According to the government the economy is strengthening, but the risks are all on the downside, especially the projection that productivity will grow significantly faster than it has over the previous 15 years.

A few days before Christmas the government released its latest assessment of the economic and fiscal outlook.

Essentially, according to the government, things are looking good.

Growth in total GDP, which was 1.4 per cent in both 2023-24 and 2024-25, is forecast to increase significantly to 2¼ per cent in 2025-26 and 2026-27, followed by 2½ per cent in 2027-28 and 2¾ in 2028-29.

The other good news is that over the year to June 2025, real household disposable income per capita increased by 3¼ per cent, much faster than in any other OECD country and double the OECD average. But over the whole six-year period, since the advent of the Covid pandemic, real household income per capita only increased at an average annual rate of 0.6 per cent.

Also, for many people what is happening to their real wages is a principal determinant of their cost-of-living pressures. But wage growth has been stagnant, with real wages in Australia only increasing at an average annual rate of 0.2 per cent over the 14 years following the Global Financial Crisis, from 2010 to 2024 – an almost imperceptible rate of increase.

In the current financial year, the latest Treasury forecast is that the recent acceleration in inflation will cause real wages to fall by ½ per cent. However, the Treasury expects that fall will then be followed by increases of ½ per cent, 1 per cent and 1¼ per cent in 2026-27, 2027-28 and 2028-29 respectively. In other words, over the next three years we will slowly get back to achieving the normal expected improvement in living standards.

Nevertheless, after years of stagnation, there are some downside risks to these forecasts of even a gradual recovery in Australian living standards, including the highly uncertain global economic outlook, inflation and possible interest rate increases, and lower productivity growth.

Australia is a trading nation, and its economic prospects depend significantly........

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