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Tax cuts fail to conjure up ‘strong economy’ but surplus circus rolls on

<span>Photograph: Lukas Coch/AAP</span>
Photograph: Lukas Coch/AAP

At what point can we say a plan has failed? How much longer are we to be subjected to the fallacious belief that a budget surplus is the best sign of strong economic management?

This week the latest gross domestic product (GDP) figures were released, and they were, without any sugar coating, crap.

The prime minister was reduced to arguing in parliament that they were good because annual growth has risen from 1.6% to 1.7%.

One point seven per cent. Just ponder that figure for some while.

Related: Slow GDP growth deflates government hopes of tax cuts bounce

Is it good that the economy improved in the September quarter to be growing at 1.7% instead of 1.6%? Yes. But chew on this: in the 110 quarters since the economy stopped going backwards at the end of 1991, there have been just nine in which our economy grew by 1.8% or less, and three of them happened this year.

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In the past decade – a decade which we all know has been mired in the “new normal” of low growth – our economy has grown on average by 2.6% each year. So we are currently growing at about two thirds the post global financial crisis average, and that average is damn terrible.

The latest GDP figures marked 60 years of the Bureau of Statistics calculating GDP, and over that time the average annual growth rate is 3.4% – a level we have not had for seven years.

What was once average is now exceptional.

You would not know this had you listened to the treasurer, Josh Frydenberg, on Wednesday at his press conference announcing the figures. All was good and going to plan.

He told journalists that “growth has been broad-based with household consumption, public final demand and net exports all contributing to GDP growth”. That’s a bit like saying my TV is state of art because it allows me to access channels Seven, Nine and Ten.

Household consumption makes up nearly 60% of the economy. If it is not contributing to growth it is because we are in a recession. And from the look of how households are spending you could be forgiven for thinking that this is the case.

Household consumption in the September quarter grew by just 0.1% – the worst result since the GFC when everyone became petrified that the world’s economy was about to crash.

And yes, public final demand contributed to growth, which is always the case – over the past 60 years, there have only been four quarters in which government spending has not contributed to annual GDP growth. But what is worrying is how much government spending is contributing – for the first time since the GFC, and only the second time since the 1990s recession, government spending contributed more to economic growth than did household spending.

Why is that bad? Well, the spending by local, state and national governments is about a third of that of households. If the governments are outspending households, that means either the government is spending up big or households are spending less than usual.

And at the moment both things are true.

The government is spending big on the National Disability Insurance Scheme and aged care such that the health care sector contributed as much to the growth of the economy as did the mining industry.

The treasurer would have you think this is all going to plan: “Public final demand is being supported by the continued rollout of the National Disability Insurance Scheme, more money being spent on aged care, as well as the government’s 10-year $100bn infrastructure pipeline.”

But the NDIS and aged care are not supposed to be propping up the economy, and as for that 10-year pipeline? Over the past 12 months public infrastructure spending grew a measly 0.2%.

The only reason there is a need to bring it forward is because under this government the pipeline has run dry at the wrong time.

It wasn’t meant to be like this. By now the impact of the tax cuts was supposed to be evident. And yet, as Jim Stanford, the director of the centre for future work at the Australia Institute, estimates: “Not a single dollar of the tax cut [worth some $4bn] is visible in aggregate consumer spending in the quarter”.

Why not? Because our incomes aren’t actually growing.

In September, the gross household income per capita grew just 0.05%. Yes, our disposable income grew, because we got a tax cut, but we all used that to pay off bills or put it straight on our mortgage.

There is no sense of people thinking now is a good time to go to the shops.

Heck, in October, retail sales did not increase at all, and new car sales were nearly 10% below what they were a year ago.

Related: When you get right down to the fundamentals, the economy is looking pretty crook | Greg Jericho

And through this all the government will stay the course for a surplus because …? Well, because apparently they need a surplus in case the economy turns bad sometime in the future.

Here’s a tip – we don’t need to wait, the economy already is bad.

In reality the surplus is a purely political objective. The only reason a surplus will be delivered is exports are still going strong and thus so too will company tax revenue, because around 40% of company profits come from the mining sector.

But whereas the last time we had a budget surplus the domestic private sector had been growing on average by around 5% a year for six years, now it is shrinking. Back then real per capita household incomes were growing by around 5% per annum. For the past seven years they have increased on average by 0.1% a year.

Delivering a surplus in no way reflects the reality experienced by households. And the latest GDP figures show it sure as heck is no indicator of a strong economy or good economic management.

• Greg Jericho writes on economics for Guardian Australia