Bernard Keane and Glenn Dyer at Crikey are busy pumping out macroeconomic smoke again today, this time on the Australian dollar:
The problem of dealing with a strong currency when the economy itself isn’t strong isn’t one that that Australian policymakers have had to grapple with before. The policy prescriptions aren’t clear, beyond lowering interest rates and trying to jawbone the currency down. Even conservative economists began advocating extreme measures such as central bank intervention.
In the end, former treasurer Wayne Swan settled for running a fiscal policy that tried to balance cutting spending to offset the impact of a high dollar and low inflation on his budget, but avoid undermining economic growth, while former prime minister Julia Gillard and then-industry minister Greg Combet spruiked an industry support approach around propping up dying industries like car manufacturing and encouraging genuine innovation.
Now Prime Minister Tony Abbott and Treasurer Joe Hockey faces the same challenge, one they dismissed asan “excuse” from Labor. With the dollar having touched 97 US cents in recent days and currently sitting above 96.5 US cents, they will discover the unpalatable truth that the broad policies of the former Labor governments were the only sensible ones for the economy as it has been travelling for much of the past two years.
The longer the US Federal Reserve doesn’t start cutting its $US85 billion a month of spending, the greater the chance the dollar will return to parity with the greenback…Good news from China, such as such as last Friday’s 7.8% growth rate for the September quarter, will also help keep the dollar higher.
…This is all positive for Australia and the value of the dollar. It’s also positive for consumers, who will continue to enjoy low inflation — the carbon price has proven to have an invisible, weightless impact on CPI, but its one-off September quarter 2012 impact will come out of tomorrow’s CPI, further lowering inflation — and overseas shopping and travel.
But it’s terrible for federal and state budgets, local retailers and manufacturers and anyone in a trade-exposed sector. For the Abbott government, now framing its mid-year outlook, it will seal the deal on further revenue falls. It is precisely the situation that Swan found himself in with successive budgets in 2011, 2012 and 2013 — they fell short as revenue growth slowed because nominal growth slowed.
Swan, now on Labor’s backbench and at liberty to target the men who attacked him so remorselessly when he was treasurer, will be entitled to point out the glaring hypocrisy of the “budget emergency” crowd as they embrace his fiscal policy and the “excuse” that the strong dollar is crimping revenue.
There’s little else to be done.
I’m glad the Crikey boys are enjoying the Hockey schadenfreude so much that they can’t be bothered canvassing the very real options available for bringing down the dollar. Of course the irony is that their politisation of the dollar debate, implicit in their point scoring, is precisely the same as their critique of Joe Hockey on the Budget.
The touchstone you seem to have misplaced, fellas, is called the national interest.
