Treasurer Wayne Swan gave a big ticket speech for G’day USA on Friday evening that says a lot about our Treasurer’s failure to build a persuasive economic narrative for Australian households. Here is an excerpt:
Let’s start with the global economy. I want to say upfront that I think 2013 could be a better year for the global recovery, but only if policymakers around the world do the right thing for growth and jobs. I think there’s a lot of evidence that China’s economy is stabilising. I’ve always been an optimist about China – and I think the data we’ve seen should give us confidence that they’ve still got the policy capacity to manage their economy and they’ve been getting it pretty right. We also need to keep China’s recent growth performance in perspective. China is now 40 per cent larger than it was in 2008. So its growth rate can be 20 per cent lower – say 8 per cent now versus 10 per cent back then – for China to make the same contribution to global growth. Yes there are risks – China will have to keep addressing its big structural challenges like the huge amount of unregulated lending in its financial system and its transition to more consumption-led growth.
But so far, China seems to have managed its transition pretty well. So it turns out the facts are in stark contrast to much of the commentary we saw late last year which had essentially written China off. It just goes to show that you can’t have a mature debate about long-term economic performance based on monthly data. There’s also an important distinction between caution and pessimism. There are good reasons to be cautious about the global outlook, and I’ll spend a bit of time on these now, but I’m cautiously optimistic. While risks remain, I think leaders, governments and commentators around the world have a responsibility to ensure that sensible realism doesn’t morph into undue pessimism which itself hurts confidence. Endless pessimism is in itself a risk to the global recovery, just as it weighs on business and consumer sentiment in Australia’s economy. I am determined to have a positive debate in Australia in 2013 about how we lock in the gains we’ve made in the last 5 years, and set our economy and our community up for the next 5 years. The future of our region is remarkably bright. Yes, there are challenges and our future is not assured, but I’m confident that we will keep getting the big economic calls right to support growth and jobs and make the most of the Asian Century.
Throughout last year I noted that Wayne Swan has been running on empty vis-a-vis the government’s economic narrative. Despite Australian household’s return to historically normal savings rates and ongoing disleveraging, a structural shift that will define this era and should be encouraged, Wayne Swan spent much of last year spruiking an endless mining boom as well as lambasting commentators for being doomsayers. Late in the year, Labor added its “Asian Century” rhetoric which is not much more than a brand.
The problem Wayne Swan faces is that he is not addressing the right people. Those who punch holes in Australia’s current economic performance are doing so with the recent experience of the vast majority of the community on their side.
Check out the following two charts. The first is GDP since 1990, which shows that even though the recent period has been reasonable, the post 2008 period is clearly below historical trend:
But have a look at the next chart, of nominal GDP (that is, activity unadjusted for inflation):
I would describe that as shocking. The post GFC period is so far below the long-term experience of Australians that it is surely obvious to most in their day-to-day business lives. As a country, we are getting lower (though decent) levels of real growth from much lower levels of growth in actual activity (some call this a “deflationary boom”). It’s no mystery why the economy’s recent performance feels so crappy to most.
That is not to say that the mining boom has not been a boon. Of course it has, perhaps more so than most people know. But much of the benefit has been in avoiding the counter-factual case. Had there been no mining boom, Australia would have been in and out recession since the GFC as global markets forced discipline upon our spending to curb the current account deficit. Wayne Swan has tried to express this by constantly drawing comparisons with other struggling Western nations.
But to my mind, this is a political non-starter as a national economic narrative. Constantly being told how fortunate you are when your own recent experience is that you are getting less so is not going to resonate. In fact, it will make most people angry because they are being ignored. This is one reason why the negativity of Tony Abbott has resonated with the community, most particularly around the carbon tax, despite the nation broadly acknowledging the need to act on climate change.
This points to Wayne Swan’s great failure as a Treasurer; he has proved to be a lousy communicator, stuck like some broken recording of an American new age evangelist, exhorting all to “be positive”, he has made no connection with the community. It may, in fact, be his greatest failing given poor communication in part gave rise to the mining tax debacle that is certainly his most obvious policy blunder.
The Treasurer and government might have time to remedy this off-base rhetoric in the lead up to the election. A start was made in this direction with the abandoning of the surplus late last year. And in his Friday speech, Swan also linked his shift away from a budget surplus to the lessons learned by the IMF in Europe about negative fiscal multipliers. Why this sensible line of argument is available only to US audiences is beyond me.
As the end of the mining boom approaches mid-year, Swan will have to shift towards a more resonant centrist narrative of public and private prudence, of entrepreneurial endeavour, of productivity boosts to compete in global markets and of rebuilding broad-based export successes post the mining boom. This is the same narrative that the community needs to hear in policy terms. Within twelve months (and probably by the election) we’ll be living the reality as exports for bulk commodities struggle, LNG exports are yet to ramp up, and our lack of competitiveness sheds more jobs. It is the kind of message that in the mean time could frame fiscal initiatives targeting the dollar, like a Tobin tax, which would help mitigate the fallout which is already well underway.
But Swan has been beaten to the punch by the shadow Treasurer, Joe Hockey. For the past two years, Hockey has built a message for the times. His growing narrative of bank reform, of public and private prudence, of moving beyond entitlement, of renewed entrepreneurial vigour, will resonate with a community now firmly set on financial conservatism. Here’s how Hockey put it last week in the AFR:
Productivity reform and a banking inquiry are at the top of his to-do list in what promises to be another brutal year of federal politics. But the shadow treasurer has also added “respect for taxpayers”, and says he won’t walk away from controversial comments about a culture of “entitlement” among some Australians.
…“Yes, it will be a theme for me and it sits very comfortably within the Coalition’s theme. That is the commitment to live within our means. Australians can no longer afford a lifestyle that is fuelled by debt,” he said.
“Everyday Australians know it and that’s why they’re increasing their household savings.”
As I’ve written several times in the past eighteen months, this is how the disappointment that currently pervades the Australian community can be turned to a positive catharsis (sadly Hockey’s policies imply the opposite outcome but hey!). As the year wears on, the Hockey narrative (excepting surplus rhetoric) will make more and more economic sense. It may even have the credibility to carry some renewed industrial relations reform.
The Coalition’s problem is that its leader has not yet embraced this message. Abbott does have a vision but like Labor, it is based upon the assumption that Australia will continue forever to enjoy out-sized benefits from China’s rise. Abbott too is stuck in a scratch on the record: negative, carbon tax obsessed, closed on trade and investment, bashing away at dated surplus politics, instead of fashioning a positive vision of post-mining boom change such as that offered by Hockey. The recent attack on the butchered mining tax is welcome and works well within his lower taxes framework since it’s not collecting any revenue. But should he become Prime Minister, Abbott is going to be scratching around for new revenues from, and ideas for, struggling growth as much as anyone else.
More to the point, as Swan indicated on Friday, as the mining boom draws to a close, the surplus narrative is going to become much more politically charged. Abbott is busy talking up what will be contested tactics while Joe Hockey is delivering the grand narrative. The Coalition has it backwards.
Neither Julia Gillard nor Wayne Swan nor Tony Abbott have the economic narrative to win the election, Joe Hockey does.