How Labor lost the federal election SO badly

Thu, 07 Nov 2019  |  

This article first appeared on the Yahoo Finance website on 20 May 2019 at this link:  https://au.finance.yahoo.com/news/why-labor-lost-the-election-so-badly-211049089.html 

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How Labor lost the federal election SO badly

The Coalition did not win the election, Labor lost it.

The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.

The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.

Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.

In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.

This was an error.

If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.

This parlous economic position could have been cited by Labor for its reform agenda.

Voters should have questioned and doubted the Coalition’s “strong economy” slogan. If Labor had campaigned on the per capita recession, it would have been in touch with people’s financial insecurity and made voters think twice about the economic management credentials of the government.

As part of this use of facts on the economy, Labor could have highlighted the productivity destroying collapse in business investment under the Liberal’s watch. As a share of GDP, business investment is at a 25 year low, back at the level prevailing in the early 1990s recession.

Campaigning on this fact could have undermined the perception that the economy and business does well under the Coalition. There is no record of anyone in the Labor leadership group mentioning this, even once.

While wages growth was a top tier issue in the election, Labor struggled to show how it would restore wages growth. This cost it dearly.

For Labor, there was a bit of fluffing around with restoring penalty rates and wage subsidies to childcare workers, but it completely and utterly ignored the proven driver of accelerating wages – growing the economy faster.

To tell voters how it could have helped spur economic growth and as a result deliver a pick up in wages, Labor could have spoken of reform to the Reserve Bank of Australia including a reinforced commitment to the existing 2 to 3 per cent inflation target as a means to achieve this. Further, it could have also ramped up its plan for immediate income tax cuts and have them skewed heavily to low income earners who would spend that extra cash and kick start the economy.

These are relatable issues and policy changes that could have seen Labor as the party of strong growth, with a simple and understandable plan for lower unemployment and higher wages growth.

Labor could have even embraced a target for the unemployment rate – something like 4 per cent for 2022 as a show of confidence in its ability to grow the economy and boost wages.

Part of a stronger growth plan could have also reiterated and highlighted enhanced economic linkages into Asia, which is still the fastest growing part of the global economy. Voters know how important Asia is to Australia and it would have been relatively easy for Labor to use this narrative to communicate with the electorate.

`The Coalition’s “strong economy” claims could have been further demolished if Labor campaigned on the current wealth destruction from the collapse in house prices. Prices are down more than 10 per cent, wiping off over half a trillion dollars from wealth.

They could have also spoken of the 1.8 million Australians currently unemployed or underemployed as a sign of a weak, not strong economy.

These are telling facts on the economy that Labor rarely raised in the campaign.

It cost them the election not to campaign heavily on the economy.

The problem with Labor’s willingness to campaign on the economy dates back to former leader Kim Beasley who in the early 2000s, distanced Labor from the massive reform success of the Hawke / Keating era. Labor was meek in the wake of a Coalition campaign at that time about interest rates and Labor’s role in the early 1990s recession.

Labor is still scared.

A large majority of voters judge the Coalition to be better managers of the economy than Labor. This is despite the facts of GDP, employment growth and wages show Labor to be at least as successful in managing the economy.

If Labor want to win the 2022 election, it needs its leader and economic ministers – whomever they are - to be mongrels on the economy. To take the data on the economy and when it is bad, call it out loud and clear. The gap in the electorate’s perception on which side is the better economic manager widened against Labor in the recent campaign.

If it had campaigned on the economy, the per capita recession, household wealth destruction and the 1.8 million Australians not working the number of hours they would wish, the election result might have been very different.

It all goes back to one of the best lessons in modern politics – It’s the economy, stupid!

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The RBA has the tools to fix the economy, but is reluctant to use them

The Reserve Bank of Australia has made a range of serious policy errors over the past few years, and the Australian economy is weaker because of those mistakes and misjudgments.

Not only is the RBA on track to miss its inflation target for six years, and perhaps longer, the persistently high unemployment rate in concert with record low wages growth is the result of the RBA’s tardiness in cutting interest rates because of its textbook obsession with house prices and household debt.

It is a mistake that has cost the economy tens of billions of dollars in lost output; employment is many thousands of people below what could have been achieved; and all the while wages growth hovers near record lows undermining the wellbeing of the workforce. What’s worse, the RBA seems to have thrown in the towel on trying to meet its inflation target, even though that target was confirmed a month ago in the recent update of the Conduct of Monetary Policy between the RBA and Treasurer.

In this context, Deputy Governor of the RBA, Guy Debelle, gave a fascinating speech earlier this week on the topic of employment and wages.

Household wealth is booming: What this means

Mon, 25 Nov 2019

This article first appeared on the Yahoo website at this link: https://au.finance.yahoo.com/news/household-wealth-booming-200022930.html 

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Household wealth is booming: What this means

$500,000,000,000.

In other words, half a trillion dollars.

That is approximately the amount Australian household wealth has increased since the start of July 2019, with house prices surging, the Australian stock market moving higher, and savings increasing.

The bulk of the gains have occurred via rising house prices, which according to CoreLogic, are up over 5 per cent in less than five months. This move in house prices has added around $360 billion to the value of housing and is driving the rebound in wealth. At the same time, the level of the ASX has risen by around 2 per cent with a further $40 billion being paid out in dividends. This allows for the recent pull back on prices as new banking scandals are exposed.

In these conditions of rising wealth, the household sector is getting a serious financial reprieve, despite the ongoing weakness in wages and the still very high level of unemployment and underemployment which afflicts almost 14 per cent of the workforce.

The good news is that this wealth creation is likely to spark a rise in household spending growth once the gains are widely acknowledged in the community and then feed into consumer sentiment. This is most likely to show up in the first half of 2020, after the usual lags work their way through the economy. History shows that when we consumers experience growth in our wealth, we are more inclined to lift our spending.

Earlier this year, RBA researchers Diego May, Gabriela Nodari and Daniel Rees found that:

“When wealth increases, Australian households consume more. Spending on durable goods, like motor vehicles, and discretionary goods, such as recreation, appears to be most responsive to changes in household wealth”.

We saw this, in the reverse, in the period from the middle of 2017 to the middle of 2019 when Australia-wide house prices fell by 10 per cent, crunching wealth levels. It was no surprise that during this period, household spending growth slumped. The retail sales component fell to its weakest since the early 1990s recession. Consumer spending and confidence was not helped by the coincident weakness in wages growth and the policy mistake of the RBA which refused to cut official interest rates, even though the economy was mired in a low inflation, low growth and falling wealth climate.

Thankfully, common sense has since prevailed at the RBA and it has cut interest rates three times since June.

Demand for housing has also lifted with shrewd first home buyers taking advantage of favourable affordability and investors also stepping back in after the May election saw the return of the Coalition government and the demise of Labor’s proposal to reform negative gearing tax laws. The current wealth surge unfolding now is occurring at a time when there is also a sharp decline in the debt-servicing burden as interest rates fall. This has the dual effect of freeing up cash flows for some consumers and allows other to accelerate their debt repayment.

For the moment, the labour market remains weak and wages are still stuck in the mud. These will constrain any near term lift in household spending, but the wealth lift will be vital for sparking a pick-up in consumption, probably in the new year when the effect is more widely observed and entrenched.

It adds to the scenario where 2020 is looking like a better year for the economy with bottom line GDP growth set to hit 3 per cent in the second half of the year.  If the wealth effects build further over that time and business investment and infrastructure spending continues to lift, the economy in 2020 just might register its strongest growth rate in a decade.