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Oct 12, 2012

RBA now controls the economics of next year's federal election

The economic environment in which next year's federal election will be fought will be affected in large part by how the RBA responds to a worsening international situation.

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While all of us — gallery hack, blogger and Twitterati alike — were engrossed in politics within the House of Representatives this week, events of greater significance for the electoral chances of the government were unfolding elsewhere.

Economic events here and offshore flagged that a resilient Australian economy now faces a more difficult international environment between now and the end of next year than previously forecast, with significant consequences both out in the real world and in Canberra, where an election, if held on schedule, awaits.

First on the resilience: yesterday’s jobs figures reflect exactly how the Reserve Bank described the employment market — there’s been “moderate employment growth” but “the labour market has generally softened somewhat”. The September data showed the economy had put on 14,000 full-time jobs, seasonally adjusted, there was a welcome lift in participation, and a lift in hours worked.

The big problem, however, was Queensland. Since Campbell Newman was elected, Queensland’s unemployment rate has gone from 5.2% to 6.3%. Queensland has lost 23,000 jobs while the country as a whole has put on 16,000. Worse, the jump in Queensland unemployment was on the back of a big fall in participation in September.

Joe Hockey got himself into terrible difficulty trying to explain all that yesterday when he emerged to claim the figures showed “people are starting to feel the pinch of the carbon tax”. Quizzed on Queensland, he insisted the numbers were a lag indicator from Labor’s time in office. “The reality is there are a lot of factors that go into play,” he subsequently admitted. Amongst those factors was “they are feeling the pinch with some of the commodity prices coming off”.

Normally, the topic of recent falls in commodity prices has been entirely absent from the Opposition’s story on the economy, which has emphasised that it’s the carbon price and mining tax that are together entirely responsible for the looming peak in mining investment. Of course, Queensland is tricky territory on that issue since Newman upped mining royalties himself and delivered a Labor-like serve to mining executives. Newman may yet prove to be of substantial assistance to federal Labor in the run-up to next year’s election.

It was that peak in mining investment that encouraged the RBA last week to cut interest rates and indicate further cuts to come, in the light of a weakening international situation that meant lower economic growth globally next year than forecast.

The International Monetary Fund promptly confirmed the RBA’s concerns this week by yet again — how many times in a row is that now? – downgrading its growth forecasts. It also completed the step-by-step change in its thinking on austerity that has been underway for months, and admitted what most Europeans, and particularly the millions without jobs, could have told them — slashing government spending in the name of reining in debt dramatically slows economic growth, making the task you’re trying to achieve more difficult and inflicting serious economic and social damage along the way.

Things got even worse on the EZ front yesterday with Standard and Poor’s downgrading Spain’s credit rating — to “one notch above junk” as every report insisted on noting. As one of the Eurosceptic Daily Telegraph’s commentators spotted, however, S&P had also expressed real concerns about whether the much-heralded June commitment to recapitalise Spanish banks was worth anything.

Meantime there’s growing concern in Germany –- heartland of the axis of austerity — that it too may succumb to the recession its approach has inflicted on others. Although, of course, the Germans are so obsessed about inflation that they can worry about that at the same time as watching nervously for recession.

At this point, only the improving jobs market in the US is a cause for optimism for international growth, but the fiscal cliff threat continues to lurk as a cloud over 2013.

The Reserve Bank has to handle all this itself. The government has made clear it is determined to pursue, and most likely accelerate, its contractionary fiscal policy. Fiscal debate has entered a twilight zone in Australia in which the government is attacked for spending too much, courtesy of its long-term commitments to new spending initiatives like the NDIS and Gonski, when it is politically locked into a severely contractionary fiscal commitment in spite of a slightly-below-trend economic growth trajectory.

It’s all summed up in the bizarre fantasies of David Murray, a man who refuses to believe in climate change but who is convinced Australia is on the verge of going the way of Greece or Spain, and has multiple national platforms — the two national newspapers and the ABC — to spruik his eccentric views.

