The range of challenges confronting the Australian economy over the next five years is extreme:
- deleveraging and falling house prices (real or nominal);
- smashed incomes and falling wages (real or nominal);
- falling terms of trade as China shifts out of emergency mode and keeps structurally slowing;
- an overly high currency derived from global central bank printing;
- decoupling from the ex-iron ore China;
- high unemployment and huge underemployment;
- weak private investment trailing crushed demand.
So, what is the plan five-year plan to address this structural shock to Australian growth? Via The Australian:
Josh Frydenberg is preparing a five-year plan to create millions of jobs and reignite business investment, to anchor Australia’s recovery from the most severe recession since World War II.
…“Australia will recover and Australia will grow again,” the Prime Minister said. “The jobs will come back and they will support the lives and livelihoods of Australians. Our plan for that to occur is to build on the resilience, strength and enterprise of the Australian people.”
Mr Morrison said the government’s plan would prioritise skills, the bringing forward of nearly $10bn in infrastructure projects and reducing energy costs to turbocharge manufacturing.
Add the AFR:
“We are considering the timing of those tax cuts, and any announcements would be made in the budget, but it is fair to say these are very substantial reforms,” he said of the already legislated cuts which are worth a combined $158 billion and culminate in a 30 per cent tax rate for incomes between $45,000 and $200,000.
…The budget is certain to contain such an allowance to stimulate business investment but Mr Frydenberg also said many of the other measures to stimulate business activity would be regulatory.
These included industrial relations changes and red tape cuts.
The plan can be summarised thus:
- open the immigration spigot to address skills which will pulverise wages;
- cut taxes for the rich which will be saved and do nothing for demand;
- spend $10bn on infrastructure which is one major road or tunnel;
- dig up more expensive gas doing nothing for manufacturing and holding broader energy costs higher, and
- cutting red tape is motherhood drivel.
I can tell you right now what this will do because it is exactly the same policy settings as last cycle minus a few very large growth drivers in the NDIS rollout and state government building boom:
- intensify the Australian demand deficit post-COVID;
- leave productivity in the dirt as cheap foreign labour is favoured over capital deepening;
- smash wages;
- smash private investment, and
- deliver epic deflation including asset prices as households cannot support credit expansion with incomes in free fall and the cash rate at zero.
Sure, it will eventually result in a collapsing Australian dollar as well, as commodity prices come off and Australia massively underperforms all other developed economies. But far too late.
This is not reform. It’s not even sensible cyclical fiscal economic management. It is pure Depressionerg trickle-down stupidity. How Treasury could endorse such national interest bloodletting is also an open question.
What Australia needs to happen instead is:
- massive taxation and export tariffs on mining rents shoved into a sovereign wealth fund;
- negative gearing reform to deflate property;
- RBA and APRA banged together and Phil Lowe replaced by a mercantilist to force monetary easing nation-building and the currency;
- any and every productivity reform unleashed;
- get the universities off the Chinese tit and fund research publically;
- gut the gas cartel to crash energy prices;
- a huge push into renewable energy and post-carbon economy;
- massive tax and regulatory incentives to rebuild the industrial base;
- huge infrastructure investments to keep the nation employed as we transition.
Sure, you can’t do them all owing to past political blunders. But you could do 3-9 and leave the rest to Labor.
The Depressionberg plan should alarm business just as much as it does households. It’s going to gut both.
