Earlier this week I argued the folly of several Coalition policies that aimed to wind back the best of the Labor government’s reforms for no reason other than Tony Abbott’s strategy of mindless objection to everything.
Today there are a number of stories at large which add some more texture to this narrative.
The first is a leaked guide to a Joe Hockey speech to be delivered today. Phil Coorey reckons Hockey will argue:
“We can compete with higher wages provided our output per worker is globally competitive,’’ he will tell the Committee for Economic Development of Australia.
“Australia’s standard of living must not go backwards. There is no national benefit in cutting wages.
“What we need to do is to ensure our workers have the skills and knowledge that out industry needs. Education, training and retraining are a key step to unlock our productivity gains.’’
Say what? Julia Hockey? Joe Gillard? Jokes aside, this is some relief to me. The line that we should join a race to the bottom on wages, which has been driven madly at the AFR, is at best a quarter of the story and it’s a relief to know that the constraints of Australian centrism win out over it.
That is not to say that industrial relations reform is, or should be, dead. On the contrary, Australia’s real effective exchange rate, which includes things such as wages, needs to correct if we’re to continue to attract investment:
But the sensible way to go about it is through productivity gains linked to investment and a slow melt in wages in real terms. Most importantly, however, is that it happens via the dollar. On that we have mixed news from Hockey:
He will also seek to downplay expectations that a Coalition government can do much to lower the dollar. He will make the same observation as is being made by the government, that the dollar is remaining stubbornly high despite the softening of commodity prices.
Mr Hockey will pledge to run a a tight fiscal policy to put downward pressure on the dollar and promise to argue more pro-actively than the Labor government in international forums for less state interference in currency markets…“those who argue for a high dollar are effectively arguing in favour of higher prices for consumers at a time when many households are under extreme financial pressure’’.
Yes they are and quite sensibly too. It is only productive investment that grows your economy sustainably over time, not consumption. This is especially so when you’ve wasted so much capital on unproductive property speculation. It is some irony that as the dollar really does look like its run into a serious headwind and is grinding lower (down last night into the $1.01 range) that every official and his dog can’t wait to talk it up.
Hockey’s pledge to run tight fiscal policy will help on that front if its true. But like his pledge on wages I suspect it won’t be. The mining boom looks to be at or past the peak and its unwinding will weigh heavily on growth whatever the pace of decline. When Hockey wins power, the level of fiscal cuts needed to find a surplus will represent sever austerity in the circumstances. I note Hockey is preparing the ground for this given “the surplus” has now been decisively replaced by “tight” policy.
There is still a loaded gun here for the economy in that if whatever Hockey means by “tight” fiscal policy is enough to lower the dollar, that will also mean it’s enough to lower interest rates, and risk further destabilising credit and asset price growth. The real need in Australia, to shift from debt-driven speculation and consumption to exports and investment for growth, remains as compromised as ever and again we come back to the need for new tools in monetary policy to disrupt this paradigm. Only the central bank has the vision and independence to break the politco-housing complex down and insure that any new space for growth is occupied by productive investment not more useless mortgage debt.
Next up, the AFR has a story on the difficulties facing Abbott’s extremist pledge to repeal the carbon price:
Energy analysts at Bloomberg New Energy Finance have advised clients there is only a one in three chance of the carbon tax being repealed if the Coalition comes to power.
…“The Abbott-Proof Fence is secure. To fulfil his ‘pledge in blood’ therefore, [Coalition Leader Tony] Abbott must change the law. To do that, he needs a decisive election victory this year that either delivers him control of the Senate, or enough political capital to risk taking the carbon price to a double dissolution.”
So, today at least, it rather looks like our incoming government is doing what Rudd did to Howard. They are occupying the middle ground, compromising core beliefs so as not to scare the horses. Creating a safe pair of hands as it were.
However, as I’ve noted before, the Coalition still has it backwards, with Joe Hockey representing the secure, strategic and centrist leader while Tony Abbott plays the extreme and tactical nut job. One wonders just how far ahead in the polls they would be with better execution.