“Shifts toward undesirable trade and industrial policies can significantly lower output relative to our baseline forecast. Monetary policy could remain too tight for too long, and global financial conditions could tighten abruptly.”
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The longer-term outlook is also poor. Gourinchas said global growth over the next five years is likely to remain “lacklustre” at around 3.1 per cent, which would be “the lowest in decades”.
Deloitte Access said the outlook for Australia was similar to what it had been before COVID when the Reserve Bank slashed interest rates by half in 2019 in a bid to boost growth. In that year, economic growth was just 1.8 per cent while the jobless rate was above 5 per cent.
Deloitte has also downgraded its expectations for housing construction across Australia, tipping fewer than 1 million dwellings will be built over the next five years. The federal government has set a target of 1.2 million homes by mid-2029.
Lead author of the Deloitte report, Stephen Smith, said a range of issues had hit the construction sector since COVID, including high wages and material costs, labour shortages and reduced profitability, which would continue to weigh on home building.
“With permanently higher construction costs, the sector will be both unwilling and unable to lift supply unless property prices also lift,” he said.
“That is, housing affordability will get worse before it has a hope of getting better.”
Deloitte’s Stephen Smith believes the government is unlikely to meet its 1.2 million home target.Credit: Alex Ellinghausen
This week, the Business Council of Australia urged the government to put in place a $10 billion plan to boost house construction and reduce costings, starting with the abolition of stamp duty and its replacement with a land tax.
O’Neil told ABC radio that the Business Council’s idea was a good one as stamp duty was a drag on the housing sector.
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“Stamp duty is a bad tax, it prevents people from moving around the housing market in the way that suits them best, and it creates cost for everyone who’s selling or buying a home,” she said.
But O’Neil said while she could ask states to ditch stamp duty, ultimately it was up to the relevant jurisdiction to make its own decision.
NSW Premier Chris Minns said he agreed with O’Neill’s criticism but warned stamp duty made up 10 per cent of the state’s revenue. “So if the feds want to step in and provide that money to the states we’re more than happy to take it,” he said.
Smith said another problem was the action of the Reserve Bank, which may have misjudged the economy’s underlying problems.
He said while the bank believed excessive demand from households was adding to inflationary pressures, there was plenty of evidence suggesting demand was lagging supply.
“Even if it is the case that the level of demand in Australia is too high relative to supply, surely the solution is to lift supply through improved productivity, not to crush demand with higher interest rates,” he said.
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