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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As house prices fall across Australia, should we be worried for our economy?

Tue, 13 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link:  https://au.finance.yahoo.com/news/house-prices-fall-across-australia-worried-004714571.html 


As house prices fall across Australia, should we be worried for our economy?

Are you a home owner?

If you are in Sydney, Perth and Darwin, you are losing money at a rapid rate.

In Melbourne and Canberra, prices are topping out and there is a growing risk that prices will fall through the course of this year. If your dwelling is in Brisbane or Adelaide, you are experiencing only gentle price increases, whilst the only city of strength is Hobart, where house prices are up over 13 per cent in the past year.

The house price data, which are compiled by Corelogic, are flashing something of a warning light on the health of the housing market and therefore the overall economy. For the moment, the drop in house prices has not been sufficient to unsettle the economy, even though consumer spending has been moderate over the past year.

The importance of house prices on the health of the economy is shown in the broad trend where the cities that have the weakest housing markets tend to have the slowest growth in consumer spending and are the worst performance for employment and the unemployment rate. The cities with the strongest house prices have strong labour markets and more robust consumer spending.

Trump could cause the next global recession: here's how

Wed, 07 Mar 2018

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/trump-cause-next-global-recession-heres-233953884.html 


Trump could cause the next global recession: here's how

The Trump trade wars threaten the global economy. This is not an exaggeration or headline grabbing claim, but an economic slump based on a US inspired global trade war is a distinct and growing possibility as it would dislocate global trade flows, production chains and bottom line economic growth.

Up until a few weeks ago, there was a strong enthusiasm for the economic policies of US President Donald Trump. Tax cuts and planned infrastructure spending were seen to be good for the US and world economies. US stocks and many around the rest of the world rose strongly, to a series of record highs. At the same time, bond yields (market interest rates) surged as the market priced in interest rate hikes and inflation risks from the ‘pro-growth’ policies. It was seen to be good news.

Very few, it seems, were worried about the consequences for US government debt and the budget deficit from this cash splash, especially when the US Federal Reserve was already on a well publicised path to hiking interest rates.

About a month or two ago, a few of the more enlightened and inquisitive analysts started to focus on the fact that the annual budget deficit under Trump was poised to explode above US$1 trillion with US government set to exceed 100 per cent of annual GDP.

A debt binge fuelled by tax cuts was a threat to the economy after the temporary sugar hit.