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Federal

Dec 5, 2012

Hockey on four-point plans and a falling economy

Joe Hockey's confused criticisms of the government's economic policy are reflected in the Coalition's own economic "plan". They're going to need do better than this in government.

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“The Reserve Bank is trying to catch a falling Australian economy. The government is making it worse by going on a big taxing, big spending program.”

That, from yesterday, could be the single dumbest thing Joe Hockey has said this year.

The shadow treasurer is at his best when he’s least partisan. No other major party politician has dared put their name to the sort of comments Hockey made about entitlements. Speaking to international media and observing the rule that you don’t bag Australia to foreigners, he looks a measured, mature Treasurer-in-waiting. When he’s trying to score political points in an economy that for so long has resolutely failed to produce any bad news, the result, like yesterday’s quote, is painful.

Hockey’s dilemma is that he wants to point out evidence of weakness in the non-mining sector of the economy and blame the government for failing to do anything about it. And there’s a sound basis for doing so: the government’s fiscal policy is ripping a huge whack of demand out of the economy while commodity prices are falling, the peak of mining investment is passing, the Aussie dollar is proving it’s now virtually bulletproof and the US and European economies show little sign of recovering from their respective malaises. Labor’s fiscal policy is pro-cyclical, compounding downward pressures on the economy.

But, problematically, Hockey also wants to maintain the narrative that the government is spending like drunken sailors, despite Labor’s tax and spending to GDP ratios being below the levels maintained by the Howard government for most of the 2000s.

The result is a complaint that the government isn’t doing enough to prop up the economy coupled with a complaint that it’s doing too much to prop up the economy.

Oh well, that’s what you get when you have a political class that has installed a budget surplus as the be-all and end-all of economic policy.

Hockey talks about a four-point economic plan. It sounds commendable as a broad agenda, but as an immediate response to problems in the non-mining sector of the economy? Hmmm.

The first point is “living within our means” i.e. cutting spending. Cutting spending significantly in the absence of matching tax cuts necessarily will remove more demand from the economy, putting even more pressure on the RBA to use monetary policy to support the economy — exactly the scenario of which Hockey is complaining. It’s also likely to further encourage the “safe haven” view of Australia and put more upward pressure on the dollar.

Point two is to get rid of the carbon and mining taxes. Given Hockey complains the mining tax is not bringing in any money, its removal won’t have any effect either way, while removal of the carbon price, long after it has matured to the point where it is providing a net return to the budget, contradicts the idea of “living within our means”. And again, it will have limited effect given the bulk of the carbon price revenue is cycled back to big polluters in the trade-exposed sector.

Third is a “a six-point plan to improve productivity”, which is, unfortunately, rather vague. It involves such commendable things as “get greater value from infrastructure spending” and “improving competition rules”. They sound great. But how much would this help catch a “falling economy”? Well, nothing for many months, if not years, but the Coalition does like to cite the $1 billion it claims can be gained from “removing red tape”. It’s a little difficult to believe given one of the crosses Hockey must bear are the Nationals, who want more red tape when it comes to foreign investment and wheat regulation — it’s only a few weeks since the Coalition voted against Labor’s wheat deregulation bill.

The fourth point is “proper engagement with the Asian region”. Again, check with the Nationals on that, Joe. It’s hard to be properly engaged with Asia when you have a bunch of xenophobes screaming about Chinese investment.

Hockey also notes that consumer and business confidence has been damaged by the government. To which one might point out that it wasn’t Wayne Swan out there repeatedly claiming that the carbon price would send a “wrecking ball through the economy”. It wasn’t Labor warning of $100 legs of lamb as a result. It wasn’t Julia Gillard claiming Australia was a poorer place to invest than Tanzania or Zambia. It wasn’t Labor that called for a “people’s revolt” against the carbon price, that claimed the government was illegitimate, that called the Prime Minister a “crook”.

Then again, while its four-point economic plan may not be much chop, the Coalition’s one-point plan for getting back into government has so far worked a treat.

This article has been corrected: it originally stated that the Coalition claimed productivity gains of $12 billion. In fact the figure is $1 billion. The text has been amended to reflect this and to remove a misleading reference to the source of the figure. The error was entirely mine – BK

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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41 comments

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41 thoughts on “Hockey on four-point plans and a falling economy

  1. t p

    Australia can not afford Abbott’s paid parental leave scheme. That’s the first thing to go. No more middle class welfare.

