This article first appeared on The Guardian website on 28 May 2014: https://www.theguardian.com/commentisfree/2014/may/28/will-abbotts-economic-negativity-become-a-self-fulfilling-prophesy
Will Abbott's economic negativity become a self-fulfilling prophecy?
Some two weeks after the budget and more than eight months after being sworn in to office, the Abbott government continues to trash talk the economy, seemingly unaware of the damage it is inflicting on consumer sentiment and business conditions.
While unrelenting negativity on the economy and budget was an election-winning strategy from opposition, it is a self-defeating tactic for a government. People want the government to govern, not to tell them how bad things are, even if they are and certainly when they are not.
Tomorrow morning, RPData will release its house price data for May which will show a substantial fall of about 1.9 per cent in house prices in the month. This fall is based on the already published data in the five main Australian cities - the data from other cities may add or subtract a tenth or two from this result.
As noted here previously and elsewhere, it is not clear whether this price fall is just a seasonal blip, some noise in the data or some other influence and that the general uptrend in prices of the past two years is being sustained.
Be that as it may, get set for some alarmist news reports on house prices falling sharply. Nothing sells like bad news and a near 2 per cent monthly drop in house prices ("a record fall!") will likely get the attention of the media.
Let's get a little perspective on the Capex data, which has been welcomed by a range of people saying it is "not so bad when you look at the details".
Well, I am looking at the details and note the following.
Capex (business investment) has fallen 8.5 per cent over the last two quarters – this is the largest six-month fall since Australia was climbing out of its last recession in 1993. Sounds pretty grim to me, acknowledging that it is from a high base.
Between June 2012 and March 2014, Capex has fallen a meaty 10.1 per cent.
Here is a little scenario to consider when it comes to HECS debt and the idea flagged by Education Minister Christopher Pyne that when a person dies, the accumulated HECS debt would be repaid to the government from that person's estate.
Think of someone who goes to university, studies hard and when they turn 21, have a degree and a $30,000 HECS debt.
If, for example, the person lives to 81, when they die and if they have never had paid employment that required them to cover their HECS debt, they will leave a massive debt which will need to be paid from their estate.
Here is some basic and non-controversial maths.
The price of gold has fallen to US$1,265 an ounce this morning, for reasons that no one knows. In Australian dollar terms, gold is around $1,365 an ounce which is back to the level first reached in January 2009.
Think of it - that is more than five years of zero capital growth, no interest or yield and a considerable cost of holding the shiny dirt in the form of security such as a safe or safe deposit boxes at a bank.
What a dog of an "investment".
Amid all of the political kerfuffle, opinion polls and growing sense of incompetence surrounding the Abbott government, the betting markets continue to have the Coalition as warm to hot favourites to win the next Federal election.
For those punters thinking Labor will cruise to victory at the next election, buoyed by disenchantment with thet Abbott government, as much at $2.65 is available from the bookies. In other words, punters can get a 165 per cent tax free return for a 28 months investment if in fact Labor romp home at the next election.
These appear to be generous odds in a two-horse race where the polls are generally 53 to 56 per cent to Labor and 44 to 47 per cent to the Coalition.
The RPData house price series shows that house prices have tumbled a quite remarkable 1.7 per cent so far in May. This follows a softish 0.3 per cent rise in April and it just might be signaling something starting to go amiss in the $5 trillion housing market.
To be sure, the RPData house price series are not seasonally adjusted, they are produced on transactions from several months ago and no doubt there are other foibles in the series, but they are often used by the RBA to judge house price trends and for that reason alone, they are worthy of mention.
It was always likely that house prices would be softening after the strong gains between late 2012 and early 2014. It is just that the catalyst for the slowing - higher interest rates – has not been the cause.
I am very, very surprised at the extent to which some key drivers of the Australian economy have hit a brick wall.
It is increasingly clear that this means the RBA is on hold for a while longer and my earlier view that the economy would sustain a period of strong growth was probably wrong. This upbeat view has been superseded by a strange and disconcerting run of economic news.
Consumer sentiment has been smashed, with the ANZ-Roy Morgan measure dropping a tub-thumping 14 per cent in a month. With interest rates obviously on hold, stock prices sort of flat and no other significant factor about, it must be reaction to the budget that is driving this collapse in sentiment. It is a similar story with the Westpac-Melbourne Institute measure of consumer sentiment which dumped 6.8 points in May to be at levels associated with very weak growth in consumer spending.
One of the issues in the carbon price furore of recent years was the perception that consumers would be hit very hard by the associated rise in electricity prices. This was despite the obvious fact that for the average household, electricity is a small part of their spending and the Gillard government ensured that over three-quarters of the population was compensated for this rise.
More recently, Treasurer Joe Hockey has got into hot water over his comment that the $7 GP charge his government has implemented each time you go to the doctor is just "a couple of middies of beer or the third of the price of a packet of cigarettes"
Well, according to the latest consumer piece index release, the following facts of household spending make for interesting reading.
It will be terrific viewing tomorrow night when Treasurer Joe Hockey appears on ABC TV's Q&A programme. It is an opportunity for the Treasurer to outline his economic strategy and the issues that he was dealing with as he framed the first budget of the Abbott government.
It is to be hoped that the questions and discussion move away from the lame rhetoric and platitudes that have come to dominate the economic and policy discussion in recent years.
On that score, here are 10 questions that I would like to hear Mr Hockey asked tomorrow night (or on any occasion for that matter).