Australia’s economy after eight years of Coalition neglect
A fact check on the Coalition’s economic record
It’s the old refrain: under the Coalition the tax burden on people will always be lighter, interest rates will always be lower, and unemployment will always be lower.
In spite of the Coalition generally enjoying the fortune of governing during strong phases of the business cycle, those claims don’t hold up. Sydney Morning Herald’s Josh Gordon has drawn on ABS data to run them through a fact check, exposing them as fallacies: Does the Coalition always manage the economy better than Labor?.
In fact “the title for the highest-taxing government goes to the Howard government”.
He accepts that interest rates did reach their highest level during the Hawke Government, but the claim that interest rates are “always” lower under Labor doesn’t stand up, for his article shows that interest rates during the Rudd-Gillard years were much lower than they were under the Fraser years, for example.
This being a fact check Gordon doesn’t go into analysis and explanation, but there is no intrinsic virtue in low interest rates anyway. Even before the Covid-19 recession, interest rates were low because the economy was so sluggish, the result of declining productivity after years of Coalition neglect of economic reform. And if on May 21 Labor is elected, and on June 7 the RBA raises interest rates, which is likely to happen whoever is elected, will the Coalition add this to its meaningless claims?
On unemployment Gordon shows that although it is presently low, it has been higher, on average, since the Coalition came to power in 2013 than it was in the preceding Rudd-Gillard years.
He reminds us that there are “plenty of other potentially more important measures of economic success, such as growth in real wages, national income per capita and productivity”. We don’t hear much about these from the Coalition.
Unemployment and jobs: lovely figures but what do they mean?
The ABS Labour Force data showing unemployment at 4.0 percent, could hardly have come at a better time for the Coalition.
That is, if anyone other than politicians, retired economists and journalists maintaining their gotcha question lists, are paying any attention to the figures.
It is easy to throw around labour market figures as an exercise in political spin. Most notably Morrison is pledging that there will be 1.3 million new jobs over the next five years if the Coalition is re-elected.
That is probably true, but for completeness he should add that there will be 1.3 million jobs over the next five years if Labor is elected, because the main driver of employment is population growth.
Paul Karp, writing in The Guardian – Factcheck: did the Coalition create 1.9 million jobs? Will it create 1.3 million more? – goes into those claims, and finds that they have little meaning. He also reminds readers that in 2019 the Coalition made a similar claim to create 1.25 million new jobs over its term, and has fallen a little short – by about 0.60 million.[1]
OK – there was the intervention of a pandemic and an associated abrupt stop in immigration, putting a kybosh on those forecasts (while helping to create a low unemployment rate). But the basic fallacy in the Coalition’s claims in successive election campaigns is that it will create X million jobs over Y years.
Really? Do we live in some centrally-planned economy where the Great Leader directs how many people will be employed in the next Five-Year Plan? Or has Morrison become deluded by his own propaganda? For one who attributes his success to “miracles” it’s strange that he also makes claim to his own omnipotence.
Rather than playing with numbers, it would be helpful for public policy if we were to engage in a serious discussion about how work is changing, and what the ABS should be looking at in coming years. The concepts in labour force data, as used by the ABS, were laid down decades ago, when there were clearer distinctions between capital and labour, and between employers and employees.
A revolution in information technology, a dramatic change in the relative prices of physical capital and intellectual capital, and most recently during the pandemic, opportunities for workers to detach themselves from set workplaces, have all changed that model.
For a while in the 1990s it appeared that almost everyone would become self-employed contractors, commanding good incomes and enjoying the autonomy denied in traditional workplaces. There was serious speculation in business schools and journals about the end of the job. In more recent times, however, we have seen information technology used to achieve the opposite effect, acting as a means to exert close supervision over highly controlled workforces. At the same time self-employment has gone two ways, with some well-paid contractors enjoying its promised benefits while others struggle in the insecure gig economy.
That is the discussion we should engage with in this campaign: how do the competing parties see employment emerging, and how will their policies help shape or hinder that emergence? Morrison’s habit of throwing around meaningless numbers, and the media’s obsession with those numbers, are serious distractions from this important debate.
