It’s called business “confidence” and it magically jumped right after the election of Prime Minister Tony Abbott on September 7. Right?
The pundits were calling it straight away. NAB chief economist Alan Oster, talking the Monday after, thought business confidence started surging in August, even before the election: “While it is difficult to prove, it is likely that expectations of political change and a decisive result were very important.”
On the same Monday, Bell Potter’s Charlie Aitken called a sharemarket boom immediately: “This is the last five years in the Australian benchmark ASX200. The next five years started today … see you all at 6000 [points] … go Australia.”
The theme has continued with Roy Morgan, which found business confidence hit a record high in October. Research director Nigel Smith said the figures reflected “both business approval for the change in government and a more general improvement in business performance”.
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And former Business Council of Australia president Graham Bradley was at it again on the ABC’s Q&A last night:
“I’d like to think that all Australians would like to see this new government improve and strengthen Australia’s economy … I think the business community has high expectations … I think they’ve made a very good start … [and] shown a lot of interest in consulting with the business community which I think will be very well received and will lift the confidence of the business community and I think of all Australians.”
It is bordering on insistence.
There are, of course, some grounds for rising business confidence. Abbott will cut taxes on business, including the carbon tax and the mining tax. He will slash red and green tape. And yes, he has delivered that stodgiest cliche that Australia is “open for business”. (Has any politician of recent times ever said anything else?)
But regardless of your political views there is also a counter-argument that the Abbott government’s agenda will be detrimental to business and the economy, at least in the short-term. We rarely hear that counter-argument from business leaders or commentators.
Some 12,000 federal public servants are going to lose their jobs as a result of budget cuts, even as Treasurer Joe Hockey goes about increasing the deficit by abolishing the proposed super surcharge for the wealthiest superannuants, and stuffing a questionable $8.8 billion into the Reserve Bank’s coffers.
The National Broadband Network rollout, until now the nation’s largest infrastructure project, is grinding to a halt. The Renewable Energy Target, which after years of hiatus was set to spur billions of dollars’ investment in large-scale wind farms, is under a cloud. Withdrawal of assistance to the car industry could cost thousands more jobs and tip the economies of South Australia and Victoria into recession.
“Imagine the economic impact if Abbott was to cut hard enough to please Newman …”
In the real world, the situation is far less clear. Consumer confidence actually fell in October, although Westpac chief economist Bill Evans pointed out it was still higher than August and partly blamed “an expected retreat following the positive expectations around the election result”.
Last week, Fairfax Media chief Greg Hywood reported there had been no post-election bounce in the economy. Retailers reports have been mixed, with Woolworths similarly reporting no post-election bounce — while David Jones stores were apparently immediately flooded with happy Liberal voters.
Most tellingly, perhaps, last week the Reserve Bank cut growth forecasts for the Australian economy for 2014 and 2015 by half a per cent, reflecting “the substantial fall in mining investment, planned fiscal restraint and the still high level of the Australian dollar”.
That’s before the austerity recommendations pour in from Abbott’s hand-picked advisers like Tony Shepherd, the Business Council president who is conducting the national Commission of Audit, and Maurice Newman, who is heading the Business Advisory Council (still apparently without councillors).
Imagine the economic impact if Abbott was to cut hard enough to please Newman, who gave a hard-line Committee for Economic Development of Australia speech last night, calling for debt to be reined in and wages to be cut, and warning Australia was “facing the prospect of growth with a zero in front of it” and “that will feel like hitting a brick wall”.
Newman was completely partisan: the National Disability Insurance Scheme and so-called “Gonski” education reforms were “reckless” but there was not one word about Abbott’s exorbitantly expensive paid parental leave scheme. The Coalition’s Direct Action policy — which hands out billions of public dollars to polluters — would somehow “relieve pressure on the federal budget”. Newman even complained: “Indeed, already the yield on Australia’s five-year government bonds is the highest of any triple-A sovereign borrower.” Um, might that be because interest rates are near-zero everywhere else?
Would Newman’s prescriptions restore confidence? I doubt it. Even Geoffrey Garrett, dean of the Australian School of Business at the University of New South Wales, has warned in The Australian Financial Review of the risks in adopting Reaganomics: “Convincing the electorate that adding to the deficit through tax cuts that privilege business and the wealthy is a good idea will be hard.”
Make that incredibly hard.