Scott Morrison’s problem is that he gets politics – and is good at it – but doesn’t get economics.
The Prime Minister doesn’t get that if he keeps playing politics while doing nothing to stop the economy sliding into recession, nothing will save him from the voters’ wrath.
Neither he nor Josh Frydenberg seem to get that if we endure another year of very weak growth before they pop up next September boasting about their fabulous budget surplus, no one will be cheering.
How could a second financial year of weak growth possibly leave the budget with a big surplus? Because of the miracle of continuing bracket creep and iron ore prices kept high by BHP’s dam disaster in Brazil.
If there was any doubt about the likelihood of continuing weakness in our economy – independent of any adverse shock from abroad – it was swept away last week. The International Monetary Fund forecast real growth in Australia's gross domestic product of just 1.7 per cent this calendar year, improving only to 2.3 per cent next year.
So the IMF isn’t buying even Reserve Bank governor Philip Lowe’s “gentle turning point”, much less the efforts of Treasury’s seemingly unsackable Italian forecaster, Dr Rosie Scenario.
Frydenberg’s response has been that giving top priority to achieving a budget surplus isn’t just “a vanity exercise” because “a strong budget position helps build the resilience of the economy for external shocks, whenever that may occur, and your ability to respond to those stocks with a fiscal response”.
Translation: we can’t afford to spend money staving off recession because we’ll need to spend that money once we are in recession. The absurdity of this argument that a stitch in time doesn’t save nine has been hidden by his unstated assumption that, since the domestic economy's going fine, it’s only some shock from abroad that could lay us low.
Remember all the hand-wringing about quarter after quarter of weak growth in real wages, made even weaker – as Lowe has reminded us – by exceptionally strong growth in income tax collections? It’s imaginary, apparently.
Weak consumer spending, weak growth in business investment spending, contracting home-building? More imagining.
Oh yes, employment’s still growing surprisingly strongly. “See, I told you everything’s fine.” These guys are in denial.
Frydenberg’s argument about the need to “reload the fiscal canon” ready for the next downturn makes perfect sense - provided you’re paying back public debt at a time when the economy’s growing strongly and, if anything, could use a bit of slowing to ensure inflation doesn’t get away.
That's not us, unfortunately.
The IMF says “monetary policy [changing interest rates] cannot be the only game in town. It should be coupled with fiscal [budgetary] support where fiscal space is available, and policy is not already too expansionary”.
Far from being too expansionary, our fiscal policy is contractionary (which is why the budget balance is improving even as the economy slows).
And throughout the time that both sides of politics have been so worried about “debt and deficit”, the IMF has kept telling us not to worry because we have loads of “fiscal space” – that is, our level of public debt is way below the point where we should become concerned.
My bet is Morrison and Frydenberg will eventually panic and take stimulatory measures (probably a lot of them), but they’ll come too late in the piece to stop confidence unravelling, with punters tightening their belts as businesses lay off staff.
But not yet. Frydenberg has let it be known the government will try to boost business investment by introducing a special investment allowance – but not until the budget next May.
Even so, Finance Minister Mathias Cormann has let it be known that they’re thinking about turning the December midyear budget update into a mini budget if it soon becomes apparent the present tax and interest-rate cuts haven’t made much difference.
But even when that bullet is bitten, Morrison’s effectiveness as an economic manager will still be inhibited by his various political hang-ups. For instance, neither he nor his Treasurer can bring themselves even to utter the offensive S-word – stimulus.
And his determination never to be seen helping the poor (whom those in the party’s base know to be utterly undeserving) stops him taking two stimulatory measures that are simple, quick-acting and highly effective, while yielding lasting benefits.
The first is simply increasing the Newstart allowance.
The other is a proposal worked up by Dr Peter Davidson for the Australian Council of Social Service for the feds to invest $7 billion over three years building 20,000 social housing dwellings. This would not only boost growth and jobs in the becalmed housing industry, but also reduce homelessness.
Sorry, makes too much sense.
