Australia Voters driven to distraction by Morrison's short-term splurge
A ban-aid solution
Good morning, early birds. Scott Morrison has denied “forsaking” the more than 9000 Australians now stranded in India after temporarily halting all flights from the country, and Australia recorded another two Indigenous deaths in custody yesterday. It's the news you need to know, with Chris Woods.Morrison has confirmed an aid package consisting of masks, ventilators, gloves and goggles, and, in the face of criticism from families now stranded in India and federal (but definitely not Western Australia) Labor, defended the ban as due to a “jump” in cases in hotel quarantine among people coming from India.
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Labor leader Anthony Albanese uses a bus metaphor to describe the Morrison government's approach to the economy.
"I think Australians are entitled to be very sceptical as to how the government is going to get there on unemployment," he told my colleague David Crowe this week. "I mean, this is a government that is like a bus driver who tells you the itinerary but never turns on the engine."
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I think he has it the wrong way around. The engine already is running pretty hot, and it's about to get a lot hotter, as we'll hear in next week's federal budget.
That's not in question any more. And that's a problem for Labor. But does the driver know where he's taking us? That could be a problem for everyone.
We know the destination that Treasurer Josh Frydenberg will be telling us on Tuesday night. He'll tell us that Australia will lock in its post-pandemic recovery with big new spending on aged care, mental health, childcare and infrastructure.
And the historic opportunity to drive the unemployment rate down below 5 per cent in the process. An unemployment rate with a 4 in front of it, Frydenberg will tell us, is the aim. The jobless rate was last in this range only briefly at the end of the Howard era and early Rudd. The last time it was sustained in this realm was the early 1970s.
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We can expect that the Treasury's forecasts will show that to be within ready reach. And this is exactly the right destination for the country.
Australia is in the relatively luxurious position that it can do all of this without needing to raise taxes. Not yet, at least. Both the US and Britain have announced higher company tax rates and higher personal tax rates for the rich. Frydenberg will make no such announcements on Tuesday night.
"We won't be undertaking any sharp pivots towards austerity," the Treasurer said last week. This is a Coalition government, remember. It is campaigning against conservative political stereotype. While Albanese this week did the same: "When it comes to thinking about government spending, I am cautious."
As for the political destination for the Morrison government, it will be unspoken yet obvious - an election victory next year. To be powered by a fully vaccinated population and an economic boom.
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Where the bus driver is planning to take us in the medium-term, that's the hard question. Investment is key. The government has no meaningful plan for sustaining the private investment necessary to generate healthy growth and rising productivity. It relies on spending taxpayers' money and a housing boom. Neither is sustainable without serious private sector investment in productive capacity.
Soaring house prices are not adding one jot to productive capacity. And as Scott Morrison has been telling us with the withdrawal of the JobKeeper subsidies: "You can't run the Australian economy on taxpayers' money forever." It's just as true of investment.
But the bus will be hurtling along at such a pace in the short run that the government is confident the happy passengers won't worry themselves too much about the medium term.
A year ago the dominant economic fear was that Australia was tipping into a savage new Great Depression. The Treasury's worst-case outlook was for unemployment to hit a shocking 15 per cent.
Instead, after the steep downturn at the beginning of last year, Australia's economy has charged back. Once the lockdowns brought the virus in check and public health was secure, the pace of growth in the second half was the fastest on record.
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Commonwealth Bank chief Matt Comyn describes the recovery as "miraculous". The Wall Street Journal's headline late last year: "."
Everyone keeps upgrading their forecasts for Australia's growth. The Reserve Bank is now predicting that overall growth this year will be 4.75 per cent - scorching for a developed country - before moderating to 3.5 per cent in 2022 - still stronger than in recent years.
And far from the feared unemployment rate of 15 per cent, it peaked at exactly half that. By the end of this year the Reserve Bank. Which is about where it was as Australia headed into the pandemic at 5.2 per cent.
And next year? The bank reckons it'll be about 4.5 by the end of 2022. This will buttress the government's contention that an unemployment rate of four-point-something is attainable in the near term.
Less miraculous than man-made, Australia's post-pandemic recovery is powered by the fact that its two big policy engines - government spending and official interest rates - are both roaring at the same time.
That is, the bus actually has two engines, and they're both fired up. The first, the federal government's fiscal policy is "significantly more expansionary than at almost any time since the early 1980s" says independent economist Saul Eslake.
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And the other engine, monetary policy, is also super stimulatory. The Reserve Bank is not only holding official interest rates at a record low 0.1 per cent, it's also continuing to pump another $5 billion a week of liquidity into the bond market to suppress market rates.
It's a bit unusual to have both these engines pushing in the same direction at once. In this century it's only happened three times before, according to Eslake. Once when both Canberra and Martin Place were united in boosting growth in the face of the US "tech wreck" recession of the early 2000s; next when they worked together to stave off the global financial crisis in 2008; and then when both restrained growth during the China-driven mining boom of 2009-11.
"At least for the next couple of years," says Eslake, "we will have both working in harmony for the first time since 2011." That's a powerful combination.
This presents an obvious political problem for Labor. Albanese won't be able to campaign on a faltering economy. "If we can no longer say the economy is a basket case - and we can't - what do we say?" asks a Labor source.
Labor will support the big new spending on aged care, mental health, child care and infrastructure. It won't stand in the way of tax relief.
What about debt and deficit? Labor could try to portray Morrison and Frydenberg as reckless. After all, they'll have driven national debt up more than threefold to some $1 trillion.
This tactic has worked before for Labor. When then prime minister John Howard was in his terminal phase and spending at a frantic rate to buy his way back into the affections of the people, opposition leader Kevin Rudd didn't try to compete. Instead he drew a contrast by spending less: "This sort of reckless spending must stop."
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Albanese's claim this week - "I am cautious" about government spending - positions him for such a manoeuvre.
The government has a magic trick here, however. Frydenberg says that "by growing our economy we can maintain a steady and declining ratio of debt to GDP over the medium term as we continue to move towards balancing the budget". In other words, grow our way out of debt. No painful cuts to spending, no tax increases.
Reserve Bank governor Philip Lowe has been making this argument for some time, telling governments that it's OK to run up debts to spend more money on productive infrastructure.
Of course, it's only plausible if the government can maintain some discipline in spending. And it only works if there is no new crisis. If there's an economic shock from China, say, or a brutal new COVID variant takes hold, forcing another national lockdown in the next year or two, the magic will disappear.
Australia would have depleted its fiscal firepower and not restocked. It would be economically vulnerable. But Labor won't want to campaign on the need for spending cuts or higher taxes. Is it snookered?
Not necessarily. The government's Achilles' heel could well be workers' wages and conditions. While the government's policy of driving unemployment lower is supposed to produce an eventual increase in wages, it's likely to be slow and uneven. And besides, the government seems to have trouble putting its heart into wages growth as an important cause.
It doesn't have the narrative, it doesn't have the credentials and, on its own account, as the country's biggest employer, it doesn't have the policies. It demands that wages growth in the public sector must remain below that in the private.
Nor is it interested in addressing the obvious atrocity cutely referred to as the "gig economy", but which could more honestly called the "exploitation economy". It's not a big sector but it's very visible.
You can see Labor rehearsing some campaign rhetoric in anticipation. Shadow treasurer Jim Chalmers this week said: "It's not a genuine recovery if Australian working families are left behind. It's not a real recovery if working Australians gain nothing in wages growth or job security."
He might be right, but Morrison is driving the bus. He might not have a long-term trip itinerary but the bus is moving fast.
Peter Hartcher is political editor.
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