Finance Finance News Why this just became the election not to win

Why this just became the election not to win

economic challenges in 2019
Whoever forms government after Saturday has massive economic challenges on its hands. Photo: AAP
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There’s a question going around: Will Bill Shorten cop a hospital pass if Labor wins on Saturday?

This week has seen the unemployment rate increase to 5.2 per cent, the highest level since August. February’s 4.9 per cent rate is looking like the bottom of this cycle with nearly one in seven Australians either unemployed or underemployed.

Worse is that the latest NAB and Australian Industry Group business surveys indicate the labour market will continue to soften.

Employment will still grow, but not quick enough to absorb the growing workforce, let alone see the labour market tightening necessary to breathe life into wages growth.

Wages growth? It’s our most pressing domestic economic problem. On Wednesday the Australian Bureau of Statistics showed there still isn’t much of it, despite a cumulative increase of 6.9 per cent in the minimum wage from the past two national wage cases. Capital’s wages strike continues.

And then there’s Donald Trump, blowing out US government debt, ratcheting his trade war with China up another notch as both sides of US politics become increasingly Sinophobic, threatening a hot war with Iran, urged on by Saudi Arabia and Israel. 

Also on the international horizon, the ongoing Brexit crisis and whatever is going to happen with the Italian banking system, but we have no control over any of that.

Domestically, where the government can make a difference, the Reserve Bank has slashed its forecast of consumption growth for the new financial year to 2 per cent, compared with Josh Frydenberg’s budget prediction of 2.75 per cent. Retail is crook with no sign of improving.

If the RBA is right, the states are facing lower GST revenue just when the housing stamp duty windfalls have been blown away.

Ah yes, housing. Take your pick about how big the downturn in housing construction is proving to be. The RBA is guessing dwelling investment (new building and renovations) to be down 7.4 per cent next year. Others are not so optimistic.

If you have a dark enough sense of humour, it’s actually rather funny that the Coalition is trying to scare people about Labor’s negative gearing changes weakening housing prices a per cent or so when they’ve overseen the worst of the real estate bubble, and now price falls of somewhere between 10 and 20 per cent in the two biggest cities.

So after six years of Coalition government (during which time government debt roughly doubled, not that it’s dangerously high), if Scott Morrison loses, he’ll be handing over the Treasury under an economic cloud.

When Tony Abbott won government in September 2013, the unemployment rate was 5.7 per cent. It peaked at 6.4 per cent in October 2014 and did not stay below 5.7 per cent until April 2017.

The undeniable strong point of the latest Parliament has been employment growth, but that’s now at risk from the vicious cycle of weak wages and consumption, compounded by falling housing construction.

The next few years promise to be a challenging time to be in government.

The last time Labor replaced the Coalition, it was just in time for the GFC. Labor’s management of that crisis has been acknowledged by all but the most partisan as world’s best practice – a combination of fiscal and monetary policy that resulted in Australia avoiding the crippling recession that hit most of the developed world.

Yes, the Pink Batts effort was a seriously dud policy and it was a mistake to think the NSW government could manage building school halls. But in the bigger picture, a generation was spared the scars of double-digit unemployment. Once unemployment spikes, it takes many years to drag it back down, in the meantime creating the curse, the crime, of a large pool of long-term unemployed whose problems can echo down generations.

Despite the demonstrable success of overall economic management during the GFC crisis – or the Great Recession, as the rest of the world tends to call it – Labor has still had to wear simplistic labelling for going from surplus to deficit, which of course is what should happen in such circumstances.

Labor still carries scar tissue from that sticky label, hence its current dedication to announcing bigger surpluses than what the coalition is promising.

Australia needs investment. Australians need investment in themselves, in their talent. That’s about the only real longer-term thing a government can do for the country.

And there’s the question of taking climate change somewhat seriously. Labor’s announced policy is second rate, but the Coalition’s is practically non-existent.

Thursday provided an interesting contrast in newspaper editorial election advice, for the little that such things matters.

The Australian Financial Review, owned by Nine Entertainment and edited by a Business Council of Australia cheerleader and severe critic of unions, voted Coalition, declaring that climate and energy policy didn’t matter, that it was all about having “a growth plan”, which in the case of the Coalition seems to be cutting taxes.

The Guardian, a centre-left publication, voted Labor-Green, declaring that climate was the single most important issue.

Australia and the US are rare countries in seeing climate as a Left v Right issue, but whoever forms government after Saturday has to find a way of dealing with that policy quicksand.

So, could this be an unfortunate election to win? In some ways, perhaps.

It looks like a challenging period ahead – but that makes it all the more important to have the most talent and the greatest flexibility in government.

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