An update on how the Australian economy looks on a per capita basis

From
  • Australian economic update.

    Strong population growth continues to boost Australia’s aggregate growth rates which paint a more positive picture on the economy than what most households are experiencing.

  • Per capita measures on the economy, particularly those relating to income, suggest that there hasn’t been a lot of joy for households since the end of the mining boom.
  • Local policymakers should focus more on per capita measures on the economy and less on headline growth rates if they are to deliver policy reform that raises living standards in an all‑inclusive way.

Overview

In October last year we published a note looking at the Australian economy on a per capita basis. Our intention was to better understand how economic developments were affecting household living standards. At the time we felt that policymakers were placing too much emphasis on aggregate growth rates and not enough on per capita measures. When we drilled down to the household level we found that the news was more sobering than the headline growth numbers implied.

As we discussed at the time, most economic commentary in Australia focuses on aggregate growth rates which are heavily influenced by population growth ‑ more people means more spending. But if we want to measure changes in living standards, which ultimately matters most to households, then we need to look at how the economy is going on a per capita basis rather than just reporting and focusing on measures of aggregate demand.

Australia’s population growth rate is significantly higher than most other OECD countries. Australia’s population grew by a strong 1.55% (i.e. 373k) in 2016. Net overseas migration accounted for 56% of that increase. A high population growth rate means that making comparisons of economic performance between Australia and other OECD countries using aggregate growth rates like GDP can be misleading. As Governor Philip Lowe recently said, “our strong population growth has flattered our headline growth figures.”

In this note we update and expand on our previous work looking at the Australian economy on a per capita basis. The evidence continues to suggest that policymakers should focus on reforms that boost productivity and raise living standards rather than measures designed to simply raise headline GDP. We think that better outcomes will be achieved for households if a greater emphasis is placed on measures of living standards rather than aggregate growth rates. This note discusses a few of the measures that we consider to be important.

Read the full report.

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