Interest rate cuts may not do much to counter slowdown

This won’t be the only cut in interest rates we see in coming months – which may be good news for people with mortgages, but it’s a bad sign for the economy in which we live and work. The Reserve Bank is cutting rates because the economy’s growth has slowed sharply, with weak consumer spending and early signs that unemployment is rising. In such circumstances, cutting interest rates to encourage greater borrowing and spending...

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How to dud manufacturing: be the world’s biggest gas exporter

Did you know Australia has now overtaken Qatar to be the largest exporter of natural gas in the world? But, thanks to private profiteering and government bungling, this seeming triumph comes at the risk of further diminishing manufacturing industry in NSW and Victoria. It’s yet another example of naive economic reformers stuffing things up because real-world markets don’t work the way they do in textbooks. Last week Dow Chemical...

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As you were: getting back to budget surplus no longer urgent

Sometimes, changes in fashion are shocking. In economics, the fashion leaders are top American economists. Their latest fashion call is highly relevant to Australia’s circumstances, but will shock a lot of people: stop worrying so much about debt and deficit. Among the various big-name economists advocating this change of view, the one who made the biggest splash was Professor Olivier Blanchard, of the Massachusetts Institute...

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FISCAL POLICY AND THE BUDGET

UBS HSC Economics Day, Sydney, Thursday, May 30, 2019I want to start by congratulating you – you’ve picked a really interesting year to be studying economics. Strange things are happening in the economy – it’s not working the way it used to before the global financial crisis. The managers of the macro economy have gone for years predicting things will soon be back to normal, but it hasn’t happened yet and, just last week, the...

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Our new economic worry: Reserve Bank running out of bullets

Scott Morrison got the government re-elected on the back of a budget built on an illusion: that the economy was growing strongly and would go on doing so for a decade. The illusion allowed Morrison to boast about getting the budget back into surplus and keeping it there, despite promising the most expensive tax cuts we’ve seen. The illusion began falling apart even while the election campaign progressed. The Reserve Bank board...

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Without decent policies, Labor would get fewer votes, not more

The main reason so many voters have given up on politics and politicians is their belief that modern pollies care more about advancing their careers than advancing the wellbeing of the nation. So, were Labor to decide that it lost the election – which dodgy polling encouraged it and everyone else to believe it was sure to win - because it made itself a "big target" by having lots of policies to fix things, rather than "small...

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Why did Labor lose? Not because of its tough tax plans

It’s been a week since the election so, naturally, by now a great many of the people who work in the House with the Flag on Top – politicians, staffers, journalists – know exactly why Labor lost and the Coalition won: those hugely controversial dividend franking credits. There were other reasons, of course, but franking credits is the big one. How do I know they know? Because this is what happens after every election. The denizens...

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Now the pilot's back, economy flying on a wing and a prayer

It’s always nice for the country to be led by someone who’s obviously got God on his side. When he prays for a miracle, he gets it. And the challenges facing the economy are such that Scott Morrison may need all the divine assistance he can summon. The Coalition – and their dispirited opponents - should remember the fate of the last chap who won an unwinnable federal election: Paul Keating in 1993. By the time the next election...

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Morrison's miracle election may turn out to be the easy bit

The great risk from Scott Morrison’s miraculous victory is that it will lead politicians on both sides to draw conclusions that worsen our politics and our policies. Bill Shorten offered us a chance to change the government and change the nation, and was answered with a firm No Thanks. It’s a great win for the Coalition, but a loss for economic policy. The voters’ "revealed preference" is for more personality, less debate of...

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Where’s the money coming from? Ask me after the election

A key issue in this campaign has been whether government should be bigger or smaller. But that’s not the way either side has wanted to frame it. As usual, both sides prefer to be seen as offering more government spending and tax cuts and a return to big budget surpluses. In election campaigns, the rules of arithmetic are flexible. A twist this time is that Scott Morrison is using his promised super-mega $300-billion tax cuts...

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A politician always wins, but this time the choice really matters

If you judged it by the way Labor's been so quick to match the Coalition’s backdated doubling to $1000-a-year of its tax cut for middle income-earners (good idea) and now the Coalition’s plan to help first-home buyers (con job), you’d be justified in thinking that, despite all their furious arguing with each other, there’s little to choose from between the two sides. For once, however, such a conclusion would be dead wrong. Not...

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Let's stop pretending the old normal is just around the corner

Just as a new chief executive makes sure their first act is to clear out all the stuff-ups left by their predecessor, so a new federal government needs to release its econocrats from the ever-more dubious proposition that nothing in the economy has changed and we’ll soon be back to the old normal. That’s the old normal of productivity improving by 1.5 per cent a year, the economy growing by 2.75 per cent and wages growing more...

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Don't trust pollies to tell you the truth about tax

"You don’t grow the economy by taxing it more,” Scott Morrison declared in the ABC’s election debate. Then his Treasurer, Josh Frydenberg, claimed the Coalition’s $300 billion in tax cuts would make income tax “more progressive” not less. As a prospective major beneficiary of those cuts, I’d love to believe both claims. Unfortunately, there’s little evidence to support either. Meanwhile, higher income-earners should be in no...

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Interest rate cuts are coming, which isn't good news

The Reserve Bank may have decided not to cut interest rates right now, but it’s likely to be only a few months before it does start cutting, and it’s unlikely to stop at one. So, is it just waiting until after the election? I doubt that’s the reason. The Reserve has moved interest rates twice during election campaigns – raising them in 2007 (much to the surprise of Peter Costello, whose mind was on politics at the time) and...

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Universities: both sides should clean up the mess they've made

Among the many issues needing early attention from the winner of the federal election is universities. Trouble is, neither side seems to have much idea of how to fix the mess both parties spent decades creating, before Julia Gillard brought things to a head with the brainwave of moving to “demand-driven” funding. Her idea of shifting control over the size of annual federal-funded undergraduate admissions from budget-conscious...

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Only the stupid think the cost of climate change is simple

You know an election campaign has run off the rails when the pollies start hurling the results of economic modelling at each other. Voters find it incomprehensible and cover their ears, and the only people who think it proves something are the pollies themselves and the journalists silly enough to imagine their incessant demands to “show us your modelling” will expose the truth. The more you know about modelling, the less it...

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