Surprisingly to many, the Coalition has consistently maintained its poll lead over Labor on the question of who would be “preferred economic managers”. Although there are a host of other issues that will feature in the coming election campaign – most relating to questions of integrity, accountability and climate change – Scott Morrison and Josh Frydenberg will undoubtedly seek to run on economic management. They will hope to emphasise a significant difference between a Coalition government and what they will insist is a big-spending, big-taxing, fiscally irresponsible Labor Party.
However, as much as they may hope this to be a successful strategy, capitalising on the poll perception, it will be difficult to run for several main reasons, including their embrace of big and intrusive government in dealing with Covid-19, the growing significance of cost-of-living pressures, and the fact their economic hubris does not match the lived experience of most people and probably all the previously “quiet” Australians.
To emphasise the point about lived experience, I’ll share a telling quote relayed to me by my youngest daughter. She has been reading The Secret Diary of Adrian Mole, Aged 13¾, where one diary entry recalls Adrian’s mum, Pauline, discussing with her stepson Brett, who is something of a flashjack share trader, a prediction by a radio announcer that “there’s a big recession on the way”. Pauline says: “I know it’s coming. I can feel it in my bones, and I’ve been watching smokers. When people start to smoke a fag right down to the filter, you know the country’s in financial trouble. That’s why I’m hoarding rice and pasta, and boxes of candles.”
Not to be outdone by this, Brett, in true Morrison–Frydenberg style, laughed and said “Pauline, I work in finance all day and most of the night. I use Fibonacci retracements and extensions with the DeMark 9-5 countdown, with the addition of sophisticated mathematical equations. So forgive me if I discount the fag butts, Pauline.”
Just as Pauline Mole feared the country was going down the drain, I feel perhaps that everyday Australians are becoming all too aware of just how close they’re getting to the filter.
To save face, Morrison and Frydenberg have been out there spinning two recent, less than satisfactory data releases: namely the fall in employment in October and the 1.5 per cent drop in our growth rate in the September quarter. Frydenberg, for example, claimed on Insiders last Sunday that the greatest achievement in their management of the economy through the pandemic was to save some 700,000 jobs and to get the unemployment rate down to 5.2 per cent. He also claimed he would raise the budget growth forecasts in the mid-year economics statement. He cited the recent upgrade in our growth outlook by the OECD, from 3.3 to 4.1 per cent, and said the Reserve Bank had also recently increased its growth forecasts.
None of this will be of much comfort to those Australians struggling with the costs of living, restricted by a record level of household debt and wages having been flat since the Coalition came to power. Nor does it address increasing global uncertainty and increasing job insecurity.
Not only did full-time employment fall by some 40,000 places and part-time employment by about 5900 over the month of October, but underemployment remains high. Some two million Australians are either unemployed or failing to get as much work as they would like.
Nevertheless, the government remains confident that employment prospects are very positive, claiming “the Australian labour market is set for a strong recovery, with payroll jobs already rebounding and job advertisements surging to a 13-year high. In addition, Australians are more confident about their job prospects, with the latest Westpac Melbourne Institute Unemployment Expectations Index showing a fall of 11 per cent, to the lowest level in nearly three decades.”
These figures do not tell the full story. The RBA has said recent labour market data reflects the “temporary effects of recent lockdowns”, which are now “receding”. Labour market and indeed growth data have been complicated by the fall in permanent immigration and in the flow of foreign students and itinerant workers, backpackers and fruit pickers et cetera. This has put upward pressure on wages.
Frydenberg seems intent on capitalising on this situation of labour and skills shortages, claiming that “the way to get higher wages is a tighter labour market”. Clearly, while this may “work” in the short-term, most economists would argue that increased productivity will be required for sustainable long-term increases in wages.
The biggest failing of the Morrison government in economic management was its failure to put in place an effective longer-term recovery strategy to lift us out of the pandemic recession. This is especially so given the imperative of a structural and fair transition to a low-carbon Australia over the next three decades or so.