The immediate challenge for the government is MYEFO. But the problem there is the first two letters of the acronym. It is committed to a surplus this year, and we’re already nearly at the mid-year point. Options for increasing revenue this year are slim to none; changes to superannuation concessions, for example, won’t kick in until 2013-14. The best options for saving the surplus in the face of weaker revenue are delaying or cancelling spending: departments will be asked to identify programs tracking below forecast, or suffering significant delays, with spending either returned to the budget or pushed past July next year.

The net result is that the economic environment in which the election will occur next year — and how realistic both sides’ fiscal policies will be judged — is now even more in the hands of the Reserve Bank and its judgment about how best to time stimulus in conditions of global uncertainty and sluggish growth and a government committed to taking a great whack of spending out of the economy.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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29 thoughts on “RBA now controls the economics of next year’s federal election

  1. Hamis Hill

    Some sort of fatigue setting in there for David?
    The esoteric term “Asset price inflation” is an oblique reference to the unsustainabl y high housing prices in Australia and formerl y in the GFC stricken economies.
    It is a term used to avoid panicking the “market” and so inducing negative “sentiment”, the other side of the coin of “irrational exuberance”. All other inflation, eg wages etc, is bad and can be stated as such.
    “Asset price inflation” is good for the speculators and so cannot suffer any negative connotations for fear of hurting their ponzi schemes.
    Remember the old real-esate adage about the the man who grew old waiting for real-estate prices to drop?
    Silly not to get into debt then Eh?
    Unfortunatel y housing debt does not pay for itself, as it “adds nothing to the income of its inhabitants”.
    An “Iron Law” of economics.
    Housing, as a reflection of the ego of the owners, is all very emotional, ie irrational, hint hint.
    Nevertheless, highl y educated Australians, with the exception of mining companies, are getting the picture and reducing their private debt and the housing market is stagnating.
    This is in line with the advice of overseas commentators who recognise the Howard-Costello induced housing bubble in Australia and have advocated that housing prices should not rise until wages have caught up.
    The RBA knows all this, and incidentall y, the banking sector has become more regulated and prudential in Australia as a result of past banking and building society collapses, nothing to do with Howard or Costello.
    Swan’s surplus may be aimed at the “sentiment” that things are under control and business “confidence” can recover.
    An election year budget following a previous surplus can be expansionary to protect the economy.
    All this has to take place under the economic illiteracy and unrelanting negativity of the conservatives who would prefer to destroy the economy in order to bring down their political opponents, as was shown by their opposition to the original economic stimulus package.
    The conservatives are concentrating on presenting Labor as bad economic managers as the means to winning government and is why Abbott et al are acting like greased pigs on policy, determined never to be caught, with the MSM acting as swineherds. Why? Are bank shareholding ponzi schemers intent on beggaring all the productive sectors of the economy by sleight of hand? GFC anyone?
    That is the problem of a Liberal minority government, it is all about ruling a majority of unwitting mortgage slaves, oohing and aahing about unsustainable, fanatsy world capital gain. Blah blah blah.
    The RBA knows this and it is about time they let the cat out of the bag.
    Australians are all grown up now, aren’t they?
    It’s time RBA, it’s time to start treating citizens as adults and educate them to make rational voting decisions.
    And, quite frankly, this has absolutel y f ckall to do with “Marxism”!

