GDP up 3.1%, fastest annual pace since mid-2012


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Economic growth figures for the March quarter 2016 showed an increase in GDP of 1.1% from the previous quarter, bringing annual economic growth to 3.1% which beat forecasts of 2.8%. A majority of this growth can come from a surge in exports which contributed 1% to quarterly growth. Consumption further accounted for 0.4% of growth. Growth in non-dwelling construction and equipment investment however, fell by 0.5% and 0.1% respectively. However, real net national disposable incomes fell by 0.1% in the March quarter, bringing the total to 2.6% over the year.

How does this relate to the HSC syllabus?

  • Economic growth is the increase in the amount of goods and services produced in an economy over a period of time calculated as the change in real gross domestic product (GDP) (HSC Topic 3 – Economic Issues). Given that the global economy has been experiencing sluggish economic growth recently, Australia’s 3.1% is relatively high, ahead of that of most developed economies.
  • Economic growth was driven by an overall increase aggregate demand (AD = C + I + G + (X-M)) (HSC Topic – Economic Issues).
    • Consumption increased by 0.4%, contributing to an increase in aggregate demand which causes an increase in output in the economy.
    • Business investment detracted 1.9% from aggregate demand, reflecting weaknesses in business confidence. Given that business investment can be seen as a leading indicator of economic growth, a reduction in business investment can suggest weakness in Australia’s future economic growth despite positive results in this quarter.
    • Government expenditure contributed a further 0.2%.
    • The main driver of aggregate demand and economic growth, was net exports. The Australian dollar has been gradually depreciating over the year which has improved the international competitiveness of Australia’s exports (X). This is because a depreciation in the Australian dollar makes Australian exports less expensive as overseas importers would need to pay less per Australian dollar. The increased competiveness of Australian exports can also be observed through its lower terms of trade which shows that the price of a unit of exports is has decreased relative to the price of a unit of imports. As a result, overseas importers have increased their demand for Australian exports, therefore increasing export revenue. Simultaneously, a depreciation of the Australian dollar renders imports into Australia more expensive which deters Australians from importing foreign goods. This has resulted in a decrease in imports (M) which improved Australia’s trade balance, therefore increasing aggregate demand.
    • Exports were supported, in particular, by a surge in tourism which contributed a 5.6% increase in services exports.
  • The improvement in Australia’s trade balance has also resulted in a reduction in Australia’s current account deficit from $22.6 billion to $20.8 billion which indicates an improvement in Australia’s external stability (HSC Topic 2 – Australia in the Global Economy; HSC Topic 3 – Economic Issues).
  • Although there is an improvement in output measured by nominal GDP, real net national disposable income fell by 0.1%. Real income is measured as the nominal GDP taking into account inflation (HSC Topic 3 – Economic Issues). Australia has experienced an increase in output given by an increase in nominal GDP and economic growth whilst also experiencing lower inflation indicated by the shock inflation figures released in April. As a result, real net national disposable income should be increasing. The decrease, however, can be partially explained by a historically high underemployment rate which means that people in the economy are not working as much as they would like to and are therefore, not earning as much as they would like to. This situation demonstrates the excess supply in the economy as well as the trend towards the casualisation of labour which is deteriorating disposable incomes in the economy.

Low-paid get $15.80 a week minimum wage rise


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The Fair Work Commission has lifted the minimum wage by 2.4% from $17.26 to $17.70, effective 1 July 2016. The Commission justified the increase by noting that economic growth was ‘robust with some continued improvement in productivity and historically low levels of inflation and wages growth’. Furthermore, the Commission noted that over the past decade, the relative position of low wage earners has deteriorated with some households being placed below the poverty line. The increase is not expected to significantly impact inflationary pressures.

How does this relate to the HSC syllabus?

  • The minimum wage is a price floor on wages that can be paid to employees (Preliminary Topic 3 – Markets; Preliminary Topic 4 – Labour Markets; HSC Topic 4 – Economic Policies and Management). This means that most employees in Australia will be receiving at least $17.70 per hour effective 1 July 2016.
  • The increase in the minimum wage was justified by the reduction in living standards of lower income earners due to inflation (HSC Topic 3 – Economic Issues). Given that inflation is generally positive, real income would decrease per year if nominal income remains the same. If real income decreases, consumers’ buying power would decrease which deteriorates their standard of living as they are not able to purchase as much with the same dollar. As such, the Fair Work Commission needed to increase the minimum wage to ensure that award dependent employees are not disadvantaged by the inflation.
  • The minimum wage increase was also justified by an endeavour to narrow the income inequality gap (HSC Topic 3 – Economic Issues). An increase in the minimum wage will enable low income earners to acquire more income and therefore narrow the inequality gap. More significantly, the Commission noted that women tended to be overrepresented in the demographic that earns the minimum wage (Preliminary Topic 4 – Labour Markets; HSC Topic 3 – Economic Issues). Therefore, increasing the minimum wage was viewed as a means to address this gap.
  • An increase in the minimum wage can be argued to increase unemployment (Preliminary Topic 4 – Labour Markets; HSC Topic 4 – Economic Policies and Management). This is because an increase in the minimum wage effectively increases costs for businesses. Since wages cannot be reduced to decrease costs, employers will most likely decrease costs by making employees redundant.
  • Increasing the minimum wage contributes to additional costs of production for businesses. To maintain profit margins, these businesses would pass the costs onto consumers in the form of higher prices, causing the price level in the economy to increase. This would increase cost push inflation (HSC Topic 3 – Economic Issues). However, given that inflation in Australia and around the world is currently low, inflationary pressure, according to the Commission, is not a significant issue.

Fair Work rejects Coles pay deal


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The Fair Work Commission rejected the pay deal between Coles and shop assistants’ union which underpaid workers and cut penalty rates. Coles was found to have cost its low paid employees around $70 million per year, with part time and casual workers being the most affected. It was also found that Coles has been paying its employees penalty rates which are lower than that of workplace award and therefore failed the better off overall test (BOOT). As a result, Coles has been forced to increase its casual loading from 20% to 25%, increase penalty rates for weekend and overtime and pay its young employees more.

How does this relate to the HSC syllabus?

  • The Fair Work Commission is an industrial relations tribunal which regulates and enforces the Fair Work Act 2009 (Preliminary Topic 4 – Labour Markets; HSC Topic 4 – Economic Policies and Management).
  • Minimum conditions and pay for work can bet set by many sources. Modern awards form part of the minimum standards for employees under the Fair Work Act. If a modern award does not apply the employee is entitled to the minimum pay set by the Fair Work Commission and conditions according to the National Employment Standards. In addition to awards and the minimum legislation, businesses can also make agreements, as Coles did, which sets the minimum pay and conditions the employee receives from the business. In making an agreement, however, it must pass the BOOT which ensures that employees are not earning under the national minimum standard (Preliminary Topic 4 – Labour Markets; HSC Topic 4 – Economic Policies and Management). Given that Coles’ agreements failed the BOOT, as its penalty rates have fallen significant below that of minimum standards, Coles has been given until June 10 to change its agreement.

Theresa Dang THERESA DANG

Theresa Dang is an economics mentor at Keystone Education. She attended Sydney Girls High and achieved an ATAR of 99.70 in 2012. She is now studying Commerce and Law at the University of Sydney. She has experience in a global technology firm and a mutual fund.

Gary Liang GARY LIANG

Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of four scholarships.

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