Government’s mid-year budget update forecasts weaker wages growth

Monday’s mid-year budget update will be a “humiliating admission” from the Morrison government that economic growth will be slower, and wages growth weaker on its watch, according to Labor.

The Morrison government will on Monday unveil the latest mid-year economic and fiscal outlook, delivering the last major set piece event for the political year.

While the government will use the scheduled update to trumpet its economic management credentials, pointing to a forecast surplus as well as accounting for additional spending on drought relief and aged care, the shadow treasurer Jim Chalmers has declared the Coalition finishes 2019 with “a big F for fail on the economy”.

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Monday’s update is expected to confirm another downgrade in wages growth. Chalmers said the average Australian full-time worker was now $2,200 a year worse off than the government said they would be “because their wages have been so stagnant”. He said low wages growth had become “the new normal”.

“No matter how hard people work they just can’t seem to get ahead because they’ve got skyrocketing costs for childcare, electricity and private health insurance and the government just doesn’t seem to give a stuff about them, certainly not enough to come up with a comprehensive plan to get things moving again,” Chalmers said.

The finance minister, Mathias Cormann, rejected Labor’s arguments. “Real wages growth, which is wages growth above inflation, is stronger than it was when Labor lost government”.

“The economy is facing some global economic headwinds, some domestic challenges in the context of the drought in particular, but our economy continues to grow, our wages continue to grow faster than inflation, and the growth in disposable income across Australia is the fastest it has been in more than a decade,” Cormann said.

Chalmers acknowledged that global headwinds, like the trade dispute between the United States and China, was part of the reason the domestic economy was underperforming. But he insisted “the issues in our economy are principally home grown, they are a function of a government that doesn’t have a plan to turn things around”.

“Annual growth now is slower than what it was at the election, slower than what it was when [Scott] Morrison and [Josh] Frydenberg took over and slower than it was when Labor was in office.”

He said the government told voters it was adept at managing the economy “when the facts tell a very different story, whether it’s the facts about growth, wages, productivity, household debt, or public debt which has more than doubled”.

“Right across the board this government finishes the year with a big F for fail on the economy.”

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A debate has played out for much of the year about whether the Morrison government has done enough to stimulate the sluggish economy. While the government has insisted it has got the balance right, and has made a virtue of not launching a panicked fiscal response, in late November the prime minister confirmed it would spend an extra $3.8bn on infrastructure projects over the next four years.

The decision to bring forward infrastructure investment followed calls from Labor, the International Monetary Fund and the Reserve Bank for the government to provide more fiscal stimulus amid slowing growth and record low interest rates.

The government had hoped that the provision of tax cuts would trigger increased consumption. But the latest official economic growth figures suggest consumers remain reluctant to spend. The economy grew by just 0.4% in the September quarter, and 1.7% for the year, according to the Australian Bureau of Statistics.

Household gross disposable income increased by 2.5% due to the tax cuts and lower mortgage repayments after three interest rate cuts this year. But households did not choose to boost spending – instead discretionary spending fell 0.3% and the savings ratio rose to 4.8%.