The boom in immigration and the shift in the economy from goods to services has made the normal aggregate data that the ABS measures meaningless.

Economists and policymakers use it to assess the economy, and say that everything is fine. A data point that matters most, it seems to me, is per capita household disposable income adjusted for inflation, and on that score everything is not fine at all, far from it.

As Michael Read wrote in the Financial Review last week, over the past two years Australian households have suffered the largest fall in disposable incomes in the OECD.

What’s more, on Wednesday this week we’ll learn that Australia’s 15-month per capita recession is now 18 months old, even though total annual GDP growth has been positive the whole time and is likely to be about 1 per cent in the year to June.

Families struggling

The struggles of Australian families are being covered up by surging population growth, but why are they struggling? Higher interest rates and taxes.

Australia is unusual in having both a very high proportion of variable rate mortgages (about 80 per cent) and income tax scales that are not indexed to inflation.

As a result of bracket creep, income tax is at a record-high 16.4 per cent of incomes and mortgage interest is approaching a record high as well.

And both of those aggregates mask individual experiences: Those who have bought a house recently are copping the biggest share of the increase in mortgage interest, and middle-income earners who aren’t negatively gearing a property, or doing other tax avoidance things, are paying most of the tax.

Tax cuts on July 1 are estimated to have increased disposable incomes by about 1.5 per cent, a small blip on the first chart above.

No more tax cuts

But anyway, that’s it for tax cuts – there won’t be any more, unless the next election turns into an unlikely tax cut auction.

And the Reserve Bank is telling us not to expect interest rate cuts in a hurry, and if they do come next year, there won’t be many – Australian rates are already low and inflation is sticky.

So the only two ways to sustainably get household incomes up are going to be productivity growth and higher terms of trade (export prices), and the elephant in both of those rooms is foreign students, who have come to swell and dominate the migrant intake.

They have the lowest skills and earn the lowest wages, and tend to drag down overall productivity, and at the same time the proposition that education is Australia’s largest non-mineral export is almost certainly false.

To arrive at the figure of $48 billion for education exports, the ABS simply estimates the entire spending of foreign students, including tuition fees and goods and services.

But they don’t adjust for money earned here rather than brought in, so it’s not just a guess, it’s a fiction because most students work to support themselves.

In fact, international students may be sending more money home than they bring in, so international education might be an import, not an export:

Productivity issues

The reason international students have become such a large part of migration is the decline in government funding for education, which has separately contributed to decline in productivity.

The new cap on foreign students of 270,000 per year might help the construction industry catch up, but unless it’s matched with more money for education along with a greater focus on skilled migration, as opposed to family reunions and working holidays, it will do nothing for productivity.

As for exports and the terms of trade, they are near a record high at the moment, but we are at the end of a great era of globalisation, as countries everywhere – not just the United States – react to China’s attempt to keep its economy growing with manufactured exports, especially cars, instead of construction.

Tariffs

Last week, Canada announced a 100 per cent tariff on electric vehicles imported from China and a 25 per cent tariff on Chinese steel and aluminium, matching the tariffs imposed by the US in May and going further than the European tariffs announced in July.

Washington is pressing its allies to join the campaign against China, but it’s also true that China is putting its own pressure on manufacturing countries by moving its economy more exports as the domestic property growth engine fails.

Globalisation has always been sold as an “everybody wins” proposition rather than a zero-sum game, but the truth is that China’s game only works for resource exporters like Australia.

For Australia, the immediate choice is easy: Keep selling stuff to China and don’t rile them by putting tariffs on their exports, as the US might like. We don’t make cars here anyway. The same goes for New Zealand and Brazil.

More broadly, globalisation is in retreat and has been for a while. In the 20 years to 2011, the widespread tariff cuts, containerisation of trade and focus on supply chains, resulting in merchandise trade growing at 1.6 times world GDP.

But since then the trade intensity of the world economy has dropped to below 0.8 times GDP.

It isn’t just the US and its allies that are raising tariffs – harmful (to trade) tariff and non-tariff interventions have ballooned in the past five years from 100-200 in the early 2010s to 2000, covering 10 per cent of G20 imports versus 2 to 3 per cent a decade ago.

Global growth

It’s not helped by slow global GDP growth, as central banks crush inflation out of the system.

And China’s efforts to grow its own economy through exports rather than domestic growth are not acting as a growth engine for the rest of the world, but as a growth thief.

A de-globalising world with constrained cycles favours economies with large domestic markets, and that does not include Australia, notwithstanding the government’s efforts to increase it with immigration.

We are an exporting nation without much of a manufacturing sector.

We’d be fine if our exports were in demand, but cars require less steel than buildings, which means China’s shift from construction to automotive manufacturing means less iron ore is needed, which is why BHP’s results presentation last week was almost entirely about copper – barely a mention of iron ore.

China, and the world, are also shifting from fossil fuels – coal and gas – for electricity generation, to renewables and while there’s a lot of talk about replacing Australia’s fossil fuel exports with hydrogen, that looks a long way off.

So while it would be too pessimistic to call the decline in real disposable income permanent, it’s hard to see where the growth is going to come from.

Alan Kohler writes weekly for The New Daily. He is finance presenter on the ABC News and also writes for Intelligent Investor