Australia’s collective wellbeing has taken a backward step since the Coalition won office a year ago as national income declined, growth in our shared knowledge stalled and long-term unemployment rose.
The Fairfax-Lateral Economics wellbeing index, which puts a dollar figure on national wellbeing, fell by $2 billion in the June quarter and is $10.5 billion lower than a year earlier.
Wellbeing has now declined in four consecutive quarters for the first time since the global financial crisis. When gross domestic product declines for two consecutive quarters the economy is deemed to be in recession.
The index provides a deeper measure of national welfare than GDP by measuring changes in six key components: income, knowledge (called human capital), the environment, inequality, health and job satisfaction. GDP only measures the market value of all goods and services produced in the national economy during the year.
The findings of the wellbeing index – which declined by 2.8 per cent in the year to June – tells a different story to GDP, which grew by 0.5 per cent in the June quarter and 3.1 per cent for the year.
Growth in wellbeing far outpaced GDP growth during Julia Gillard’s time as prime minister. The index surged by 20 per cent in that period, a rate comparable to the booming growth rate of the Asian tiger economies like China and India. However, the index peaked just before last year’s election and has been on a downward trend ever since.
Tony Abbott became prime minister when the economy was in transition after a long mining investment boom that boosted growth and lifted household incomes.
The index’s creator, Nicholas Gruen, said it was picking up the negative consequences of that difficult economic transition better than GDP.
“We’re cranking up production at a reasonable rate, but the income we get from it is falling,” Dr Gruen said. “This helps explain why people seem more dissatisfied than the GDP numbers suggest they should be.”
Since the last election the unemployment rate has climbed from 5.7 per cent to a decade-high 6.4 per cent. The value of the exchange rate has also remained relatively high, despite falling commodity prices, putting a squeeze on Australian exporters.
While most factors driving the decline in wellbeing were beyond government control, Dr Gruen said some of the results were a “shot across the bow” of the federal government. One reason for the deterioration in wellbeing was a 5.2 per cent fall in the value of Australia’s collective knowledge in the year to June. The main reason for this was a decline in the proportion of adults with tertiary education.
“While it’s too early for this to be the result of any decisions made by the Abbott government, if its changes to higher education reduce the flow of post-secondary-qualified workers into the workforce, our wellbeing will be affected,” Dr Gruen said. “And our wellbeing index shows us [that] human capital really, really matters. It seems heretical to say it, but it matters more than micro-economic reform, as worthwhile as that can be.”
Another drag on wellbeing has been a slowdown in national income growth, arguably a better measure of economic wellbeing than GDP. Falling prices for Australia’s mining exports have helped reduce net national income in two of the past four quarters.
The index also draws attention to the wellbeing cost of long-term unemployment, which has climbed to about $3 billion following a steady rise in the number of people out of work for more than 12 months.
In May, there were 175,490 long-term unemployed people, or 1.43 per cent of the labour force, the highest proportion since April 2002. The loss of skills while being out of work over a long period is substantial.
“The wellbeing index tells us Mr Abbott became prime minister at a tricky time, with both the terms of trade and the growth of human capital falling,” Dr Gruen said.
High rates of obesity and untreated mental illness have become significant drags on national wellbeing.
The cost of obesity to the nation’s wellbeing reached $124.4 billion in the year to June, up 6.2 per cent. The annual wellbeing cost of untreated mental illness reached $192.4 billion, up 2.2 per cent on the previous year.
Source: The Age