For nearly a week now, Treasurer Scott Morrison has been attempting to fend off Labor’s attacks over ‘rising inequality’.
But no matter how well he argues that inequality is improving, out in voter-land the biggest source of growing inequality is obvious – the divide between home owners and those shut out of the property market.
Homes are the biggest assets most people will ever own, and as the price of those assets has inflated, media outlets have cheered the capital gains of the ‘haves’ over the growing disenfranchisement of the ‘have nots’.
So when Mr Morrison says equality is improving, he’s choosing not to see a huge part of the economic picture.
Worse, though, is that his side of politics must take a large part of the blame for the emerging property divide – and no, for once I’m not talking about the Coalition’s stubborn refusal to reduce tax breaks for property speculators.
Rather, it was the Coalition’s lurch towards extreme neoliberalism under the leadership of Tony Abbott that stoked an asset bubble that just didn’t have to get this big.
During the turbulence that followed the 2008-09 credit crunch, top economists urged caution and fiscal pragmatism. Yet day after day newspapers cheered Mr Abbott, who was elected in late 2009, to campaign for the opposite.
Nobody could fault the Abbott team’s political skills, but their economic thinking was clouded with ideology.
In opposition they managed to turn Labor’s highly effective stimulus program into a political liability for first Kevin Rudd, then Julia Gillard, despite Australia avoiding the GFC recession and having a national debt that was very low by world standards.
In government the Abbott team promptly cut the subsidies paid to the last two auto manufacturers – subsidies that by global standards were low – thereby needlessly shutting the industry down.
That was just for starters. The Abbott government damaged consumer and business confidence with the austerity budget of 2014, and did too little to restore it in 2015.
The obsession with ‘debt and deficit’, and with cutting essential services to the bone, was the opposite of what pragmatic economic managers would have done.
Little wonder Malcolm Turnbull said at the time of his 2015 leadership challenge that Mr Abbott had “not been capable of providing the economic leadership our nation needs”.
The RBA under pressure
When the economic lever of fiscal policy is being pulled in the wrong direction, the other key lever for influencing growth – monetary policy – has to be yanked as hard as possible.
That’s exactly what the Reserve Bank did, and it is often blamed for cutting too far, and blowing the housing-credit bubble too large, as if it made such decisions without any knowledge of the government’s fiscal plans.
Well the Reserve Bank board knew only too well what was planned – remember when Joe Hockey promised the incoming Coalition government would be in surplus in its first year, and every year thereafter?
That plan could only exert a contractionary influence on a struggling economy.
Indirectly, it damaged confidence as described above. But cutting public services also means cutting jobs directly – be they in the public service or in the firms that contract to the government.
We are still feeling the effects of those decisions.
Wednesday’s inflation figures undershot expectations, meaning the demand side of the economy is still too weak to allow wages and prices to start rising again – except, of course, the price of housing which is determined partly by the massive mortgages the banks have been lending during the low-rate years.
Looking ahead, there are tentative signs of improvement. Money markets are pricing the chance of a rate cut in the next year at zero, and the chance of one rate increase at 65 per cent.
Jobs data, especially the crucial ‘hours-worked’ measure, also appear to be improving.
But the fact that the RBA is still sitting on record-low interest rates, still blowing the credit bubble larger and increasing the ‘inequality’ Labor’s banging on about, is a terrible shame, caused by a terrible government.
Perhaps the best thing Mr Morrison can do to deflect Labor’s ‘inequality’ attacks is to remind voters that at the 2017 budget, the Turnbull government did its best to bury the Abbott approach to economic management, hopefully for good.