Despite racking up 23 straight years of economic growth, Australia is, according to a slew of articles from The Financial Review lately, on the verge of another economic crisis. The “crisis” is equal parts fiscal “emergency”, falling national income, the falling iron ore price, the dearth of industrial relations reform and the “uncertainty” caused by the failure of the non-government parties to pass the budget (something we’ve opined about recently). Today alone, the Fin has such luminaries from the Right as Peter Reith, Warwick McKibbin, and Jennifer Westacott offering sage advice.

The views of Westacott on the Renewable Energy Target make for amusing reading. The one thing we’re told business doesn’t like beyond everything else is uncertainty — uncertainty for consumers, but particularly uncertainty for investment. You’d think the government’s surprise attack on the RET would have Westacott up in arms about certainty. But no, you see, Westacott wants Labor to roll over on changes to the RET, in order to end the uncertainty and “guarantee a moderate amount of future investment” (there’s the Business Council with its new central planning hat on, determining what’s “moderate”). In other words, only Labor produces business uncertainty — when the Coalition changes the rules and undermines investment in a flagrant example of sovereign risk, it’s actually Labor’s fault if it doesn’t agree to whatever the Coalition wants.

McKibbin was somewhat better than that, but it was fascinating to see him dismiss calls for “the Reserve Bank to bring down the value of the Australian dollar” given two years ago he was one of the chief spruikers, calling for the Reserve Bank of Australia to intervene against the parity-plus dollar. And Peter Reith was helpfully declaring a recession “inevitable”. But the prize for economic bozo falls not to any of those three, but to chairman of failed miner Western Desert, former Coles Myer chief and business eminence grise Rick Allert, who said “nobody can anticipate a fall in the iron ore price from $US136 a tonne when we opened the mine in December to $US84 a tonne”. Actually Rick, commodity prices go down as well as up, you may be surprised to know — and predictions about falling iron ore prices have been a dime a dozen for years, including this one in the Fin itself a couple of years ago.

The problem is these claims of “crisis” are mostly a mixture of ideology and barrow-pushing by special interests, particularly the business lobby, which is eternally claiming that some sort of crisis is looming that requires tax cuts for business, deregulation and a return to WorkChoices. In a key speech in Adelaide last week just after the national accounts were released, RBA governor Glenn Stevens put up a graph he had last used two years ago, showing the relative economic performance of Australia, New Zealand, Canada, the eurozone, US, UK and Japan since 2005.

The GDP numbers, Stevens predicted, would be the subject “of breathless analysis of these data and intense speculation about what they mean”. But the graph showed Australia’s consistent performance in a broader context. This “breathless analysis” comes from the same people who, at various times over the past nine years, have forecast doom and gloom, recession, crunch, financial crisis, housing bust and every other form of economic crisis — none of which have come to fruition. The economy has continued to grow, and well above the zero to 0.5% levels set in the US, Europe, the UK, Japan and Canada.

These purveyors of crisis porn have, or pretend to have, no memory of what they’ve said or have written previously, or they conveniently ignore changing circumstances, such as the improvement in productivity and the fall in real wages and how these two developments are a boon for our ever-complaining business leaders.

Worse, they’re a distraction from the real economic challenges that policymakers, not just at the federal but at the state and even local levels, should be dealing with:

The budget — Yes, there’s a fiscal challenge but it’s a medium-long term one — something recognised by Treasurer Joe Hockey when he declined to try to rush back to surplus in his first budget and increased the deficit he inherited from Labor. Both the federal and state government sectors are struggling with persistently underperforming revenue at a time when they should be girding their loins for the long-term fiscal impact of an ageing population. As Reith recognised in his comments today, the federal government has made its own predicament worse by extending absurdly generous superannuation tax concessions that cost the budget tens of billions of dollars in lost revenue.

The end of mining investment boom — The long-forecast end of the boom —  a staple of doom-and-gloom commentary for a decade — is finally here, but policymakers, especially in the Reserve Bank, have been dealing with it for two years now. Yes, the falling iron ore price that will reduce the upside we get from mining investment — we’ve had the downside of lower corporate tax revenue, pressure on certain labour market sectors and a higher dollar for years. But so far, the transition — driven chiefly by low interest rates and a restrictive fiscal policy, especially in 2012-13, from Wayne Swan — has been successful.

Productivity — Yes, there is a productivity challenge for Australia. However, it’s not in labour productivity but in multi-factor productivity. And that reflects on the quality of Australian management and boards, which as Glenn Stevens and his deputy Phil Lowe recently observed, need to be more innovative and risk-taking, to display those “animal spirits” that policymakers themselves can’t provide.

Property and housing — With the RBA trying to use interest rates to stimulate one of the key sources of Australian economic growth, housing construction, the problems of our housing policies are again becoming evident, with price growth in Sydney and Melbourne held to be bordering on unsustainable and undermining the case for even lower interest rates. But the strength of price growth in key urban centres, and especially Sydney, is a product of our incoherent and counter-productive approach to property, with policies like negative gearing incentivising investment in existing stock while new stock is constrained by a lack of land release, absurdly NIMBYish property development approval processes and the high cost of infrastructure. This also leads to young people being priced out of the housing market, although at the moment we’re trying to blame the Chinese for that, rather than ourselves.

The banking cartel — Australia’s financial sector, the cardiovascular system of the economy, managed to survive the financial crisis, but its key players emerged as even more rapacious and cartel-like than before. The dominance of the big banks in the retail wealth management sector means, as the RBA and the Murray Inquiry have made clear, we’re paying far too much for financial services and financial advice, a cost that has huge long-term consequences in terms of retirement income, not to mention the massive loss of public trust that now characterises financial planning.

Decarbonisation — At some point, we’ll have to accept the reality that we need a less emissions-intensive economy. For the moment, however, we have a government that apparently wants to increase our emissions. We’re merely delaying, and increasing the cost of, a problem we can’t hide from, and with which we were dealing effectively until recently.

Fixing some of these problems — like financial services and superannuation tax concessions — is well within the control of the government. Others, like housing policy and fixing the budget, are controllable but will entail great political risk. And some, like the performance of Australian business management, are beyond the direct influence of the government. But taken together, it’s a challenge that competent, intelligent policymakers, running a successful, open, high-skilled economy on the doorstep of the world’s fastest growing region, should be able to handle.

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Peter Fray
Peter Fray
Editor-in-chief of Crikey
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