1. Anyone who wants to check Karp’s figures can go to the ABS website and download the Excel file 6202.0 “Labour force, Australia”, and will find that in February 2022 there were 13.37 million people employed, compared with 12.74 million employed in February 2019, an increase of 0.63 million. That’s 0.62 million short of the Coalition’s 1.25 million claim. That is, if anyone thinks it’s worth the effort. ↩
A social-democrat economic agenda
Anyone who believes the Coalition spin that economic management is simply about managing the fiscal balance and being able to cite statistics, can find a broader idea in the address at the National Press Club by Peter Malinauskas, the newly-elected premier of South Australia.
He starts with a criticism of the Morrison government for not dealing with our current structural economic challenges, challenges that Covid-19 has exposed and exacerbated. In response to these challenges the government has provided no more than “one off short-term relief”. The Coalition’s so-called “plan”, and its claims of economic expertise, completely ignore the need for reform of our economic structure.
He draws on the Harvard Atlas of Economic Complexity to portray Australia’s economic structural weakness. Our prosperity has been based on extraction and export of raw materials, but that’s not where our future should lie.
It’s worth looking at the atlas and comparing Australia with other countries. Malinauskas chooses Germany as a point of comparison, because Germany demonstrates the benefit of an economic structure supporting the production of complex goods and services, well along the value chain. A foundation element of that structure is publicly-supported education and research. (The hyperlink above is set on Australia, from where you can go deeply into Australia’s structure or compare us with other countries.)
Malinauskas lists five of our structural weaknesses:
- As shown on the Harvard index, our industries are engaged only in simple activities, rather than in complex value-added activities – activities that employ skilled labour, and that can command sustained profits while paying high wages.
- As an exporter of simple commodities (gas, coal and iron ore) our economy is insufficiently diversified to deal with external shocks.
- Income from those exports does not easily flow into households. “The link between national income and household income in our nation is too weak”.
- We are too exposed to global supply chains. “We are now importing virtually everything including inflation”.
- The stuff we sell to the rest of the world, particularly coal and gas, is going out of fashion. These commodities have served us well in the past but will not in the future.
The rest of his session is about how to address those weaknesses, particularly through education and skills formation, and welcoming to our country refugees who can help re-build the country. He compares the Australia of today with the Australia that welcomed his refugee grandparents:
They arrived in the Australia of Chifley and the South Australia of Playford in a nation-building era. That period is a golden one in the life of my family and a golden one in the life of our nation. It was a period of recovery and reconstruction, a period of refugee resettlement, of leaders whose vision was bold and generous, of a nation which built, and of people who gave.
Echoes in the garden
That spirit has given way to mediocrity, fear and complacency, but quoting T S Eliot he finds that “echoes inhabit the garden”, referring to the nearby statue of Curtin and Chifley, the people who, after the stress and sacrifice of the Pacific War, guided our nation to reconstruction. That same spirit should underpin our emergence from the pandemic.
His address is only 35 minutes, but it’s revealing to listen to the media’s reaction. From the tone of their questioning – mostly hostile – it’s clear that most of the journalists present are incapable of engaging with serious questions about economic structure. It’s so much easier to stick to gotcha questions, and to go along with the Coalition’s spin about their obvious economic competence.
Also the journalists appear to be gobsmacked by Malinauskas’ politeness, when he praises former Liberal Premier Tom Playford, acknowledges the work of his Liberal predecessor Steven Marshall, and talks about his cooperation with New South Wales Premier Dominic Perottet. The press gallery seems to have absorbed Morrison’s idea that politics, rather than a contest about ideas to serve the public purpose, is a gladiatorial combat not bounded by any moral restraints, where the objective is to destroy one’s rivals through ad hominem attacks and gaslighting their supporters.
Can we have an election about us, rather than you, me, or Scott Morrison?
Morrison has called for the election to be about “you” rather than about “Scott Morrison”.
Writing in The Conversation Frank Bongiorno identifies the appeal to selfishness in an election about “you” or “me”. Instead he urges Labor to tell The story of ‘us’: there’s a great tale Labor could tell about how it would govern – it just needs to start telling it.
He suggests a theme similar to that presented by South Australian Premier Peter Malinauskas (see the previous entry). We should see the story of the way we came through the hardship and sacrifices of the pandemic as a grand collective achievement, “an indication of what government and people can do together in the uncertain times we face”.
That would be “a message about collective endeavour consistent with traditional Labor values. It is consistent, too, with Australia’s long history of democracy”, he writes.
The most important election issues – as seen by economists
What do 50 top independent economists, assembled by the Economic Society of Australia, consider to be the most important issue for the incoming government?
