Australia's economic growth will slow

These Key Growth Indicators Are Flashing Red

Well it’s official.

The 0.5% rise in the Medicare levy is off the table. And not just for people earning less than $87,000, as Labor proposed.

Whether you choose to save it, invest it, or spend it, I’m sure you’ll welcome the extra cash in your bank account. Though it’s hardly a gift. It’s just a bit more of your money the government is generously letting you keep in the next financial year.

The reversal on the increased Medicare levy is largely thanks to $4.8 billion more tax revenue flowing in than the government had estimated back in December.

Where did the extra billions come from?

Mostly company profits, higher commodity prices, and a spike in job numbers.

Scott Morrison now believes Australia can fund the National Disability Insurance Scheme without the extra tax hit. And still return the budget to surplus by 2021.

Speaking to Nine Network Morrison said, ‘As we prepared the budget it was clear that we no longer had to do this and so I’m pleased as punch that we don’t.’

He may be right.

If the economy keeps growing and pushing up tax revenues while spending remains capped.

However, that’s a mighty big ‘if’. 

Stock market performance is broadly driven by a country’s — and the world’s — economic performance. And economic growth depends on two key factors: population growth and increased productivity.

The world’s population grew at an astounding rate of 450% in the last century. However, that growth rate is rapidly slowing, estimated to be 45% over the next 100 years.

Though good news for the planet and anyone commuting to work, that’s a big blow to one of the two major pillars driving economic growth.

Unproductive spending going to hurt the Aussie economy

Productivity growth, the second major driver of economic growth, is facing its own cyclonic headwinds.

The world is awash in debt, to the tune of US$233 trillion. In the last four years we’ve piled on another US$34 trillion in debt…yet with little to no real global growth to show for it. Even with low interest rates, the costs to fund this debt alone are squeezing out productive spending.

The private sector has been busy with unproductive spending like speculating on properties and corporate share buybacks.

When it comes to government, unproductive social spending on health, welfare, and retirement makes up an ever larger share of GDP.

Despite the superannuation system, Australia is already short $1 trillion on its retirement commitment. A gap unlikely to close. And the situation in the US and much of the developed world is even more dire.

So, enjoy the extra 0.5% of your money the government has decided not to take from you this year. Despite Scott Morrison’s optimistic outlook, the Medicare levy — plus all the new levies the government has yet to dream up — are likely to be back on the table soon enough.

Bernd Struben

Bernd Struben

Bernd Struben is the lead editor at The Australian Tribune. Bernd makes use of his extensive network to bring you the top stories you need to know about each day. Stories the mainstream may miss. Or bury somewhere you’re unlikely to ever read them. Bernd studied aerospace engineering and journalism at the University of Michigan, before graduating with a degree in economics. Over the past two decades he’s worked in media, management, and finance in the US, the Caribbean, Europe, and Australia. His other role, as the editor of the Port Phillip Insider, puts him in a unique position to read Australia’s most exclusive financial advice. Some of which he shares with readers of The Australian Tribune for free.
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