You don’t have an early election if you think the next year is going to be better – you do it because you fear your star will fade.
The dogs have been barking that Scott Morrison will take his COVID-gifted high personal approval rating to a spring election, seven months short of a three-year term.
Mr Morrison has said he is a “full-termer”, but that doesn’t actually mean anything, especially if the numbers are telling him to go early.
And the economic numbers are saying a spring election is indeed the go while the glow of a better-than-expected bounce back lasts and before electors discover that the economy is not returning to what had become “normal” any time soon and remember that “normal” wasn’t much chop for most folks anyway.
Treasurer Frydenberg on Sunday was putting great store in a spending boom that he hopes will follow the surge in household and business savings.
“We’ve seen that around $200 billion-plus has been accumulated on household balance sheets and business balance sheets,” he said on the ABC’s Insiders.
“So that money is to be spent, but also, the Morrison government’s JobMaker program, which is the hiring credit, infrastructure spending that we brought forward, tax investment incentives.”
Households and businesses saved partly because they didn’t have as much opportunity to spend during lockdowns, but also because they were understandably cautious – they were battening down the hatches.
Some of that pent-up demand has already been reflected in strong profits for the right sort of retailers, but it would be a very optimistic Treasurer who thinks that a couple of hundred billion is going to gush out of wallets and purses over the next 18 months.
Those households capable of strengthening their balance sheets are unlikely to splurge when they realise unemployment is staying above 6 per cent and real take-home pay is going backwards.
And businesses will only make use of the JobMaker subsidy and immediate investment write-offs if they see sustainably increased demand.
Non-resources investment was sick before COVID, failing to respond to multiple Reserve Bank interest rate cuts and smaller-scale government tax incentives. There is no reason to think that will change while unemployment is decidedly higher and we don’t have strong immigration topping up per capita growth.
At the National Press Club on Monday, Prime Minister Morrison was pushing the same line as his Treasurer – all that money the government pushed out the door in 2020 would come home to bountifully roost and Treasury could ease off the stimulus.
Which is the nice way of saying the federal government’s fiscal policy will become a drag on the economy in the next financial year while monetary policy is already at its limit.
The Treasurer and Prime Minister are back to talking about good ol’ “debt and deficit”.
“Every dollar we’ve been spending through this crisis has been a borrowed dollar,” Mr Frydenberg intoned.
“You can’t run the Australian economy on taxpayers’ money forever,” Mr Morrison warned.
Which is true enough – unless you’re a hard-core MMT believer (Modern Monetary Theory, or Magic Money Tree, depending on your faith).
But a government can also reduce spending too quickly, particularly if that spending had been less-than-ideally targeted.
There’s a word for that commonly understood in and out of economics – “austerity”.
Treasurer Frydenberg might not have read the latest edition of The Economist before his Sunday appearance, not that it would have made any difference to the party line.
The magazine, no hotbed of socialism, carried a timely warning about premature austerity:
“Fiscal consolidation would be welcome if it reflected the strength of the economic revival. But although many countries will grow quickly this year, their recoveries will not be complete.”
The article helpfully spells out what most people miss about fiscal policy:
“The arithmetic of deficits and growth is daunting. Suppose a country ran a deficit of $1 trillion in 2020 and repeated the trick this year. How much would this yawning fiscal gap add to economic growth in 2021? The answer is zero, all else equal.
“To contribute to growth, the deficit cannot just be big. It must be bigger than it was the year before.
“Few governments will meet that hurdle. Of the 21 economies featured in the IMF’s forecasts, only five will spill more red ink this year than last. The rest will endure some kind of fiscal tightening.”
On what is being promised by the Morrison/Frydenberg government, that means Australia.
Some of the outworking of that was on display in the latest forecasts from The Conversation’s panel of economists.
Yes, 2020 turned out much better than feared and employment growth has been better than expected, but their average guess was still for unemployment to be 6.6 per cent at the end of this year and 6.1 per cent at the end of next year, up from 5.1 per cent at the end of 2019.
The Reserve Bank belatedly admitted in 2019 that unemployment might have to fall to 4-point-something to spark healthy wages growth and a desirable level of inflation – so at 6-point-something, you can guess what hope there is of real take-home wages not going backwards in 2022, especially when it is government policy to suppress wages and increase income tax for most workers when the Low And Middle Income Tax Offset expires this financial year.
No, Messrs Morrison and Frydenberg aren’t talking about that this week.
What the Treasurer did say was that “consumer and business confidence are back to a pre-pandemic level”.
He didn’t add that whatever the confidence surveys were saying before COVID hit, consumers and businesses weren’t buying or investing at an adequate level.
We do have a surge of asset price inflation though – the natural effect of almost-free money being pumped out by the RBA and a major driver of worsening wealth inequality.
Mr Frydenberg ducked a question about inequality on Sunday, trotting out a few of the usual cliches, along with a red herring.
“The best way to deal with inequality is to get people into work, and disposable income, particularly for the lower income workers, has increased,” he said.
Never mind unemployment staying above 6 per cent for a couple of years, the disposable income of those on low incomes increased because of temporary government support that is about to be withdrawn. There goes dealing with inequality.
The temporary surge in spending from those who haven’t spare money to save is about to be reduced.
The sense of relief that Australia has fared so comparatively well during the pandemic is great – but it, too, will pass, as will the confidence of the nation being largely vaccinated.
Yes, if I was Scott Morrison, I’d be calling an election as soon as possible.
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