Growth numbers suggest Abbott should be careful in cutting

As the Abbott Government’s Commission of Audit hunts for spending cuts and bureaucratic flab, the latest national accounts might give it some pause for thought about how zealous it should be.

The figures show that public spending added a hefty 1.3 percentage points to growth in the September quarter – without this contribution the already decidedly-anaemic GDP numbers (up 0.6 per cent in the quarter, 2.3 per cent for 12 months) would have been much worse.

As the numbers make clear, this is a fragile time for the economy, with a hesitant transition underway from mining investment toward other sources of growth.

Housing activity is strengthening, but the lift in the household savings ratio to 11.1 per cent is a fair indicator that although consumer confidence is improving, people remain cautious. (No doubt the urge to save was heightened by the air of uncertainty that surrounds any federal election, but the tepid labour market is probably a more lasting influence).

There are undoubtedly savings to be had in public spending, but in the zeal to make cuts, the Government needs to keep in mind that the public sector is not just a cost centre – it purchases goods and services, and it employs people, giving them the wherewithal to make their own purchases.

Australia is a long, long way from southern Europe, geographically and economically, but the experience of countries like Greece and Spain show that ill-timed austerity can make things far worse.



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