Australia’s economy grew 2.1% over the past year, and with that came improved household living standards – in part due to income from rooftop solar panels.
But another big driver of economic growth was investment in data centres, which hinders emissions reductions from renewable energy.
These two facts lead us to the question: is all growth good?
GDP figures are excellent at telling us the size of the economy, but those figures can also hide a lot of what Richard Denniss, the co-executive director of the Australia Institute (where I work), describes as “the shape of the economy”.
A good example of this is that in the past year household spending was by far the biggest driver of economic growth.
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Around two-thirds of the increase in Australia’s economy came from people spending.
This would seem to be quite good. We are back to spending at pre-Covid-19 levels:
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Great size, how about the shape?
Well, if you were told that more than half (55%) of the increase in household spending during the September quarter was on electricity and gas, health costs and insurance, would that seem so good? Especially given we usually only spend around 17% of our annual income on those items?
We’re spending more on essentials, and less on things we can do without.
Shape matters.
And so, before we go any further, I want to remind you of a couple of greenhouse gas emissions figures released last week.
Right now, electricity is the biggest contributor to Australia’s annual emissions. The good news is, because our use of renewables – like rooftop solar – is growing, electricity has also had the biggest drop in emissions since 2005:
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Then we have the projected emissions to 2035, by which time the government wants to reduce emissions by between 62% and 70% below 2005 levels. Alas their projections suggest we will be nowhere near that:
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One major reason we will fall short is the government projects increased demand for electricity.
OK, let’s just keep those two things in our heads and now get back to the GDP figures.
The figures had two major revisions to household income. The first was a nerdy data change for how the Australian Bureau of Statistics measures superannuation investment income. The second occurred from the ABS including the income from electricity generation from household solar panels.
The ABS estimates that “rooftop solar electricity saved households over $3bn in 2024-25”.
This, combined with better measure of superannuation incomes, means that households are doing a lot better than previously thought.
In the June figures, living standards were essentially at the same level they were in March 2020; now the ABS estimates they are much improved:
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It rather destroys the opposition’s line about a collapse in living standards. Once you ignore the abnormal impacts of the Covid-19 payments and stimulus, living standards are around 3% above what they were in March 2020 and have grown strongly over the past 15 months.
A key reason is that lower interest rates mean households are on average paying 10% less on their mortgage than they were at the end of last year.
So the shape of the economy is improved due to stronger household incomes from falling interest rates, and households being better off because they have invested in solar panels.
Not only is renewable energy the cheapest from of electricity generation, it is now clearly leading to a more prosperous Australia.
What else do the GDP figures tell us? The major driver of growth in the September quarter was private investment in machinery and equipment:
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The ABS head of national accounts, Grace Kim, noted that this “reflects the ongoing expansions of data centres. This is likely due to firms looking to support growth in artificial intelligence and cloud computing capabilities”.
This is very clear from the private investment figures released last week:
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So investment in data centres is driving economic growth.
Sounds great. But how about the shape?
Guardian Australia’s Petra Stock and Josh Taylor reported this week that data centres could account for 11% and 8% of electricity demand in New South Wales and Victoria respectively by 2030.
Under the national AI plan, data centres will need to “offset” their emissions. Federal industry minister, Tim Ayres, told Sky News on Tuesday that the increased energy requirements from data centres could be met with “low-cost renewables, storage, hydro [and], gas peaking”.
At this point we need to return to those greenhouse gas emissions figures, because the government itself has told us they don’t think the offsets will do much, and instead data centres will increase emissions.
The government’s projections of emissions report, released last week, states that “after 2030, electricity sector emissions are projected to decline to 2040 albeit at a much slower rate… as increasing electricity demand from electrification and data centres is being met by a combination of coal, gas, and renewable generation.”
This brings us back to the shape.
These GDP figures indicate households are now better off due to investing in solar panels, and this has also driven a drop in greenhouse gas emissions. And yet at the same time the government is fully committed to encouraging investment in data centres which will consume masses of energy that will in turn increase emissions.
Both solar panels and data centres might drive the size of the economy, but they deliver a much different shape.