  2. t p

    Joe Hockey as Treasurer ? Now that is really scary.

  3. مكينMrGibberish

    $$$$watshudrbado???

  4. ماكين

    thanx

  5. Rodney Harris

    Iggy that’s a really interesting study. It does appear we can learn a lot from Canadian experiences. The rise of the oil sands industry and the Canadian currency are a few years ahead of us, but similar to our LNG, coal and iron ore boom. The paper argues that smart government intervention in key areas is needed as opposed to the unrestrained pursuit of lower taxes and deregulation. They’ve tried that approach and it has caused a few issues.
    It does seem they have at least a mild case of Dutch disease and they don’t like it. Their reliance on a pretty environmentally unfriendly industry in oil sands is a cause for long term concern.

    Thanks for the link.

  6. Jimmy

    Achmed – “Hockey claiming that interest rates are now at ‘emergency level’.” Saw an interesting thing on the ABC news a couple of nights ago showing when 3% was actually “emergency” levels in the GFC govt spending was adding 6% to GDP, now govt spending is removing 3% from GDP – so while previously it was a global catastrophe causing interest rates to drop now it is actually govt policy (well at least in part) that it driving interest rates down.

    Now the govt could choose to start spending again if that is what Mr Hockey wants but that is in contradiction to his calls for a bigger surplus.

  7. John Kotsopoulos

    Achmed, Hockey is a total fool. Interest rates set by the RBA are not a reflection of the rate businesses are being charged for their overdrafts and business loans.

    If the banks were not as greedy or needy take your pick) the RBA rate would be another 0.5 – 1% higher.

    As it is an RBA rate of 3% when inflation is running at 2.5% is hardly expansionary in effect.

    Try the Japanese rate of 0% if you want expansionary

  8. Achmed

    Hockey claiming that interest rates are now at ’emergency level’. He fails to understand that the RBA has lowered rates, in part, to lower the Aussie dollar. The high Aussie dollar in having a detrimental effect on the economy. Exporters are suffering which is pushing manufacturing down. Even tourism is suffering, Aussies are going overseas rather than travel in Australia

  9. Jimmy

    ““The Reserve Bank is trying to catch a falling Australian economy. The government is making it worse by going on a big taxing, big spending program.”

    The Libs answer to this is to bring in a big spending paid parental leave scheme funded by increasing company tax?

    Or to embark on a big spending “direct action plan” funded by nothing?

  10. qwerty bluett

    labor’s still going to lose office. so just try and sit back and enjoy it. i for one am looking forward to the spin as to exactly why the carbon tax is not going to be repealed. “It’s an ETS, not a carbon tax!” uh huh

  11. qwerty bluett

    four point plan:

    1. be awesome
    2. do awesome stuff
    3. boot labor out
    4. profit

    i don’t see wats so hard to understand about how awesome that is and how everything’s going to be awesome after doing it. typical lefties.

  12. Jimmy

    Steve777 – “unemployment at 5%” see unemployment came down today, about 14k jobs created last month.

    And for all the poor consumer & business sentiment why are new car sales at record highs?

  13. Jimmy

    I find it amusing that the Libs “4 point plan” includes a point that is “a six point plan”, I wonder wheterh one of the 6 points is actually a 10 point plan?

    As for the actual plan – vague cathc phrases aren’t a plan, they are not even a goal, and when the cath phrases directly contradict what little stated policy the Libs have surely no one could take them seriously.

  14. Rodney Harris

    Tom, you make a good point about the lack of tertiary industries on the back of our mining. I think the balance between unions and employers isn’t far off being right though. Having much greater than usual mining related construction does probably support allowing some temporary workers in from overseas. When the inevitablke slowdown happens it won’t be such a big adjustment for workers. If we do get the continued slowdown that many are predicting, labour cost growth should moderate and there are signs of that already. I think one of the biggest drivers for the cost growth was the bidding up of labour on the back of high prices for our exports. Oh, of course the dollar’s high valuation automatically puts our wages up relative to others.

    In Western Australia there is/was a cap set on the minimum amount of gas that must be reserved for the domestic market. This is a policy that can drive increases in tertiary industries on the back of cheap energy and hyrdocarbons. In the US they have this percentage at around 100% at the moment. In the pilbara there is an ammonia factory and plans to extend processing to explosives. There is still a lot more gas to come on stream so presumably a lot of scope for new industries if the policy is maintained.

