Why are Bill Shorten and Labor scared to run on the economy?

Tue, 21 Mar 2017  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/mar/16/why-are-bill-shorten-and-labor-scared-to-run-on-the-economy 


Why are Bill Shorten and Labor scared to run on the economy?

The dust is settling from the Western Australian election and there are some implications for the way the federal Labor party should conduct itself from now until the next election if it is to enhance its chances of winning.

For the Liberal party, the lessons are clear. It might sound trite to mention it but its electoral success will depend almost exclusively on its ability to deliver materially better economic conditions between now and election day.

For Labor, the task is easier. It needs to take the initiative on the economy, economic policy, the budget deficit and government debt and highlight how poor the Coalition has been in most aspects of economic managements since the 2013 election.

In those three-and-a-half years of the Coalition being in charge of the economy and budget, growth has been sluggish despite favourable conditions in Australia’s major trading partners. The Australian economy should be stronger because of the welcome news of the Australian dollar falling sharply in recent years, which has provided a boost to domestic economic conditions. What’s more, interest rates have been cut to record lows, yet the economy has been struggling to register annual GDP growth near 2.5%, the unemployment rate is the same as when the Coalition won the 2013 election, wages growth has plummeted to a record low, and the government debt has grown significantly faster than during the previous Labor government, which of course included the fiscal stimulus measures that kept Australia out of recession.

Ever since the mid-1990s, the Labor party has been reluctant to run hard on issues to do with the economy. For some reason, it is riddled with self-doubt that stems, it appears, from the high interest rates of the late 1980s and early 1990s, and its proactive use of budget debts and moderate debt accumulation during the global crisis to ensure Australia kept growing and to protect an estimated 200,000 jobs.

All polls on the question of “Who is the better economic manager?” have the Coalition ahead of Labor by about 20 points. The facts on economic growth and job creation since the Whitlam government in 1972 shows Labor to have the edge over the Coalition in terms of GDP and jobs growth when in office. The perception that the Coalition is a better manager of the economy has been largely unchallenged by Labor despite the facts.

This has cost Labor dearly for 20 years, in which it has won just two of the past eight federal elections. The state election result in Western Australia highlighted the importance of the economy to the electorate. WA is in recession – the unemployment rate has more than doubled over the past few years, house prices have crashed 10% over the past two years, wages growth is the weakest in Australia and the state budget is in tatters.

The economy was the fundamental reason behind the drubbing of the WA Liberal government.

It is an old but accurate cliche that oppositions don’t win elections, governments lose them. Federal Labor, as it gears up for the 2019 (perhaps 2018) election, will undoubtedly continue to run a positive policy agenda on negative gearing and capital gains tax changes, penalty rates, education and renewable energy, among others. But to guarantee an election win Labor needs to close the gap on the electorate’s perception on which side is the better economic manager.

From Bill Shorten down, the Labor party should devote time highlighting the sluggish growth rate, the 750,000 people unemployed, the near 1.1 million people underemployed, the collapse in business investment, the regular updates on the escalation of net and gross government debt and the weakness in real income growth. It needs to highlight the myriad of issues in house prices – the collapses in Perth and Darwin, the pressures on affordability on Melbourne and Sydney.

If it can’t close the gap in the public perception on which side is the better economic manager, its current poll lead will be whittled away.

The Liberal party, if it were smart, should try to counter this and maintain the perception of its status as a better economic manager. It needs to deliver policies that will lead to stronger growth and more jobs. It could also highlight the positive news on the international trade surplus, take credit (however inappropriately) for the rise in the terms of trade, the likely narrowing in the budget deficit and the 26th and 27th year for Australia without a recession.

The next federal election is about two years away and, as is always the case, the economy and perceptions of economic management will have a huge influence on the result. If, over the next two years, the economy is strong, the unemployment rates drops, wages move higher and the budget deficit and growth in government debt falls, the Coalition government will have a good chance of winning. But if there is more of what we have seen over the past few years on the economy, Labor should win but it needs to be aggressive and proactive on issues which in recent times it has been reluctant to raise, especially the budget deficit and the level of government debt.

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Employment - the odd one out or is the economy booming?

Thu, 19 Oct 2017

I am reluctant to bag and slag the employment data, because it is all we have when looking at the health of the labour market. But there are a few quirky bits and bobs in the news of the wonderful run of job creation over the past year.

Employment rose by a remarkably strong 3.1 per cent in the year to September, a fabulous result.

But, and it is a big but, the results are at odds with just about every other indicator in the economy. EIther they are misleading or the employment data are misleading.

One way to check it to have a look at the economy the last time annual growth in employment was above 3 per cent. This takes us to the period around 2007 and into early 2008.

In 2007, annual real GDP growth was generally around 4 to 5 per cent, as you would expect with such jobs growth. The economy was on fire!  In 2008, the CPI surged by over 4 per cent which is again as you would expect given the boom in employment. The RBA was hiking rates at an agressive pace, with the official cash rate hitting a stonking 7.25 per cent in 2008. Wow! 

What bubble? The financial sector is fighting fit

Tue, 17 Oct 2017

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/1897318-045821149.html 


What bubble? The financial sector is fighting fit

Australia’s banking sector is in peak health and the household sector is having few if any problems managing its debt.

This is the good news from the Reserve Bank of Australia Financial Stability Report which effectively put the kybosh on the fear-mongers who continue to forecast a crisis in household debt, a crash in house prices and turmoil in the financial system and more specifically, the banks.

The key conclusion from the RBA was that “the financial system is in a strong position and its resilience to adverse shocks has increased over recent years.”

These are strong and direct words from the normally cautious RBA.

It also noted that the bank’s non-performing loans (bad debts in other words) “remain low” and bank profitability “is high”, which are the key indicators of financial stability and strength. The RBA went as far to say that “the banks also have ample access to a range of funding sources at a lower cost than a decade ago” which is fundamental to the functioning of the financial system. Nothing was presented that indicated current problems in the financial sector.

The RBA assessment can be tested from the markets, specifically bank share prices. Most evidently, bank share prices remain strong as the investment community continues to place its money where its mouth is when determining actual performance and even risks when allocating investment funds.