The December quarter national accounts show trend real per capita GDP was less than 1.5% higher than two years earlier. Allowing for declining terms of trade, net income from overseas, etc., trend real per capita net national disposable income has fallen for over two years. In the recent December quarter it was 2% lower than at the start of 2012.
Since 2011, the per capita production-income gap has steadily increased, and is now about 3.5 percentage points. We've had a two-year (plus) per capita income recession, plus weak per capita GDP growth (see chart).
Australia's per capita production-income gap, 2012 and 2013 (Trend indexes: Mar qtr 2012 = 100)
Source: ABS, December quarter 2013 national accounts.
This production-income gap is substantially beyond our control. Our terms of trade, in particular, are driven substantially by overseas forces.
Per capita production, however, is amenable to Australian policy influence.
Assume our terms of trade cease declining immediately (an optimistic assumption according to the 2013-14 Mid-Year Economic and Fiscal Outlook – MYEFO), and net overseas income increases in line with our GDP. How soon could we restore real per capita income to the level reached at the start of 2012?
This would require real per capita GDP to be 2 percentage points higher than it was in the December quarter of 2013. Further declines in our terms of trade (as forecast in the 2013-14 MYEFO) would increase the required growth in per capita GDP to meet this objective.
After meeting in Sydney last month, the G20 communique announced agreement to develop policies that would increase collective (real) GDP by 'more than' 2% above 'business as usual' over the next five years.
As current G20 chair, the Australian Government no doubt wants to lead by example and deliver on this objective. What is required?
Using MYEFO estimates and projections over the Forward Estimates for nominal GDP growth and inflation, and assuming population growth of around 1.7% per annum (an ABS estimate), our cumulative real per capita GDP growth over the four years from 2013-14 to 2016-17 would be about zero.
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