While Labor styled itself as a government in exile the Coalition was
free to lurch between bouts of regicide. Now it must make tough
decisions
Scott
Morrison has devoted some attention over the past few days to
counselling journalists against over interpreting the views of the
Reserve Bank governor, Philip Lowe. But it doesn’t take a genius or a
beat-up merchant to see that the bloke who runs Australia’s central bank
is telling the Coalition to get cracking to stoke the economy, and quickly.
The 46th parliament opened this week, and as I mentioned in a piece a couple of days ago, this particular opening was a strange experience as an observer. Labor expected to win the May election, but lost. That was a hard collision, so it’s suffering from a collective concussion. Most government MPs fully expected to lose the contest, but they won, so the question eddying around the place this week was “what now”?
The government’s tax cuts passed unamended on Thursday night, as they were always going to in the end, given the government just won an election, Labor is unbalanced by the defeat, and crossbenchers were intent on grabbing as much of the opening spotlight as possible.
Morrison was triumphantly humble, or humbly triumphant. The Greens hollered at Labor about the importance of being an opposition. Labor had of course dreamed of being a government, and set a survivalist objective in the hope of keeping that dream alive, landing a hedged position: we’ll pass stage three, but we don’t think this is a brilliant plan. Given the concussion, the caveated capitulation felt the only viable course. Equilibrium inside Labor is a long way off, if it arrives at all.
With $158bn of tax cuts legislated, now the real business of the parliamentary term starts. The immediate business before the government, not that you’d know it, because it is concealed by a seemingly impregnable wall of talking points about the Coalition’s superior economic management, is keeping Australia out of recession.
And
this is the point where we arrive back at the RBA governor, also known
as Oh Verballed One. Just so we are clear. No one is verballing the
governor.The 46th parliament opened this week, and as I mentioned in a piece a couple of days ago, this particular opening was a strange experience as an observer. Labor expected to win the May election, but lost. That was a hard collision, so it’s suffering from a collective concussion. Most government MPs fully expected to lose the contest, but they won, so the question eddying around the place this week was “what now”?
The government’s tax cuts passed unamended on Thursday night, as they were always going to in the end, given the government just won an election, Labor is unbalanced by the defeat, and crossbenchers were intent on grabbing as much of the opening spotlight as possible.
Morrison was triumphantly humble, or humbly triumphant. The Greens hollered at Labor about the importance of being an opposition. Labor had of course dreamed of being a government, and set a survivalist objective in the hope of keeping that dream alive, landing a hedged position: we’ll pass stage three, but we don’t think this is a brilliant plan. Given the concussion, the caveated capitulation felt the only viable course. Equilibrium inside Labor is a long way off, if it arrives at all.
With $158bn of tax cuts legislated, now the real business of the parliamentary term starts. The immediate business before the government, not that you’d know it, because it is concealed by a seemingly impregnable wall of talking points about the Coalition’s superior economic management, is keeping Australia out of recession.
While we are at it, let’s be clear about a couple more things. It’s pretty unusual for the RBA governor to be as forthright in public about what he thinks the newly elected government needs to do as Lowe is currently being. RBA officials aren’t generally buying rounds at the front bar and letting fly with some extemporised salty banter just to fill some dead air. They choose their words carefully because what comes out of their mouths has the power to move the markets.
So it’s safe to assume when Lowe says monetary policy isn’t enough, that “fiscal support” (his words) needs to be brought to bear to ensure the economy gets a shot in the arm, that he means it. Morrison at present is trying to portray Lowe’s interventions as an endorsement of what the government is already doing, and while Lowe has endorsed some of the government’s actions, the governor is also saying more needs to be done.
If you fear you may be reading a dispatch from one of the naughty hyperbole merchants intent on misinformation, have a read of Lowe’s speech in Darwin this week and decide for yourself. The arguments are articulated in simple, crisp language, not in some indecipherable central bank dialect. You can find it here.
If you don’t care to read, allow me to summarise. Lowe says we’ve cut interest rates to 1%, which will help. But there is still “a fair degree of spare capacity in the economy. It is both possible and desirable to reduce that spare capacity”. If the unemployment rate can be lowered, then wages should finally start trending up.
He says the bank has pulled the lever it controls, interest rates, but recognises “that the benefits are not evenly distributed across the community and … there are some downsides to monetary easing”.
“Partly for these reasons, over recent times I have been drawing attention to the fact that, as a nation, there are options other than monetary easing for putting us on a better path.
“One option is fiscal support, including through spending on infrastructure. This spending adds to demand in the economy and – provided the right projects are selected – it also adds to the country’s productive capacity. It is appropriate to be thinking about further investments in this area” (you noted the further in that sentence, right?) “especially with interest rates at a record low, the economy having spare capacity and some of our existing infrastructure struggling to cope with ongoing population growth”.
“Another option is structural policies that support firms expanding, investing, innovating and employing people. A strong, dynamic, competitive business sector generates jobs. It can help deliver the productivity growth that is the main source of sustainable increases in our wages and incomes. So, as a country, we need to keep focused on this.”
"Fiscal policy is tightening when the governor says it should be loosening ... Morrison might have to choose between stimulus and a surplus"
So to summarise: Lowe is saying the government needs to deliver stimulus beyond the tax cuts, which people might spend, or might save, depending on how worried they are about the economy tanking, taking their job with it.
That stimulus could be more infrastructure spending than has already been announced, or it could be something else. He’s also nudging the government on pursuing structural reform.
In the event that deteriorating economic circumstances becomes its own mandate, it is relatively easy for governments to start laying down cash to pump prime the economy. Kevin Rudd and Wayne Swan went down that path during the global financial crisis, although it pays to remember that Malcolm Turnbull baulked at some of the stimulus during the GFC. It’s at least possible there could be some internal argy bargy if Morrison suddenly flipped to contemplating a cash splash.
The other more obvious brake on pump priming is the Coalition’s oft-repeated commitment to delivering a surplus, which means fiscal policy is tightening when the governor says it should be loosening. The point to make next is obvious. At some point Morrison might have to choose between stimulus and a surplus.
But back to structural reform, which was Lowe’s point beyond stepping up fiscal support. Structural reform is something this government has really struggled with. This government has always lacked real policy grunt; it’s one of their hallmarks.
Tony Abbott lobbed an austerity agenda that collapsed after he won in 2013 because he had no mandate for it, because he’d concealed it from the public on the basis that had he disclosed it he would never have been elected. Turnbull replaced Abbott to clean up the mess, but colleagues didn’t trust him to clean up the mess.
The vacancy of the Coalition’s agenda has been largely concealed from public view, hidden in plain sight, in part because Labor over the last two terms in opposition styled itself as a government in exile.
Labor generated a lot of attention in policy terms by shaping a whole program, leaving the government free to lurch between bouts of regicide and managerialism without facing much blowback about its own inadequacy.
The unexpected outcome of the May election has killed the prospect of any opposition developing a big target strategy for at least a decade. I was never one for big predictions, and if I needed to be cured of a predictive predilection, the election season of 2019 has certainly sorted me right out.
But this is a teensy prediction, and I reckon it’s safe enough. Given Labor has embarked on a strategic retreat from the battle of ideas while it works out where to position itself for 2022, Morrison and the Coalition will find themselves centre stage, in a spotlight, holding a microphone on improv night, having to provide an answer to the question that circulated round the opening of the 46th session: well guys, what now?
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