  15. Apollo

    Wizzy, unemployment rate drops to 5.2%, they may hit that target if the MRRT does raise revenue.

    I can’t bel.i.e.ve I was right, earl.i.er in the year I said that I did not think unemployment rate will get worse, but the government needs to bring IR law back to the middle to target 4-4.5%.

  16. Tom Makin

    while i agree with most of your points rodney harris there are a few things we need to recognise. Ozis are bogans, the economy depends on mining that doesn’t progress through to secondary and tertiary industries. the unions over use their power in the mining sectors causing cost blow outs, the miners recruit workers from overseas and give the jobs to them instead for a fair price and Ozi workers miss out, they recruit cleaners from overseas as if there is no Ozi who can do the job. the Swiss are specialised in up scale service and finance industries, their agri industry does get protection while there’s also a decent manufacturing industry.

  17. John Kotsopoulos

    Zut alors Abbott deliberately used the pensioner’ s bill in an effort to mislead. Only Stevie Wonder could have missed the graph on such bill which would have shown a doubling of use compared with the last billing cycle.

    He made a big play of wanting to table the bill and got the shock of his life when Albanese agreed and joyfully pointed out the attempted subterfuge.

  18. zut alors

    Hockey and his Coalition colleagues combined their brainpower and still couldn’t fathom a simple electricity bill. Our nation’s economic saviours? Credibility, nil.

  19. Mike Smith

    Thinking about betting for or against it happening, GeeWizz?

    I reckon 2:1 for it happening.

  20. AR

    His “could be the single dumbest comment…” – a big call with so much stupidity to sort.
    My personal favourite was his “sure the numbers are good but think how much better they would if we we
    re in office!
    “, something I dread to think.

  21. Rodney Harris

    I think the numbers aren’t just good compared to the rest of the world, they are actually good in Australian historical terms. I can’t recall a time where we’ve actually had low unemployment, inflation and interest rates, low tax rates, a balanced budget, a high dollar and decent economic growth. While they’re not all the best they’ve ever been, many are and you would be hard pressed to find a time in the past when we haven’t had one or more of these key indicators looking bad.
    I sense that if many people stopped talking the country down we could be doing even better. Switzerland has been able to do ok for decades with high wages and a high currency. Often perceptions become reality and these do carry weight, so our performance relative to the rest of the world may mean that we can carry a premium in terms of how we are valued against our overseas competitors. Still, no room for complacency but I’m confident in the future. Would hate to see us focus on low wages and conditions, mindless government job cuts and unnecessary austerity that may undermine the premium we’ve been able to build up in the last few years.

  22. CML

    @ taylormade – I understand what you say, and agree that Swan sounds like a broken record, but surely the runs are on the board? Doesn’t the media (read Ltd News, for one) have some responsibility to present the very good economic conditions which exist in this country, when compared with many of the first world economies? A few facts would be good.
    All day, Wednesday, the ABC had Joe Hockey on radio and TV spewing out his usual rubbish. No hard questions from anyone about his “Alice in Wonderland” so called 4 point plan, or 6 point plan or whatever… I sometimes think Joe and the media are living on another planet!

  23. taylormade

    CML “I just don’t understand why the majority of the Oz electorate thinks the coalition can run the Oz economy better than Labor”

    A lot of it would have to do with the poor commuincation skills of Wayne Swan. Seen him on 7.30 report the other night on the latest rate cut, was just one rehearsed line after the other. No matter the question, his answers were still the same. Yes labour have good stories to tell on the economy, but Swan is simply unable to do so and blaming the oppostion for talking down the economy every chance he gets just illustrates that point.

  24. Achmed

    Business tax will rise 2% to pay for maternity leave. Abbott plans to keep the current tax cuts and CT compensation payments but repeal the carbon “tax” that provides the “income” to pay for these. He then intends to give taxpayer money to the big business polluters, because they can be trusted to spend taxpayer appropriately. Hos carbon reduction plan which has the same targets as the Labor plan will cost around $3.2 billion a year. He will get the money to cover this cost by resducing the number of public servants. If my math is right, if the public servants were paid $1million per year that would mean 32 million public servants will be sacked.

  25. Steve777

    Inflation at 2%, Interest rates at 3%, unemployment at %%, growth at 3%. Australia’s numbers are the envy of the developed world. Joe Hockey has to tell us how the Coalition will improve things and not be allowed to get away with ‘waste and mismanagement’. What programs will a Coalition government will curtail or end, which taxes they will they raise, how many jobs will have to go, what rate of unemployment is acceptable and so forth. Then tell us how they are going to fund their promises to drop two taxes and provide income-linked parental leave for corporate executives.

