MAURICE NEWMAN From:
The Australian October 14, 2013
NOW
the federal election is behind us we are beginning to gain true insight
into Australia's economic outlook and finances. It confirms voter
misgivings that things were not what they were told.
The official narrative for the past six years has been that the
Rudd-Gillard governments saved us from the global financial crisis,
created one million jobs, brought down interest rates, led the world in
climate-change policies, had racked up some debts and deficits, but not
enough to worry about, and that the Australian economy was the envy of
the world.
Most of the media and policy elites were captured by
this meme. Since the election, the same media cheerleaders and assorted
progressives have mocked Treasurer Joe Hockey and Finance Minister
Mathias Cormann for referring in opposition to a budget emergency.
Economist
Stephen Koukoulas tells us ("No urgency in the budget emergency",
Business Spectator, September 30) that Labor engineered the largest
year-to-year fall in the budget deficit ever recorded.
Well, perhaps that was because Wayne Swan had more to work with than
ever recorded? Reducing the cash deficit from $43.4 billion to $18.8bn
was an improvement, but a long way short of the promised $1.5bn surplus.
And it is diminished further by the rebound to the $30.1bn deficit
predicted for 2013-14.
Shortfalls totalling $191.1bn have been
recorded since 2009-10, representing $8300 per person or $33,200 for a
family of four. Most families of four with this amount to spend would
likely have something tangible to show for it.
As the deficits
mounted, Australia's public debt increased from 13.9 per cent of GDP in
2008 to 29.3 per cent last year. It continues to grow. While Koukoulas
waxes lyrical that "it's easy to see why the credit rating agencies have
no hesitation assigning a triple-A rating to Australia's government
finances", he doesn't mention that Standard & Poor's warned in April
that Australia's triple-A rating could be vulnerable within five years
if national debt keeps rising. Countries with small populations have low
tipping points.
Labor partisans are free to apologise for the
former government and encourage a "nothing to see here" complacency, but
it is a misplaced loyalty, because regardless of the adjectives used
the Australian economy does face immediate risks that require urgent
intervention and a common purpose, not pretence.
Swan and fellow
former treasurer Chris Bowen know that expanding national income is the
key to living standards and that over the next decade Australia's growth
in real gross national income per person is likely to slow
significantly.
They would also have known that, having grown from
about 2.4 per cent a year over the past decade, its fastest decadal rate
since the 1960s, GNI was likely to slow to below 1.0 per cent over the
next decade. Yet, rather than take decisive action to reverse the trend,
they turned a blind eye.
Already, workplace participation has
fallen significantly since its peak in 2010, down from 66.0 per cent to
64.9 per cent this year. It is projected to fall a further 1 per cent by
2025. Cumulatively, this is equivalent to the loss of about 400,000
workers or about a 3 per cent reduction in the labour force.
Worse,
Australia is also coming off the best terms of trade in 140 years.
Since September 2011, our terms of trade have fallen 15 per cent, which
translates to a $30bn drop in our GNI. The Intergenerational Report
projects our terms of trade to fall a further 20 per cent by 2025.
These
unfortunate developments coincide with Australia's loss of
international competitiveness. According to the World Economic Forum,
our ranking has dropped from 15th in 2009-10 to 21st in 2013-14, the
first time we have been out of the top 20. The IMD World Competitiveness
Centre has Australia slipping from fifth to 16th over the same period.
No
wonder that, with the resources boom fading, investment in the mining
sector is expected to decline sharply between now and 2020. As this is
not new, it is reasonable to ask why did Labor commit to spending
programs such as the national disability insurance scheme and the Gonski
education reforms (totalling $22.6bn in 2019-20 alone) on top of
already growing welfare and defence requirements? It is inexplicable.
However worthy, under the circumstances it is negligent.
The
recklessness of these policies is magnified when it is realised that the
global economic outlook is so uncertain. Finland, Greece, Italy, Japan
and Spain are in, or flirting with recession. France has stopped
expanding and Germany is decelerating. The US may be enjoying a slight
uptick, but at still tepid levels. And, thanks to the Federal Reserve,
the stockmarket has detached itself from economic reality, leaving it
vulnerable to a major correction.
Such is the magnitude of the
former government's legacy that the Coalition's task of economic and
fiscal repair cannot be overestimated. Fortunately, Tony Abbott's
instincts are good and his determination to reduce the regulatory burden
suffocating industry is a welcome signal that he means business.
Likewise, his focus on infrastructure investment should lead to
efficiencies and cost reductions.
However, the need for macro and
micro reform is so comprehensive it is impossible to accomplish in one
term. While some inroads can be made in the first term, it will take at
least three terms of disciplined, whole-of-government dedication to
fully return Australia to the promised land of international
competitiveness and strong autonomous growth.
It won't be easy.
Every initiative to free up the economy and to arrest the deteriorating
financial condition will be met with increasing howls of protest from
vested interests. But if the Australian people can be persuaded that the
journey is necessary, and that the sacrifices are critical to theirs
and their children's future, economy-liberating reform can be achieved,
even in the face of hostility from the media and protected elites.
Maurice Newman is chairman of the Prime Minister's Business Advisory Council.
- See more at:
http://www.theaustralian.com.au/national-affairs/opinion/heck-of-a-task-ahead-of-labor-buried-its-head-in-economic-sands/story-e6frgd0x-1226739240907#sthash.I93VuLGQ.dpuf
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