  2. Hamis Hill

    It’s breaking news! According to David, Adam Smith, professor of Moral Philiosophy and author of An Inquiry into the Nature and Causes of the Wealth of Nations, (published in 1776) and Father of Economics is actuall-y Karl Marx?
    A new Open-Cut coal mine has recentl-y been approved for the upper Hunter Valley.
    Back in the late seventies a similar approval in the vicinity of Singleton saw a doubling of house prices as highly paid miners came to town.
    Seventy five year-old ramshackle weather board cottages rose to twice the price of brand new homes on the outskirts of Sydney.
    The response of the local council headed by a local accountant and future leader of the National Party in NSW?
    Despite years of fore knowledge, they would “think” about increasing the housing suppl-y by putting through some new residential subdivisions. Speculation? The principle of economic and social justice in action?
    The council of Australian Catholic Bishops promotes the principle of “Social Justice”, making them, consistent with David’s estimation, “Marxists”.
    No, David, your brilliant miners are the dupes of housing speculators, they pay a tax on idiocy for supposing that a “free market” suppl-ies their miners’ housing which the company pays for through wages and salaries.
    Tell all the struggling economies overseas how they should emulate your FIFO mining workers’ investment in capital city housing. That seems to be your answer to your own question David. Let the miners fund the asset-price inflation in the cities which grinds the non- mining sectors into the dust, all to line the pockets of a housing/ banking cartel and their complicit politicians.
    Gee, those mining companies just cannot get away from corruption no matter where they go in the world.
    All, according to David, a “communist” plot, not a bunch of real estate speculators “fixing up” an un-freemarket for, ha ha, private fun and profit.
    David, you are obviously not serious in your arguments.

  3. Hamis Hill

    David, what the European governments should do is resume the properties which are now empty because their prospective customers are jobless.
    These properties should then be rented out peppercorn rents which allow their inahabitants to present themselves for employment without the burdensome costs of exorbitant rents or mortgages which their employers are expected, but now cannot afford,to pay in their wages.
    This is exactl-y what was done in the immediate post war period in West Germany under the policies of the Marshall Plan, which restricted spending on housing.
    This plan had,in turn, followed the economic ana-l-ysis of Adam Smith who argued that “A dwelling house, as such, adds nothing to the income of its inhabitants”.
    The wages costs of your miners, of which much complaint is made, are greatly increased by exhorbitant housing prices.
    These exhorbitant housing prices, caused by speculation, indulged in mainl-y by the right wing elements of Labor, Liberals and the Nationals, are making the mines unprofitable.
    What do you propose to do about this David?
    Since these essential components of the Monopolist housing/banking cartel are entrenched in government all over Australia, where they differ in name onl-y?
    Apparentl-y the “Watermelon Greens” so named for their international principle of economic and social justice are the onl-y politicians who are acting against the economic depredations of the Housing/Banking cartel, whose flunkies on the right then attack The Greens as economy destroying “communists” out to undermine the famil-y etc etc.
    Now David, your miners in Australia, you might reasonabl-y argue, are not in the business of providing housing for their employees, rel-ying,instead, on specialists in the “free market” to provide that service for them.
    With your apparentl-y superior access to the details perhaps you could determine the total wage costs for the mining industry and what excess of the conventional 25% of same set aside for housing costs (See Adam Smith above as the source of this prudent ecomomic convention) are paid by the mining companies to property speculators.
    Is this simpl-y a private “TAX” on economic stupidity and how does it compare to royalties and the MRRT as a component of those costs contributing to the unprofitabilty of these patheticall-y duped mining companies.( as in their totall-y unfounded “Faith” in the patent nonsense of a free market in housing)
    Take as much regard of the reality of housing speculation, as the cause of the econmomic problems you refer to in Europe, as you wish, to help your understanding of this repl-y to your question.
    If you choose to ignore any of these arguments ( as do the housing/banking cartel’s captive politicians- now they would do that wouldn’t they- in on the scam) then perhaps you are not serious in seeking a solution to this problem.
    To help you can just imagine youself as General Marshall trying to create employment in post-war Europe as a bulwark against the attraction of communism to people condemned to poverty.
    Do you think the people responsible for the vast new “systems operations ” discipline involved in winning the second world war just might have known something?
    Or did it all sort of, you know, just happen?
    Perhaps the sinister neglect of this vast and powerful new field of systems operations is responsible for the idiots who believe that we were simpl-y incapable of putting people on the moon in 1969.
    A monopoly of Eisenhower’s Military/Industrial complex, the creators of Systems Operations and the modern computer?
    Sort out the economy?- well what can you do, it’s so complicated? More induced idiocy in action.
    It is good to see your ana-l-ysis of mining costs, it at least goes against all this dumbing down and presumes we all have the wit to understand.
    Thank you for your confidence, David, it is sincerel-y appreciated.

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