Ayan Tripathi
House prices jump in first home buyer suburbs as deposit scheme kicks in
From October 1, the Government adjusted its First Home Buyer scheme, which saw the removal of place limits and income caps, higher property price caps (across most regions) and it became easier for buyers to use the guarantee. Put simply, these adjustments aimed to help more individuals get onto the housing ladder.
However, such adjustments raised red flags as October saw unusually strong home value gains: national home values rose 1.1%, marking the fastest monthly jump since June 2023. Also, the median dwelling price reached a record-high of $872,538, with Eliza Owen, Head of research at Cotality, warning that “[home] values could climb to 6 to 7% by year-end as rate cuts and government incentives boost growth capacity”.
And people piled into the adjusted First Home Buyer scheme, as 5,778 homes were purchased with the guarantee in October, up from 3,901 last year. That marks a 50% increase, and it means one in 10 homes sold nationally in October used the scheme. And to that, Housing Minister Clare O’Neil believes the policy is “working”.
But not everyone agrees with O’Neil. AMP Chief Economist Shane Oliver calls the policy “ridiculous”, arguing that it benefits a small group of buyers in the short term. Behind the debate, it's also worth considering that the lower end of the housing market has been growing faster than the upper end for the past two years, reflecting stronger competition in the lower end of the market. Within this market segment, young buyers are put at a disadvantage, especially considering that their earnings have risen 20% between 2014 and 2023.
How can this analysis be applied to HSC Economics?
This analysis can be applied to assess the effectiveness of macroeconomic policies, specifically fiscal policy, in achieving economic objectives like the distribution of income and wealth. Similarly, this analysis can be used to consider the trends in Australia’s distribution of income and wealth.
Wages are now barely growing faster than inflation, with economists expecting a dim outlook
On 19 November, the ABS revealed its latest wage figures. Wages rose 0.8% in the September quarter and they grew 3.4% over the year, a touch above inflation, which came in at 3.2%. Treasurer Jim Chalmers and Employment Minister Amanda Rishworth were quick to point out that this marks “the longest period of consecutive annual real wage growth in almost a decade”.
However, the broader picture isn't as picturesque. While public sector wages outpaced those in the private sector over the year, the longer-term trend reveals that wages have trailed far behind the cost of living. Since March 2021, wages in the public sector and private sector have grown by 14.2% and 15.2%, respectively. Over the same period, prices rose 21.8% and the cost of living for employee households, factoring in mortgage repayments, rose 26.6%.
So although wages are rising, they’re not rising fast enough to make a difference in living standards. JP Morgan economist Tom Kennedy expects real wages to fall again next year. In the September quarter alone, real wages slipped 0.6% and since March 2023, real wage growth amounts to just 0.95%. Even so, real wages remain 4.6% lower than in March 2021.
To show the importance of this, the average full-time worker earned $90,000 in March 2021. Adjusted for today’s prices, those earnings would give you an equivalent purchasing power of $85,862. Put simply, workers might be earning more dollars today, but those dollars don’t buy as much as they used to.
The road back isn't too ideal either. The RBA estimates it could take us until 2044 for wages to regain the purchasing power they had in early 2021.
How can this analysis be applied to HSC Economics?
This analysis can be used to analyse the trends of economic objectives, like inflation and its potential impact on macroeconomic policy stances, like that of monetary policy.
IMF’s annual review of the Australian economy encourages bold tax reform
In its latest assessment, the IMF found the Australian economy is fairly upbeat. Inflation has “declined significantly”, the labour market remains strong and private-sector activity is recovering. All things considered, the IMF expects economic growth to increase from 1.8% in 2025 to 2.1% in 2026.
However, with such praise comes a long list of warnings. If Australia wants to bolster its long-term growth, the IMF notes that the Federal Government will need to “tackle fiscal and structural” challenges head-on. At the top of the list is major tax reform, which is necessary to “boost economic efficiency, productivity and intergenerational equity”. Here, the IMF suggested an increase in indirect taxes, the reintroduction of resource revenue taxes and the removal of specific income tax exemptions.
The IMF also encouraged expenditure reforms to target efficiency in high-cost areas like NDIS and aged care. Put simply, Australia needs a tax and spending system that's better at funding the services people rely upon, without dragging the economy down.
Also, the IMF raised red flags on something governments tend to avoid discussing: state and territory debt. Put together, these debts are projected to exceed $1 trillion by the end of the decade. To manage this, Australia is encouraged to improve “fiscal co-ordination across the federation”, especially in big cross-border issues like tax reform and climate policy. As such, the IMF recommends that the Parliamentary Budget Office gain oversight of state budgets.
How can this analysis be applied to HSC Economics?
This analysis can be applied to evaluate the overall effectiveness of macroeconomic and microeconomic policies, along with their effectiveness in achieving specific economic objectives, like economic growth.