The contending party leaders’ knowledge of the precise level of unemployment and the Reserve Bank’s cash rate?
That seems to have excited journalists whose economic understanding is so weak that they rely on gotchas, and has Scott Morrison worked up, but unsurprisingly it’s not on economists’ minds.
Fiscal indicators – the budget’s cash balance and the size of government debt?
Not really. These are simply bookkeeping entries that make little sense in themselves unless economists can see the other side of the public balance sheet to work out whether the government is borrowing to invest or to finance recurrent expenditure.
In fact three-quarters of them nominate “climate and environment” as their top concern, as reported by Peter Martin writing in The Conversation: One issue matters more to top economists than any other this election: climate change.
The next important issues are “housing availability and affordability”, “health”, “tax reform”, and “education” – all issues where the Morrison government has clearly fallen short.
Yet the media, including most ABC journalists, seem to accept uncritically the idea that the Coalition is better at economic management than Labor, and never question or criticize Morrison when he says his government has “a plan”.
The charitable explanation is that most journalists don’t understand economics. They fail to grasp the economic importance of dealing with climate change, ensuring that housing is affordable, keeping the population in good health, investing in education, and collecting enough public revenue to pay for these vital economic services.
The less charitable explanation is partisanship, particularly in the commercial media. In the ABC it’s more about their failure to bring out their best economic journalists to question Coalition ministers.
In the same article several economists mention the need to raise taxes. Saul Eslake is quoted as saying that “in an ideal world both sides of politics should be having an intelligent conversation about the least damaging ways of raising the extra one to two percentage points of GDP in tax revenue that will be needed to fund priorities, including aged care and the national disability insurance scheme”.
But the Coalition has a fetish about holding Commonwealth taxes to 23.9 percent of GDP, resulting in Australia having almost the lowest taxes and the most emaciated public sector of all “developed” countries. Labor, badly burned by its experience in 2019, dares not even mention the possibility of asking Australians to pay more for public services.
It's still about productivity, but where is productivity in Morrison’s “plan”?
On the ABC’s Breakfast program, Patricia Karvelas interviews Andrew McKellar from the Australian Chamber of Commerce and Industry on what he thinks should be the election priorities: Business Chamber calls for real economic debate.
He says that neither party has really taken on the need for basic structural reform as a means to lift productivity. (That’s a little partisan, because there is more economic substance in Labor’s platform than in the Coalition’s vacuous “plan”, but his point about the absence of a strong reform agenda is valid.)
When asked why there are no bold proposals in the current election offerings, he points to the destructive force of fear campaigns, which have stymied any chance of a party putting forward proposals for economic re-structuring. (Again, he is ostensibly non-partisan, but while both main parties have used fear as an election tactic, the masters of fear as a destructive tactic have been John Howard, Tony Abbott, and Scott Morrison, all following and amplifying their predecessor’s example.) (10 minutes)
Inflation will persist long after we have spent that $250 and filled up our car
Only the most naïve believer in the Coalition’s economic integrity would see its budget as anything more than a measure to get Morrison and his cronies re-elected.
Their strategy draws on behavioural economics, which suggests that temporary handouts will be well-received by the electorate, particularly that large proportion of people who live financially from day-to-day or pay-to-pay. The $250 handout, due to start on April 28, and a small saving at the pump, will help people feel they are coping financially. It’s not as if people will feel a rush of affection for the Coalition when they see the $250 in their accounts — Australians are healthily cynical about political bribes. But for a week or two, corresponding to the election period, many people will feel a little more in control of their finances and less aware that their wages are not keeping up with inflation.
The Coalition’s rationalization for this approach is that inflation is just a short-term phenomenon.
The IMF has a paper The future of inflation Part 1, listing five drivers of the inflation we are now experiencing. They are supply chain bottlenecks, a shift in demand toward goods and away from services, the remaining fiscal and monetary pandemic stimulus, a shock to labour supply, and Russia’s invasion of Ukraine.
Only some of these may be transient, while others are more likely to be long-term structural shifts.
The central question in the paper is whether central banks and governments have become more tolerant of inflation. They trace the history of central banks’ objective to prioritize the containment of inflation, noting that Australia was one of the early movers. The authors are inconclusive (the IMF avoids being too categorical), but a careful reading leads one to conclude that relatively easy monetary policy and therefore high inflation will be with us for some time.