Tony Abbott, Joe Hockey face fiscal scrutiny
At its peak the mining sector employed less than 2 per cent of the workforce,
As political commentators assess the Abbott government's
economic performance after a year in office, they should keep in mind
that only the statistics that roll in from now on are relevant.
This is not just because of the usual time lags for an impact
following a policy action, but also because of the Abbott government's
Tony Abbott was elected in September last year in part
because of the fear of a debt and deficit "crisis" he and his Coalition
frontbench whipped up.
But despite the "crisis" talk, in the months after being
sworn in, he and his Treasurer, Joe Hockey, took no action. There was no
mini-budget; there was no dramatic cut in expenditure; there was no
increase in taxes. Nothing.
The government simply ambled along. Christmas came and went
and it was not until the normal budget month of May this year that we
saw the government plan to tackle the "crisis". By then, even those who
had been panicked into voting Liberal because of the economic situation
must have realised that it was all a ruse.
There were, of course, major tax changes flagged from the
moment the government was elected, but the Carbon Tax was not repealed
until July 17 this year and the Minerals Resources Rent Tax repeal bill
did not get royal assent until September 5.
Getting rid of these taxes does nothing to tackle the
supposed debt and deficit problem. The opposite is the case. The repeals
cut revenue and therefore increase the size of the deficit.
Only the removal of the associated expenditure measures would
have a positive impact on the deficit and their removal has proved more
difficult to negotiate.
To see why future statistics will be the true measure of
government performance, we must look at the period covered by the latest
The National Accounts released on September 3 cover the June
quarter of 2014. Even measures that took effect at the moment Hockey
delivered his budget speech on May 13 would have an imperceptible impact
on the growth figures in these accounts.
Hockey might welcome the figures and say they were a "pleasing set of numbers" but they had little or nothing to do with him.
Similarly, the labour force figures released last week are
for the month of August, too early to take account of any impact arising
from the repeal of the Carbon and Mining taxes.
The impact of other economic policy decisions has yet to be
felt. The Abbott government decided last year not to support the
automotive industry and appears to have accepted the purist economist's
model that it doesn't matter if Australia has a manufacturing industry.
Toyota will stop making cars in Australia in 2017 and Ford
and Holden will stop local assembly in 2016. Alcoa has just stopped
production at Point Henry near Geelong.
As the purist theoreticians would have it, the children of
the future can all work in the service industries as cleaners in hotels,
waiters in restaurants, carers in the health sector and advisers on
finance. Some may even find increasing opportunity in the "new hope"
Lest you think I've forgotten mining and agriculture, keep in
mind that at its peak, the mining sector employed less than 2 per cent
of the workforce, and agriculture, forestry and fishing employs about 3
The decision not to support the automotive industry will have its main impact in Victoria and South Australia.
South Australia will also be the main loser if the government
chooses to buy Japanese submarines to replace the Collins class fleet.
The government has a comfortable 30-seat majority and has few
close marginal seats in these two states. Even if they were to lose
Hindmarsh, Deakin, Corangamite and La Trobe, Abbott and Hockey might
well consider it a political price worth paying for the dollar savings
from not supporting Australian manufacturing.
But in this process, the Australian economy becomes more
unbalanced. All the cars on our roads and probably all the components
that go into making cars will soon be imported. As a nation, we will
need to balance this trade with exports of raw materials such as coal,
iron ore and gas and agricultural products.
While we have received high prices for raw materials in
recent years, the long-run trend is downward. We would be foolish to
become even more dependent on selling commodities.
The conventional response that our tradeable services will
compete successfully on the world stage, significantly adding to our
export income and keeping large numbers of our population employed, is
laughable. If we can sell architecture services via the net, so can
lower paid Indians.
The currently much vaunted sale of education services is in
reality an immigration marketing program, where many students study here
in the hope that they can win the right to live and work here. Chinese
university standards are rising, while the leading United States
universities are developing new ways of selling their most attractive
qualifications, ensuring that in the long term, Australian institutions
will find it harder to compete.
Since 1991, Australia has had the longest continuous run of
economic growth in its history. Despite its commitment to return to a
budget surplus, the government will not be so ideological as to risk
bringing this run to an end.
Equally, it will not want to see unemployment rise. A blip in
the July figures saw our unemployment rate creep above that in the
United States for the first time in years. The government must have been
relieved last Thursday to see the August rate fall back to 6.1 per
cent. But at present, the only policy it has to tackle unemployment is
lowering wage rates by, for example, getting rid of penalty rates and
introducing low junior wages.
That is unlikely to be an election-winning policy.