04 Sep, 2015 Economic management is now Tony Abbott’s weakest claim to re-election
2 September 2015
by Stephen Koukoulas
If the next federal election is fought on economic management and economic outcomes, Labor will romp in. The economy remains moribund, with each hopeful snippet of good news quickly shot down by a flood of mediocre or downright bad news. Consumers, and that means voters, are starting to suffer financial hardship which is one reason the Coalition should find any issue other than economic management to fight the upcoming election on.
Abbott has given up on debt and deficit reduction, but few have noticed. Making the issue of economic management even more parlous for the Abbott government is its abject failure to deliver on its pledges and promises prior to the September 2013 election. Those included return to budget surplus, cutting government debt and having a pro-business strategy in its economic policy management.
Indeed, on election night in 2013, prime minister elect Tony Abbott declared Australia “open for business”. Abbott has reiterated this mantra since that time with his “economic growth and jobs”theme. Even last week, Abbott said, without a hint of embarrassment, that his government “will fight for jobs, we will fight for investment and we will fight for growth”.
The inference from this powerful rhetoric is that under the Abbott government and its policies, the business sector would be strong and the economy robust. This stronger economy, it was implied, would lead to lower unemployment and prosperity would be unleashed as the economy was unshackled.
Two years on from the election and the runs on the board for the Abbott government are scarce. In fact a scorecard of key economic indicators are quite disturbing for a government that was seemingly hellbent on super-charging the private sector of the economy.
Here is a run of some economic news since the election. The starting point for comparisons is the September quarter 2013 for quarterly data and September 2013 for monthly data.
Since the election, private sector capital expenditure has fallen by a quite stunning 15%. This means that businesses have savagely cut their investment plans and undermined the growth momentum of the economy. The so-called investment expectations data from the Australian Bureau of Statistics suggests that business investment will fall by a further 20% in 2015-16. These are business investment outcomes usually seen during recessions.
At the same time, the national accounts revealed real GDP growth slowed to a paltry 2.0% in the year to the June quarter 2015.
Growth is, at best tepid, at worst we are seeing a stagnation that is undermining incomes and living standards. Annual GDP growth has been below 3% for the term of the Abbott government and if anything, growth is slowing with quarterly GDP up just 0.2% in the June quarter.
According to ABS data, company profits have fallen a sharp 6% since the election. This is despite the positive cash-flow effects of record low interest rates and the competitive boost from the lower Australian dollar which today slid below 70 US cents. Simply put, firms are struggling to maintain profits whilst the economy is weak, even though there are positive factors helping their bottom line.
What is also apparent is that the business sector has responded to these economic conditions by under-hiring workers and cracking down on pay rates.
The unemployment rate has jumped to a 13-year high of 6.3% and annual growth in wages, as measured by average weekly earnings, has slumped to 1.2% which is the lowest pace of wages growth in many decades. Wages growth is accordingly less than the rate of inflation, meaning that the purchasing power for the average household is falling. These labour market dynamics mean that the number of people unemployed has risen by 114,000 to more than 800,000, a 21-year high. Amid these poor economic indicators, the government has increased the budget deficit by about $25bn a year from the level presented to it in the pre-election fiscal outlook in August 2013. A mix of additional spending, giving up the revenue from the carbon price, the bank levy and mining tax and weaker growth have all conspired to see the budget deficit increase. Gone is any discussion of a surplus until at least the 2020s and gross government debt has risen to a record $384bn, over $110bn higher than the level inherited by the Abbott government. Government debt will soon exceed $400bn, given treasurer Joe Hockeyâ€™s inability to get government spending and the budget deficit under control.
Unemployment rate of 6.4% means it’s time to spend money to create jobs Stephen Koukoulas Stephen Koukoulas Read more Perhaps the most telling fact that smashes once and for all the economic management myth that surrounds the Coalition government is the weakness of the Australian stock market.
The recent market volatility has not hidden the fact that since election, the ASX200 is down about 4% (using Wednesday’s level of about 5,050 points). This lame performance sits in stark contrast with other major global stock markets. Over the same time, the US S&P 500 and German DAX indices are both up by more than 15%, the Japanese Nikkei is up by about 25% while the UK FTSE has been weaker, dropping by about 5%.
The weak economy has clearly weighed on profits and therefore share prices.
There is no doubt that the economy has not responded at all well to the election of the Abbott government. Growth is sluggish, the unemployment rate is rising and the business investment and profits are in the doldrums. This is not a set of economic conditions that would normally favour an incumbent government. With just a year until the election, there needs to be a sudden and dramatic turn in conditions if the Abbott government is to go to the polls using the economy to build its case for re-election.
Economic management is now Tony Abbott's weakest claim to re-election, The Guardian, 2 September 2015