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The ‘secret’ shot in the arm for Australian workers

This “secret stimulus” is being injected into the economy.

This “secret stimulus” is being injected into the economy.

ANALYSIS

Is the economy out of the woods? You’d think so reading the latest note from HSBC economist Paul Bloxham.

He writes: “Over the past five years … jobs growth has been strong enough to see the unemployment rate fall from its early-2015 peak of 6.25 per cent to now sit around 5.75 per cent.

“… Low interest rates have supported a housing price and construction boom while the lower AUD and rising middle class incomes in Asia are driving increased demand for Australia’s services exports, including tourism, education and business services.

“Importantly, the big drag from mining investment and commodity prices is almost done. The worst is in the past.”

Brave words. It’s hard to find another economist as bullish, and in Canberra the Labor Party continues to predict the opposite.

Opposition Leader Bill Shorten told Parliament on Monday: “Of the 220,000 jobs created in the past year – just 30,000 were full time … over the next 12 months – as Holden, Ford and Toyota close their doors – between 28,000 and 40,000 jobs will be lost.”

To the auto industry shutdown can be added a “sharp slowdown in new apartment developments”, as Credit Lyonnais put it last week.

And both of those come on top of tens of thousands of jobs shed as mining investment has wound down.

Public spending as stimulus

That all adds up to a lot of pain for thousands of skilled tradespeople working in construction, auto manufacturing and construction – and an oversupply of labour threatens to push wages lower.

On the Labor side of politics, these conditions combine to suggest that public spending should be higher to offset weak private sector demand.

That is not a popular view, however, as voters have been told thousands of times in the post-GFC era that public debt will ruin us all.

shorten election trail

Opposition Leader Bill Shorten took higher spending to the election.

But will it? Economist Philip Soos argued in a submission to Parliament’s Economics Legislation Committee last week: “Although there is much alleged concern about public debt, data on the long-term trends are rarely shown … Total public debt peaked in 1932 at 170 per cent of GDP when the economy was far less productive.

“Even in the worst case scenario of the federal public debt reaching $1 trillion by 2027 as recently noted by the Treasurer, the debt to GDP ratio would only rise to 44 per cent and 49 per cent, assuming nominal GDP growth of 3 per cent and 2 per cent respectively.”

Soos is calling out the government for putting a political notion of ‘debt and deficit’ ahead of economic growth.

Credit where it’s due

Then again, things could be much worse.

This year’s federal budget expects government spending to rise to 25.8 per cent of GDP – 1.1 percentage points or $21 billion higher than envisaged in the Abbott government’s first budget.

So on the one hand, the Turnbull government has maintained the rhetorical focus on “arresting the debt”, while on the other upping spending considerably.

That spending increase has been chaneled to sectors of the economy calculated to create work for skilled workers losing their jobs elsewhere.

The budget fast-tracks a ramp up in defence spending, aiming to bring it to 2 per cent of GDP three years earlier that even the Abbott government had planned.

Large chunks of that are equipment purchases such as the new Chinook helicopters bought from the US, which mainly boosts jobs across the Pacific.

However a large part of the budget boost will employ the kinds of workers leaving auto manufacturing.

Tens of thousands of skilled workers are losing their jobs.

Tens of thousands of skilled workers are losing their jobs.

On top of that, the Coalition took $5.4 billion of new infrastructure spending to the election ­– not as much as Labor’s pledge of $6.7 billion, but with less to assigned to schemes not approved by the independent body Infrastructure Australia.

These, the government hopes, will combine with the stimulatory tax cut for small businesses turning over less that $10 million a year to get the jobs market moving again.

All these measures make the budget bottom line worse than would have been the case under the Abbott austerity program.

In effect, we have a government rolling out a kind of ‘secret stimulus’ – one that was the main contributor to GDP growth in the most recent National Accounts.

The government bristles at such labels, but unless Mr Bloxham’s rosy view of the economy is right, it may just have to deliver more of the same next year.

Read more columns by Rob Burgess here

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