Goodbye to the lucky country

Successive Australian governments have failed to address important economic and social issues, John Hewson argues.

What if our economic growth stalls altogether? Worse still, what if we slip into recession?

These are not farcical questions. Figures released this week recording just 0.2 per cent growth in Gross Domestic Product for the June quarter, and just 2 per cent for the year to June, were extremely weak. Indeed, without a one-off increase in government defence spending, the quarter would have recorded zero growth.

We are almost back to the particularly weak growth recorded in 2009 in the worst of the Global Financial Crisis.

We are now paying the price for years of poor government, under both sides, which has seen broad-based reform essentially cease, and real opportunities to reposition our economy squandered.

We are now paying the price for them having increasingly played short-term, opportunistic, negative politics, rather than developing a longer-term economic strategy that recognises the still-significant global risks and seeks to foster new industries, growth and jobs.

I was genuinely staggered to hear Joe Hockey’s defence that these growth numbers are in line with Budget expectations. Really. His so-called Budget strategy, that foreshadows a return to Budget surplus by 2020, is predicated on a sharp recovery in growth from 2.5 per cent in 2014/15, to 3 per cent in 2015/16, increasing to 3.5 per cent in the next two years.

He has already missed 2014/15 by 20 per cent, and there is virtually nothing in the numbers, or in the Government’s governing, that would suggest growth would do anything else but decline further.

You’d have to ask which rock has Joe been living under, attempting to defend the indefensible, when global financial markets have been in turmoil over the last 10 days. And just, so far, out of concern that Chinese growth may be slowing faster than we had been led to believe, that the United States Federal Reserve could raise interest rates, and that Europe may face continuing problems with the likes of Greece.

Watch what happens when it is finally recognised that Chinese growth is actually closer to 5 per cent than 7 per cent, and the US Federal Reserve does move on rates!

It’s no good just pointing to the fact that we are having to live with the biggest collapse in our terms of trade in 50 years, as if all we could do is sit back and think of Paris, or of the halcyon days when the terms of trade were running the other way, and it seemed as if we could do no wrong.

Indeed, the roots of our current difficulties lie in the Howard/Costello years, where those years of booming revenue were squandered on tax cuts, baby and family bonuses, and the like, essentially leaving a structural Budget deficit, compounded by generally poor fiscal management by Rudd/Gillard/Abbott, even excusing the nature and extent of the emergency response to the GFC.

The bottom line is that we are left in a situation where the Government/Opposition and the policy authorities are captive of their own rhetoric and inactivity. The Government has burned almost all its political capital with no improvement in our Budget position, indeed its getting worse, leaving them with little capacity to stimulate the economy.

Equally the Reserve Bank has little scope to lower interest rates further, and it probably wouldn’t do much to stimulate growth if they did – they too are pretty much shell-shocked in having to recognise that, even with historically low interest rates and our dollar now heading into the 60s to the US dollar, having been as high as $1.10, the private sector hasn’t responded as they had hoped.

There is no alternative to genuine and broad-based reform, right across most policy areas, all that have been left to drift – federation, tax, IR, industry, education and training, health and aged care.

Unfortunately, I can’t see the possibility of that sort of leadership and vision in today’s political game. Get ready for even tougher times and falling living standards, as our national luck runs out.

This piece was also published by the Southern Highland News.