Wry & Dry

Income growth: it's 90/10 in the US. And budget problems here.

W&D received a little more mail than usual last week.  Some related to the declining wage growth in Australia.

This prompted W&D to gently ponder two further matters: what is happening in the USA and how will the lower wage growth affect Australia's budget? 

US income growth - much ado about something

There is much retrospective reading of the entrails of Hillary Clinton's loss.  This will go on for some time, propelled by the paucity of objectivity and the very complexity of the US economy.

But, to W&D's mind, as he commented on some weeks ago, the inability of lower income earners to share in the US' economic growth pushed voters to Trump, when perhaps their natural home should have been the Democrats.  But it seems that Hillary was more comfortable focussing on social issues and Hollywood celebrities than the plight of her coodabeen constituents.

The following chart chart shows some data that helps explain this.

Three W&D cautions:

  1. W&D is a past master at graphing data to best represent the outcome wanted
  2. The chart's data source is complex, not easily searchable and has as its authors a couple of well-known extreme left-wing economists
  3. The use of income growth ignores the fact that the top 1% of income earners pay almost 50% of all US taxes, the top 10% over 70%

This third bullet is especially critical.  Much of the debate ignores the re-distributive outcomes of income taxes. 

So read the chart with care! 

US average income growth

Even considering W&D's three cautions, the lower income earners could certainly feel they have not been getting their fair share.  Hence the reason so many didn't vote for Clinton.

And will these voters judge The Trumpster on his ability to redress the situation?  

Good luck with that project, Mr President-elect.

Low wages growth to increase Australia's budget deficit

Christmas time is usually the time to be jolly.  And W&D will certainly maintain a jolly disposition.

But he also suspects that Treasurer Jim Morrison will have a jaundiced Christmas.  

The budget update - excitingly named the Mid Year Economic & Fiscal Outlook 2016-2017 - will be delivered on Mon-19-Dec.  And it will not be full of Christmas jollity.

Those fine folk at Deloitte Access Economics have forecast that weaker wage growth will more than offset any tax gain from the rebound in commodity prices.  And that another $24 billion will be added to the budget deficit over four years.

In May, Treasurer Morrison forecast cumulative budget deficits of $85 billion over the next four years.   Deloitte Access now suggest the figure will be closer to $109 billion.

There goes the AAA credit rating.