It’s the Economy, Stupid

Mon, 22 May 2017  |  

This article first appeared on The Adelaide Review website at this link: 


It’s the Economy, Stupid

Those in power, who are able to pull the economic policy levers, are unable or unwilling or simply unaware of what is happening in the economy and what needs to be done to get the economy back on track to stronger job creating growth.

At every opportunity, the Turnbull government is sweeping economics under the rug while it focuses on terror, laws on racial vilification, rhetoric about ‘hard working Australians’, a blip in energy prices and anything else that means the economy is not discussed. The ‘jobs and growth’ mantra is as sincere and meaningful as a US shop assistant saying ‘you’re welcome and have a nice day’ just after they serve you a miserable coffee.

The other economic policy heavyweight, the RBA, is fixated about house prices in Sydney and Melbourne and continues to leave Australia with some of the highest interest rates in the industrialised world and an over-valued exchange rate. It does this while inflation is entrenched below the bottom of its own target range, real wages growth stalls and the spare capacity in the labour market balloons.

To be fair, there is one economic policy issue that has a substantive proposal behind it – the cut to company tax rates. But the plan to reduce company tax rates is more like a Chinese Politburo 10-year plan and it is of such a scale that it will fracture an already vulnerable budget outlook. And, in any event, it looks like hitting the rocks in the senate as it is expensive, ineffective and unpopular. The key elements of the company tax issue will no doubt slowly but surely sink in the not too distant future.

So what should the government be thinking about in terms of the economy and policy?

The budget and government debt are issues that need tendering. Neither are a major concern at the moment, but a little bad luck on commodity prices, an economy crunching housing slump or some global funk from weakness in China or a Donald Trump-inspired trade war will blow the budget out of the water and with it, Australia’s triple-A credit rating. Best to do more than the current plan to chip away at budget bottom line. It would be wise for the government to look at meaningful revenue measures and targeted spending restraint. Revenue neutral but pro-growth changes to income tax scales which would also have the benefit of addressing inequality should be considered.

At the same time, nothing specific is being done to address the simmering problem of labour market weakness. There are 750,000 people unemployed and a further 1.1 million underemployed. This is around 15 per cent of the potential workforce that is not working at all or not working the amount of hours they would prefer. Growth needs to be stronger. Where’s the policy initiative to address this large and growing problem?
Linked to that is the ongoing policy discussion about the optimal level of resources that the government should allocate to education, skills and training. It goes without saying that when the economy is one day strong enough to see employers ramp up their hiring plans, Australians that have reached their full-skill potential should be hired so that unemployment and underemployment are reduced.

Housing, aged-care, workforce participation, the level of social security payments and superannuation are all areas that need attention. By 2027, Australia’s population will be about three-million larger and a good deal older. More than 1.5 million new dwellings will need to be built, preferably in areas that people wish to live in, which means infrastructure spending needs to be higher than currently planned. At the same time, the superannuation system and aging population will present a drag on the budget. How about looking at ways to ensure this fiscal time-bomb is defused early and not left to the next generation of politicians to tackle?

It is also apparent that Australia needs to ensure its economic standing in Asia and the global economy is enhanced. Prime Minister Turnbull, Treasurer Scott Morrison and other senior ministers need to do more than appear at a G’Day Australia trade fair to ensure the economic icing on the cake – exports – remains a critical contributor to the economy. And while the effort to boost exports should be directed across all sectors, Australia is in a wonderful position to benefit from the remarkable growth in spending globally on education, tourism and financial services.

Australia might still get lucky and growth remains reasonable as our major trading partners buying large volumes and paying high prices for the goods and services where Australia has a comparative advantage. There is a risk that this luck might change and if it does, we might look back at the current policy lethargy with regret and disappointment.

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The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link:   


The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced. 

What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 

2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.

In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.

GDP Growth

It’s a positive outlook. A pick-up in GDP growth from the current 1.7 per cent annual rate is unfolding, with the only real issue is the extent of the acceleration.