In question time yesterday, the Prime Minister and his Treasurer (for now) Joe Hockey were keen to put a positive spin on their economic achievement. One Dorothy Dixer to Hockey referred to the “green shoots in the Australian economy”. In response to another Dixer, Abbott told the House:
“I accept that there are economic headwinds overseas, but the Australian economy is stronger today than it was 18 months ago … Our economy is stronger today than it was 18 months ago, and I am particularly pleased to say that the jobs market has strengthened. Our economy today is growing at an annual rate of 2.7%, and this time last year, under the stewardship of members opposite, it had been growing at only 1.9% … This is what happens when you have a government that is open for business and is always looking for ways to say yes to new proposals to invest, employ, create and deliver prosperity for the Australian people.”
The Reserve Bank disagrees, as demonstrated by its actions last week. If the Prime Minister’s claims were true, and if we were seeing “green shoots”, then there’d be no talk of further rate cuts — instead, markets would be looking at the chances of a rate rise — which won’t happen for the next year at least, and probably 18 months at the earliest, judging by the tone of the commentary from the central bank last week.
And the actual figures from the Australian Bureau of Statistics and the Reserve Bank’s comments last week and especially its first Statement of Monetary Policy for the year give the lie to Abbott’s claims about jobs. Around 200,000 jobs were created in 2014. But from September, 2013, when his government was elected (the 18 months he refers to in his answer), the unemployment rate had risen from 5.7% on a trend basis to 6.2% in December (January’s figures are out Thursday). The number of people unemployed is up 64,000 to 771,000 people from 706,400, while the number of employed is 11.646 million in December 2014, down 1,000 from September 2013.
And this is what the RBA said about employment and the strength of the jobs market looking forward:
“While employment growth picked up a bit over the past year, a number of indicators suggest that spare capacity in the labour market has increased, consistent with below-trend growth in the economy. The labour market forecasts have been revised to be a little weaker than in the previous Statement, owing to the softer outlook for activity in the near term. The unemployment rate is now expected to rise a little further and peak a little later than earlier anticipated, although there is a degree of uncertainty around this forecast. This is in line with forward-looking indicators of labour demand, which suggest only modest employment growth in the near term, below the rate of growth in the working-age population. The unemployment rate is expected to decline towards the latter part of the forecast period, once growth picks up to an above- trend pace.”
On economic growth, Abbott’s claims about how growth now is stronger than 18 months ago is also mixed. Economic growth was running at 0.5% on a trend basis (2.7% annual) in the September, 2014 quarter, compared with a revised 0.6% in the September 2013 quarter, and an annual rate of 1.9%. But the RBA sees growth slowing in coming quarters.
” … over recent months there have been fewer indications of a near-term strengthening in growth than previous forecasts would have implied. Hence, growth overall is now forecast to remain at a below- trend pace somewhat longer than had earlier been expected. Accordingly, the economy is expected to be operating with a degree of spare capacity for some time yet, and domestic cost pressures are likely to remain subdued and inflation well contained …”
The only thing Abbott and Hockey have to boast about on growth was the strong December 2013 and March 2014 quarters — both 0.8% in trend terms — before the 2014 budget slammed on the brakes, despite actually maintaining a strongly stimulatory fiscal stance (seriously, it takes real ineptitude to keep pumping money into an economy and yet slash growth). In simple terms, if Abbott were in any way correct in his assessment of the economy yesterday, the RBA wouldn’t have cut rates last week and markets wouldn’t be looking for more rate cuts.
Now, sure, all prime ministers and treasurers gild the lily, overstate their achievements, denigrate their opponents’ and engage in the standard rhetoric that we expect from politicians. But the central problem of Tony Abbott’s prime ministership — and Joe Hockey’s main problem as treasurer — is the lack of trust voters now have in them to competently run the country. Perhaps Abbott and Hockey could take a dose of truth serum and start being upfront with voters. They might get a shock — and voters might start listening to them.