  26. GeeWizz

    Can we get Odd’s on Labor Posting a Once-in-23-Year-Budget-Surplus please?

  27. Achmed

    Hockey does sound good when he’s not trying to score cheap political points. While many would like to see Turnbull take over from the Abbott I reckon Hockey could do the job better than either of them.
    Shame he has to work under the dictatorial leadership of Abbott

  28. Hamis Hill

    Private mortgage debt is five times larger than government debt, but is never mentioned because the majority of that private mortgage debt was incurred under Howard policies.
    There is a real need to train the guns on the larger of the problems.
    Otherwise, when the Liberals gain government, the nation will have the local version of the GFC; a few years later certainly, but for the same reason, mindless real-estate speculation.
    The Liberal raison d’etre, as aped by the Labor right.

  29. Bill Hilliger

    Some people say listening to Joe Hockey-nomics = a definition of sovereign risk.

  30. CML

    Very, very good, Bernard! You have nailed all the usual suspects perfectly. Joe as treasurer scares the sh+t out of me, even though my knowledge of economics is limited.
    I just don’t understand why the majority of the Oz electorate thinks the coalition can run the Oz economy better than Labor. Seems like a “no contest” to me.

  31. John Kotsopoulos

    He is a try hard . His speech overseas must have been written by someone else because we have seen none of this bravura talk here. As for reducing spending how does Abbott’s parental leave rort fit in?

  32. John Kotsopoulos

    He is try hard who is way out of his depth. The comments he made overseas were probably written for him

  33. zut alors

    The glove of Treasurer will never befit Hockey’s pudgy paw. Switch him to Shadow Minister for Avuncular and the nation will be safer and better informed.

  34. dooby

    How has their one point plan for getting back into government worked a treat? They aren’t in government. And they haven’t one the 2013 election yet.

  35. Wallace Scott

    That said, I still think the government still needs to work on micro-economic reform urgently and get unions and businesses together, and also work on a plan to encourage new innovations and strategic industries for Australia’s future.

    The economy probably won’t get any worse because enough interest rates have been cut and China and the US economies are picking up. The problem is the AUD is becoming a safe haven and staying elevated which puts a drag on many businesses, restructuring and moving up the chain is necessary.

    If nothing is done and the employment rate keeps bumping along at this level, I can only see a defeat for Labor at the next election. Anymore rate cut will hurt the self-funded retirees and the savers bringing backlash and also attacks from the Oppositions. Rate cut also has diminishing effect on spending as it hits self-funded retirees and people who rely on saving interests, and as more people enter the housing market they will also have to save to pay the mortgage. Rate cut can’t help much in bringing the AUD down either once it looks like a certain haven in a turbulent world, SNB has rate at 0%, but it also has to peg the CHF to the EUR to prevent it from rising.

  36. Recalcitrant.Rick

    But, but, but interest rates will always be lower under a Liberal Government, unless of course their lower under a Labor Government, and then of course it’s a bad thing because …….. errrrr,, has someone got my notes? Really, what a moronic hypocrite!

  37. drmick

    Finally someone mentions the constant down playing of our country and economy by the losers. In a previous time, their comments would be regarded as treason and they would lose their heads. In the current rubbish that pretends to be the “press’, this constant and purposeful dishonesty is regarded as reliable and valuable information and the “true” economic situation. It is supported by the like of BHP who have had to write 15 billion after one particularly bad decision, and the totally discredited “financial wizzes” who couldn’t see the GFC coming, missed it entirely, (including Lumpy Larclacker who claimed it only happened overseas), WTF?
    They are reminiscent of, & directly related to the “press gallery”, who missed the relevance and importance of PM`s speech despite witnessing it. Same mob are now demanding the government not aim for a surplus but will bash them to death if they dare come in one dollar in the red. He definitely casts a big shadow & that’s about it.

  38. Mike Smith

    @Klewso: He’s certainly aping his betters.

  39. klewso

    I like Sloppy Joe – he’s Tarzan in a suit – “Good things world! Bad things Swan (Labor)”.

  40. cairns50

    hockey is an economic illiterate and a buffon to boot, how can he possibly be our shadow treasurer ?JOKE

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