The economic risks for Australia have worsened just as this government’s obsession with its Canberra-based Voice reached a crescendo. Prolonged high inflation, sustained high interest rates, collapsing economic growth and an unprecedented free fall in labour productivity are all now with us for the foreseeable future. These developments are enemies of the aspirational Australia which has long underwritten our success, prosperity and sense of hope.
We need a government that addresses these risks head-on rather than worsening them or ignoring them.
Prices have risen by 7.9% in the last 15 months and there is very little prospect of reversal. The government and the Reserve Bank both expect further above-target price increases with inflation only returning to target in late 2025 on current forecasts. That would mean total price increases of 16.7% over almost four years and no price reductions from there.
Under Labor, the era of low interest rates is over. The 10-year bond rate is hovering around 4.5%, well above the RBA cash rate and well above the terminal rate of 3.35% assumed in Labor’s first Budget.
The economy is being propped up by record population growth with GDP per capita falling for two consecutive quarters. Real wages for Australians have fallen by as much as 4.4% in Labor’s first year meaning nominal wage growth has been swamped by rising prices. At the same time growth and outcomes for working Australians are falling, labour productivity has dropped off a cliff delivering the worst outcome in recorded history.
All of this adds up to dark economic times for most Australians but particularly for mortgaged households which are drowning in increased payments and rising costs of almost all essentials – electricity, gas, insurance, childcare, groceries and now fuel along with sharp increases in tax payments. Hope is fading for many Australians seeking to pay down their mortgages or simply taking out a mortgage to buy their piece of this great nation.
Australians are stoic under pressure, responding by taking on extra work hours where they can, digging into savings and cutting back on any discretionary spending. But none of this is sustainable.
Alleviating these dire circumstances should be the obsession of the government. We know from past episodes like this there is no point focusing on symptoms. The government must deal with the source of the problem.
Despite the grim prognosis, these challenges can be overcome with the right agenda.
First, avoid waste and unnecessary spending to take pressure off the Reserve Bank, interest rates and inflation. History tells us bouts of high interest rates and inflation are rarely solved by Central Banks alone. High commodity prices papering over the cracks of a big spending government won’t cut it – Labor has spent an extra $188 billion or more than $7,000 for every Australian since coming to government.
Nor is raising taxes the way forward. Higher taxes on incomes, franking credits and superannuation will only curb the growth necessary for sustainable medium-term budgets.
Second, free up workplaces rather than stifling them with new regulation. You couldn’t pick a worse time to make industrial relations interventions that undermine the ability for worker and employer to come up with solutions that are good for both. Allowing workers and employers to come up with smart ways to increase incomes for both businesses and employees is a time-honoured means of driving productivity and growth.
Third, encourage competition and productivity in markets for goods and services rather than falling for the siren call of crony capitalism. Labor’s willingness to work with politically aligned bosses to shut out competitors is the very worst of the old-style corporatist big union, big business and big government triumvirate that will steal from the wallets of hard-working aspirational Australians.
Fourth, get rid of unnecessary and unworkable regulation. Project after project is now stuck in the mire of Labor’s approval processes. Whether it is mines, manufacturing or houses, businesses need to have the certainty of approvals processes that are predictable and timely.
Finally, take measures to ensure the Reserve Bank is credible, capable and independent but don’t destabilise it. The Treasurer has been redefining unemployment with a view to treating inflation as a ‘technical assumption’. Rising prices have not been a technical assumption to aspirational Australians. If he is happy to increase employment at the expense of accelerating inflation, he should say so. But I doubt most Australians are up for that trade off with the obvious exception of some union officials.
Reserve Bank reforms should not be an opportunity to throw out the current board and appoint Labor’s union mates. The government’s first two RBA appointments didn’t follow the recommended process and the stakes go up from here. Politicised appointments are the last thing we need at a time like this.
