Surplus may not be as advertised: Grattan

Speaking at the Financial Standard Chief Economist Forum, Grattan Institute budget policy and institutional reform program director Danielle Wood explained the much touted federal government surplus may not be all it was cracked up to be.

Wood focused on an economic outlook from a policy perspective, discussing the fiscal policies the Australian government might be pondering in the near future.

"I think you may be seeing the government move towards more expansionary monetary policy," Wood said.

She explained that despite the much-touted "Back in Black" Liberal party budget surplus, spending may be on the horizon.

She argued the government had gone quiet on the budget surplus following the Aussie bushfire crisis.

"Economic growth, we know from previous disasters, you take a hit and then you bounce back as rebuilding commences," Wood said of the impact of the bushfire crisis.

"We know the fires will show up on the spending side with $2 billion announced and more to come."

Wood said she also expects to see more aged care spending after the revelations from the Royal Commission into aged care.

She also argued that we could be seeing "the death of The Phillips Curve" with predictions of 3% to 3.5% wage growth recently revised lower.

The Phillips Curve states that inflation and unemployment have a stable and inverse relationship. Yet, despite unemployment being low, wages are not being driven higher.

Wood pointed out that older people, especially older women, are participating much more in the workforce.

She argued that more discussion was needed around the participation of temporary migrants in the labour market.

Australia has a high proportion of international students and people on working holidays participating in the labour markets - with these demographic segments largely in unskilled, lower-wage sectors like hospitality.

"While unemployment has been coming down, under employment has been going up," she said.

"We know that's particularly true of young people who are working in those unskilled jobs where we have had a lot of extra supply."

Rounding off her talk, Wood said she hopes to see climate change considered by the government as a long-term economic risk.

"Quite frankly, the government, by not looking at climate change as a risk, is looking increasingly out of step with the business community," Wood said.

Read more: Chief Economist ForumDanielle WoodFinancial StandardGrattan InstitutePhillips Curve
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