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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