"Today's national accounts data shows private sector weakness has continued in spite of the uplift in headline GDP," Innes Willox, Chief Executive of the national employer association Ai Group said today.
Australian GDP growth rose from 0.8% to 1.3% p.a. in the December quarter, driven by improvements in household consumption and the terms of trade.
"Unfortunately, there is little to suggest that the poor business conditions facing many industries over the last year have turned a corner. Most indicators of private sector activity remain weak, and the economy's dependence on government spending has continued.
"Volatility for business is only increasing, hampering hopes for a long run recovery," Mr Willox said.
Market sectors remain weak
Industry output improved slightly in the December quarter, with value-add growing by 1.3% p.a. However, much of this result was driven by high performing non-market sectors.
In the non-market sectors, output increased at a 3.2% p.a. rate during the quarter. But in the broader market sector performance was a much weaker 0.6% p.a. – a fall of 0.2% compared to the previous quarter.
Manufacturing and professional services have now fallen into technical recession, while construction, wholesale trade and retail trade continue to face very weak trading conditions. This points to the persistence of weak business conditions facing many industrial sectors in Australia.
Tax burden remains high
The growing burden of taxation in Australia continues, with tax revenues accounting for 29.7% of GDP in 2024. While marginally down on 2023, the tax burden remains higher than it has been for over two decades.
This was driven by income tax receipts which rose 4.0% in 2024, and payroll taxes which rose 9.8%. Both are taxes on a productive activity – employment.
"Australia cannot hope to tax its way to prosperity. And with economic growth spluttering for over a year, now is the worst time for governments to maintain high tax levels. This year's federal budget should make tax relief and reform a top line priority," Mr Willox said.
Government spending continues to grow
The economy is increasingly dependent on government spending. Public sector final demand accounted for 28.2% of GDP in the December quarter – the highest level since the series began in 1985.
The labour market also remains dependent on government support. While labour use in the economy grew by 2.5% over the last year, it was a much slower 1.0% in the market sector. The non-market industries of public administration, education and healthcare and social continue to disproportionately account for job creation.
"The resilience of our labour market is only being achieved via rising government spending in non-market industries. Without stronger employment growth from the private sector, this resilience will be at risk in 2025,” Mr Willox said.
Business investment outlook is poor
Private business investment also slowed, falling from a 5.5% to 1.8% p.a. growth rate in the December quarter. This is the lowest annual growth rate in non-mining business investment recorded since the pandemic.
As business investment is a leading indicator, this augurs poorly for a turnaround in private sector activity materialising over 2025.
Lowest productivity numbers in five years
Unfortunately, this has perpetuated Australia's longstanding productivity problems. Labour productivity decreased by 1.2% in the year to the December quarter. These are the worst quarterly productivity figures Australia has reported in the five years since the pandemic.
"As productivity is the well-spring of national wealth, this continued slide in national performance should be alarming for all Australians.
"Without urgent efforts to turn around our dismal productivity performance, we are unlikely to see a durable return to growth conditions or rising real incomes in Australia," Mr Willox said.
