT)

Dr. McGovern added:

“But if you look at Real net National Disposable Incomes per capita, which is how much money people are receiving, the 2011 December quarter income peak was at $13,406 with $13,156 estimated for June 2014. This is a per capita income drop of $250, or two per cent over ten quarters.”

The economy has a whole has continued growing slightly, but that is due to population growth, which masks the true state of the economy.

Investment earnings going abroad

So, why is GDP growing while per capita incomes are declining? Dr. McGovern says it is because earnings from investments are leaving the country to overseas investors.

“Australian GDP does not fully accrue to Australians due to this net outflow of money,” he explained.

If the capital flight continues, Australia is at risk of suffering the same financial fate as Ireland and some other countries, where GDP grew but incomes fell.

Dr. McGovern said:

“The Celtic Tiger (Ireland) prided itself on attracting foreign investors who inflated asset values, paid little tax and then left insolvent banks and depressed incomes across the nation.”

The budget not popular

Australians’ decline in disposable income helps explain why the Federal Government’s budget has been so unpopular with a large portion of the population.

“People rejected the budget and the calls for belt-tightening and there is a general financial ill-ease evident within Australians,” he said.

The Australian Government is preoccupied with servicing its medium-sized debt, while households, whose incomes are falling, are having to face proportionally higher debts. Everybody is struggling to make ends meet, and the capital flight only makes things harder.

Dr. McGovern concluded:

“All will be much worse off if this depressive synchronization is allowed to continue. Actions need to be taken to rebalance household and government balance sheets, as well as those of some businesses. Interest rates are increasingly unserviceable so they must be further reduced.”

“Recognition of problems allows them to be addressed sensibly so we need to refresh public and commercial policies so that the preoccupations of some do not undermine the interests of all. There are good ways forward and we need to understand and adopt them.”