Via Ross Gittins today:
Scott Morrison’s problem is that he gets politics – and is good at it – but doesn’t get economics.
The Prime Minister doesn’t get that if he keeps playing politics while doing nothing to stop the economy sliding into recession, nothing will save him from the voters’ wrath.
Neither he nor Josh Frydenberg seem to get that if we endure another year of very weak growth before they pop up next September boasting about their fabulous budget surplus, no one will be cheering.
…Frydenberg’s argument about the need to “reload the fiscal canon” ready for the next downturn makes perfect sense – provided you’re paying back public debt at a time when the economy’s growing strongly and, if anything, could use a bit of slowing to ensure inflation doesn’t get away.
That’s not us, unfortunately.
…My bet is Morrison and Frydenberg will eventually panic and take stimulatory measures (probably a lot of them), but they’ll come too late in the piece to stop confidence unravelling, with punters tightening their belts as businesses lay off staff.
That’s my read too, reinforced by more blather from the L-plate treasurer today:
Treasurer Josh Frydenberg has left Washington upbeat about challenges facing the global and domestic economies, including a “more positive” outlook for a US-China trade fix, even as the IMF warned Australia must tackle tax reform and that next year’s budget may need to tap some of the surplus to stimulate growth.
Mr Frydenberg said his message was “there’s no need to panic” and that the global economy “remains sound”, after three days of intense talks with counterparts from around the world, including US Treasury Secretary Steven Mnuchin, UK Chancellor of the Exchequer Sajid Javid and India’s Nirmala Sitharaman.
“Despite the challenges facing the global economy I found that people were more optimistic than not about the ability of the economy to get back on track,” he told The Australian Financial Review before boarding his flight back home.
So, let’s not assess the Aussie economy on its merits. Instead let’s deploy a false binary in which we shouldn’t “panic”. Who is suggesting that we panic? Nobody. Just about every economist I read is suggesting we should boost infrastructure spending, Newstart, etc. It’s hardly panic. It’s decreasing the fiscal drag when you’ve got weak growth. To wit, today:
The Morrison government has spent only $2.2 million out of a $3.5 billion infrastructure fund designed to connect key ports, airports and other transport hubs around Australia.
The “roads of strategic importance” scheme, which had its funding boosted by a further $1 billion in the 2019-20 budget after being announced 18 months ago, has only started construction on the $2.2 million upgrade to the Murchison Highway in Tasmania.
As Gittins says, what will happen is that Recessionberg will panic when he leaves it too long. Moreover, because the next accident coming to Australia is a terms of trade crash (that has already begun), which is largely driven by market adjustments in bulk commodities not slowing global growth anyway, Recessionberg will panic just as the viability of his next wave of tax cuts come into question. This is poor budget management, poor economic management and poor politics.
But at least the rictus treasurer will smile all the way through it.