Don’t say we didn’t warn you. From the AFR:
The Rudd government is preparing to make a major economic statement before the election to reveal a deeper decline in revenues, as it seeks to reframe the debate around the end of the China boom and prepare voters for a further deterioration in the budget bottom line.
The revelation of the government’s plans comes before an address to the National Press Club by Treasurer Chris Bowen on Thursday, and after it emerged that the 2014-15 budget bottom line would be $1.8 billion worse off as a result of the carbon policy change.
…Macroeconomics director Stephen Anthony said the deterioration in the unemployment rate represented a “risk” of between $3 billion and $5 billion to the forecast $163.2 billion collection of individuals’ withholding tax in 2013-14.
Late on Wednesday, Mr Bowen advised that the topic of his press club speech would change from reflections on his new book, to how Labor planned to manage the economic transition.
This Bowen lecture is a very big deal. PM Rudd did a good job of reframing Australia’s changing economic circumstances at his Press Club address but he didn’t give us much detail on how Labor intends to manage the transition in the economy post-China boom beyond a vague list of commitments under the title “national competitiveness agenda”.
Bowen will need to outline some real policy plans on how he intends to boost competitiveness, which boils down to the following questions three things:
- Labor is ahead of the RBA on these issues. The central bank has been very slow to recognise China’s growth transition, even slower to cut interest rates and slowest of all to innovate policy to bring down the dollar. How can Labor’s platform push down the dollar more quickly?
- Global markets are delivering the lower dollar slowly. How will Labor ensure that this nominal devaluation continues and becomes a real devaluation that boosts competitiveness? That is, as tradable prices rise, how will wage claims be kept in check, especially in reference to the unions which will get restive?
- How will Labor boost productivity? If it’s not going to increase spending then will it improve spending? What wasteful middle and upper class welfare will it cut to fund increased infrastructure investment to boost productivity? How will such investment be kept free of pork? How else can it boost infrastructure without increasing spending? What other productivity reforms will happen?
- If Labor is not going to increase spending, as it should preemptively with a 1% of GDP infrastructure build in my view, then how low has growth got to get before it does increase spending? Growth is already fading towards 2%. Is it really sensible to wait until the economy reaches stall speed? And if it comes to that, what will it spend on?
Somebody needs to ask the Treasurer these questions at the event.
Meanwhile, Wayne Swan, the guy who did nothing to prepare anybody for this realty carried on with his fantasy yesterday in a speech:
“Now there are some who argue the transition underway in our economy to non-mining sources of growth could lead to serious economic instability, even dangling the ‘R-word’ to get a newspaper headline and their name underneath it…We’re not seeing the jumps and drops usually associated with instability…In fact, the latest capex (capital expenditure) figures forecast that after mining investment peaks this financial year, it will come off its record highs slightly but remain high for some years to come…”
You do understand the difference between levels and rate of change, right Mr Swan? For those that don’t, it doesn’t matter if mining investment remains strong, what matters is how high it is versus last year. It is that rate of change that contributes to, or withdraws from, growth.