Given the significance of the climate challenge, particularly as we have been identified globally as the climate laggard in terms of both emissions reduction targets and policies to achieve them, I suspect and hope this election sees a genuine debate about alternative visions for Australia driven by the massive transitions and transformation opportunity of an appropriate climate response.
Unfortunately, it is already being reduced to a scare campaign, with the government accusing the ALP of being likely to sell out to the Greens, ultimately committing to larger cuts in emissions, costing jobs and raising electricity prices, despite Anthony Albanese’s modelling showing evidence to the contrary. More broadly Morrison is running hard on the claim – without evidence – that Labor will put up electricity and petrol prices and raise interest rates.
Another weakness is the government’s belief in trickle-down economics. This faith is not supported by the recent evidence from their response to the pandemic, which showed how improvements in systemic welfare spending can better stimulate activity. The most successful spending in response to the pandemic was the so-called coronavirus supplement.
Against this experience it was very difficult to understand why they reset the JobSeeker allowance for the unemployed below the poverty line. If they had added spending on social housing they would have had a most effective stimulatory package. The households that would receive this money would spend it. The government has now pinned its hope for growth on households spending their accumulated savings and cash balances, some of which were generated by financial support during the pandemic.
On top of this, the government seems to ignore the risks of the very uncertain global economic outlook. So much depends on whether the virus “behaves”. The International Monetary Fund has already indicated an intention to lower its global growth forecasts in response to the emergence of the Omicron variant. Opinions differ as the world waits for hard evidence of its transmissibility and seriousness, and whether existing vaccines will continue to be effective.
The latest OECD Economic Outlook focuses primarily on the recent pick-up in inflation – forecasting that the United States consumer price index (CPI) will average 4.4 per cent next year, up from September’s prediction of 3.1 per cent, before easing to 2.5 per cent in 2023. This compares with the US Federal Reserve’s target of just 2 per cent. In the eurozone the CPI is expected to average 2.7 per cent next year, falling to 1.8 per cent in 2023.
The response from the Federal Reserve’s chair, Jerome Powell, was somewhat surprising. The Financial Times has described it as a “hawkish pivot to inflation” despite acknowledging the likely impact of the Omicron variant. This has fostered the expectation that the Fed will accelerate its “taper” of bond purchases and that interest rate increases will come sooner and perhaps be steeper than previously indicated. The question is whether other central banks, including our RBA, will follow or whether Omicron encourages them to sit on their hands.
Global sharemarkets are also on edge. I particularly note the recent comment by the deputy chair of Berkshire Hathaway that the sharemarkets are now “crazier than the dotcom boom that blew up in 2000”. Clearly, if there were to be a sharemarket correction it would probably begin in the US, not just because the market is bigger and has run up further but because there are major unresolved economic and political issues. The biggest one is the direction of Fed policy given significant differences of view within the Fed structures and pressures from the congress.
The US labour market pressures are also very real. The November non-farm payroll numbers were a disappointing increase of just 200,000, compared with 546,000 in October, even though unemployment fell from 4.6 per cent to 4.2 per cent and globally there are very important supply chain disruptions.
The inflation numbers in the eurozone are also a particular concern. The latest inflation data for the zone showed a jump from 4.1 per cent to 4.9 per cent, the highest level since the euro was created. France was at 4 per cent, Germany 6 per cent. The European producer price index rose from 16.1 per cent year on year to 21.95 per cent in November, and consumer confidence is waning in Europe.
Collectively, the global sharemarkets are a tinder box and could easily be ignited by any of these risk factors – or a combination of them.
Many Australians, like Mrs Pauline Mole, are grappling with their lived experience, which is increasingly at odds with the yarns being spun by their elected political leaders. Their bullshit antennae are beginning to buzz.
This article was first published in the print edition of The Saturday Paper on December 11, 2021 as "What Adrian Mole tells us about Scott Morrison".
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