Economic growth to stay sluggish despite stage 3 cuts: Deloitte
The firm’s latest quarterly outlook challenges the government’s more optimistic forecast for the next five years.
The economy will slow more than predicted this year and the revised stage 3 tax cuts will have a negligible impact on growth, according to a report by Deloitte.
Deloitte Access Economics forecasts GDP to grow 1.5 per cent in 2023–24, 0.25 percentage points below the government forecast.
Changes to the stage 3 tax cuts, targeting cost-of-living relief at low and middle-income earners, would “not have any material influence” on the economic outlook either, the firm wrote in its closely watched quarterly business outlook released this week.
Lead author and partner Stephen Smith said the “soft” growth projections “shouldn’t come as a surprise” with the cash rate rising 425 basis points since May 2022.
“While the spending of migrants and older Australians who have avoided mortgage rate pain is helping to stave off recession, the outlook for growth in the Australian economy is modest at best,” he said.
The government’s mid-year economic and fiscal outlook, released in December, predicted real GDP growth of 2.25 per cent next year, 2.5 per cent in 2025–26 and 2.75 per cent in 2026–27.
But Deloitte’s latest modelling showed growth to be consistently below MYEFO forecasts over the next five years, at 1.6 per cent in 2024–25, 2.1 per cent in 2025–26, 2.2 per cent in 2026–27 and 2.4 per cent in 2027–8.
Meanwhile, population growth was set to slow from 2.1 per cent in 2023–24 to 1.6 per cent in 2024–25, before stabilising at 1.4 per cent between 2025 to 2028.
Deloitte expected the unemployment rate to rise to 4 per cent this year and then remain around 4.6 per cent over the next four years.
Mr Smith said the economy would “feel like” a recession in the near term. “Economic conditions will keep feeling pretty tough for a while yet,” he said, despite the prospect of interest rate cuts in the second half of 2024.
Real household disposable income per capita, a way of measuring “how the economy feels” factoring in inflation, population growth, taxes and mortgage payments, was predicted to fall as government support payments dried up.
“Households are experiencing a total peak-to-trough fall of almost 9 per cent, measured on a financial year basis. In fact, real household disposable income per capita is expected to remain below the trend seen between the 2008 financial crisis and the pandemic for at least the next five years,” he said.
As a result, Deloitte predicted that the primary challenge for policymakers and economists this year would be lifting the rate of growth, not lowering the rate of inflation.
With tax cut relief having little impact on growth, Mr Smith said economic reform would be needed to realise long-term growth prospects.
“Tax policy tops the list, as it has done for more than two decades – the last major tax reform was the introduction of the Goods and Services Tax in 2000,” he said.
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