The political fallout of a new Morrison government

Wed, 29 Aug 2018  |  

This article first appeared on the Yahoo 7 Finance web page at this link: https://au.finance.yahoo.com/news/political-fallout-new-morrison-government-232153917.html 

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The political fallout of a new Morrison government

The revamping of the government’s leadership team and the elevation of Scott Morrison to Prime Minister and Josh Frydenberg to Treasurer opens the door for some much needed revamping of the economic policy agenda. Ironically, Morrison has left Frydenberg a number of awkward policy issues that will need to be addressed.

One that is clearly having a political effect and hurting the government is the health, or lack thereof, of the labour market. Wages growth is hovering around a record low, barely keeping up with inflation. This weakness in wages is a major constraint on consumer spending, which is also being impact by a sharp fall in the growth of savings and record household debt.

The fact that the unemployment rate has been entrenched well above 5 per cent right through the Abbott/Turnbull/Morrison period of government is a policy failure. The economy is simply not strong enough to generate the number of jobs needed to deliver a material lowering in unemployment and with that, a lift in wages.

If Frydenberg can deliver policies that help engineer a stronger economy and a lowering in the unemployment rate, he will have done something Treasurers Hockey and Morrison could not. This is where some meaningful fiscal policy changes and reforms to labour laws (industrial relations) would be welcome.

In the mean time, it is consumers – voters in other words – that are doing it tough in the current economic climate.

This household budget pressure no doubt fed into the frustration and deep unpopularity with the government. This was made worse by Morrison’s company tax package and the focus of extra cash for the big business sector.

The Labor Party was able to offer an effective narrative that was hostile to those company tax cuts at a time of financial pressures on household budgets. Making things more problematic both politically and economically were cuts to a range of government services, most notably education.

Government debt hit a record high under the stewardship of Morrison as Treasurer. While a case can be made to take a cautious approach to debt stability and then reduction while the economy is muddling along, the Coalition spent years in opposition suggesting that it would not only reduce debt, but to pay it down.

The current level of gross government debt is $531 billion, up from $273 billion at the time of the 2013 election. To stem the rise in debt and then start to edge it lower, Frydenberg as Treasurer will need to keep a tight reign on spending, a tough challenge ahead of the election which must be held by May 2019. Frydenberg may even need to look at the tax and revenue side of the government’s budget accounts to help pay for spending and to contain the level of debt. If, as seems likely, the proposed company tax cuts for medium and large business are dropped, the budget position will be improved by around $35 billion over the medium term.

There are a range of other critical economic issues to consider.

Enhancing regulations and oversight of the financial system in the wake of the findings of the Banking Royal Commission will a difficult path to follow. Over-regulation risks hurting the financial system and acting as a hand break on the economy – doing too little would be inappropriate given the findings to date.

Infrastructure spending will be an important element of Frydenberg’s Treasury portfolio. At a time when the electorate is concerned about congestion, house prices and service delivery, the case for an extra infrastructure program is strong economics. But will the state of the budget and the philosophy aiming for a budget surplus prevent such spending? 

Linked to this is the issue of immigration and its impact on the economy. Should the level of immigration be trimmed to allow infrastructure to catch up to the extra population that has arrived in recent years or will this be at a cost of economic growth and the budget?

In all, the ‘new’ Morrison government needs to fix the messy policy and economic settings that are currently prevailing. If they don’t, they will be even less likely to win the upcoming election.

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This article first appeared on The Wire, the web page for FIIG, at this link: https://thewire.fiig.com.au/article/commentary/opinion/2018/11/19/rba-ignores-property-at-its-peril 

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RBA ignores property at its peril

The RBA rolls the dice on house prices

The usually careful and well considered Reserve Bank of Australia is taking a huge gamble on the Australian economy into 2019 and 2020.

The RBA is betting that the current slump in house prices and dwelling approvals are orderly and will not have any material or lasting consequences for the economy. In fact, RBA Governor Philip Lowe believes the fall in Australian house prices “is good news”, “manageable” and “a welcome development”. Further, in its November Statement on Monetary Policy, the RBA suggested that house prices “have continued to ease gradually”, which is a remarkably bland assessment given that close to $400bn has been wiped off the value of Australian houses since the price peak in September 2017.

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Tue, 13 Nov 2018

This article first appeared on the Business Insider web page at this link: https://www.businessinsider.com.au/labor-negative-gearing-impact-housing-comment-2018-11 

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How Labor’s plans to revamp negative gearing could put a floor on house prices and lower rents

The economic policy debate over Labor’s plans to overhaul the negative gearing rules is hotting up.

It is an important debate on a policy change that will have implications for the housing market, particularly for first home buyer and investor demand.

The government is claiming that the negative gearing change will “take a sledgehammer”, “smash” and “punish” everyone in Australia. Treasurer Josh Frydenberg says that under Labor, “your home will be worth less and renters will pay more.”

It is a frightening scenario for property obsessed Australians with the value of all dwellings in Australia estimated to be around $7 trillion.

But is it true? What are the facts about the current housing cycle and how will Labor’s plans to revamp negative gearing impact the housing market?