Australia’s June quarter growth figures mask an urgent need for budget repair. Australia’s political leaders need to move past their petty bickering and look at structural reform, or else risk economic stagnation, John Hewson writes.
Although the overall annual growth number for the June quarter, released last week, of 3.3 per cent was the strongest in about four years, Treasurer Scott Morrison wasn’t crowing about it. The figure masked a weakening economy, where the mix of growth was disappointing, and potentially challenging.
The quarterly growth rate halved to just 0.5 per cent, with the government’s contribution via both recurrent and capital spending totaling almost twice this amount, offset by still-weak business investment and imports. Household spending remained subdued and there was a buildup in inventories.
This is not a good look when there is an urgent need for “Budget repair”. We should be seeing a cutback in the government’s contribution to growth at a time when the private sector is weak, and probably still weakening.
The magnitude, urgency and difficulty of this challenge should not be underestimated, especially against the backdrop of global economic weakness and risks, but there is absolutely no evidence that our politicians are actually prepared to recognise and address this.
Both major parties are still very much in election mode, obsessed with scoring short-term, opportunistic political points against each other. They are prepared neither to acknowledge their poor standing in the eyes of the electorate, confirmed at the last election with the largest all-time vote for minor parties and independents, nor recognise the desire of the electorate for good government.
The Reserve Bank’s capacity to stimulate growth is now effectively exhausted with the cash rate at an historic low of 1.5 per cent, and there is evidence that low interest rates haven’t stimulated much economic activity beyond housing, certainly not in business investment, nor in mining and manufacturing. With the government’s role to be reduced as the budget is repaired, the risk is that our economy will stall.
The key to future growth is in broad-based structural reform, across most areas of public policy – education and training, health and aged care, industrial relations, federation, tax and transfers, science and innovation, and infrastructure, just to mention the most significant.
This will be a relatively slow process, necessitating fairly careful planning, and focused and consistent implementation of policies, probably over the course of several governments.
Yet, the political games that are being played eschew any serious policy development, or debate. Indeed, the negativity is so pronounced and destructive that if one side proposes a new policy option, the other side rules it out almost immediately, ending any discussion, debate, or possible negotiation.
In addition, with the Turnbull Government’s precarious one-seat majority in the lower house, and a potentially hostile Senate where the Government will need the support of nine of the 11 cross benchers if Labor and the Greens combine in opposition, we have a prescription that risks economic turmoil and stagnation.
The clear message of the last election was that the electorate wants to see leadership, policy outcomes, and much better and constructive government.
Not much can happen unless the two major parties combine to deliver the bi-partisanship that is essential to a genuine and sustainable reform agenda.
While this is unlikely, a game changer could be Turnbull clearly establishing his authority over his party and the parliament, and seeking to step above the daily politics and media contest. He could focus on leading medium-term policy development and implementation, and challenge Shorten to join him.
The alternative – stagnating growth and declining living standards – is not worth contemplating.
This piece was also published by the Southern Highland News.