Abbott’s recession risk

Sure, but Howard’s growth came from a mining boom he had no part in. If anything he over-heated the economy by providing tax cuts when he should have saved the tax windfall. Hence the Australian economy blew off into 2007 with everything too hot, including the interest rates that in part hurt Howard’s re-election chances:

Now, I know if you just look at the raw headline numbers for economic growth, the last few years don’t look too bad. Despite the global financial crisis there was only one quarter of actual negative growth. But if you look behind the numbers the situation is not nearly so good. GDP growth per head of population since 2007 has been only one third of the GDP growth per head in the Howard era, and this is why the Howard era now looks like a lost golden age of prosperity. Over the last five years multifactor productivity in this country has actually declined. It’s actually declined by three per cent. We know that the private savings ratio is massively increased. It’s at the highest level in two decades because people don’t trust the Government to save, that’s why they are saving so much themselves. People don’t feel rich, that’s why they are saving so much themselves. We know that real wealth per head has actually declined over the last five years because of stagnant property prices and because of falling share prices and that’s led to so much more restraint in spending which is why so many of our main street retailers and businesses feel under such pressure today.

I would have thought a better explanation for increased savings is the GFC. Note as well no mention of private debt, just the silly Ricardian notion that we’re all saving to pay off public debt later. It also rather sounds like a promise to get private borrowing and house prices going again.

The great thing about a growth strategy is that it’s also a confidence strategy because that is the missing ingredient in so much of business decision-making right now.

The challenge for government, the challenge for the Coalition should we become the government after the election, is to do more and to do better to get economic growth up and the best way to get economic growth up is, of course, to get the fundamentals right. It’s always the right time to get the economic fundamentals right and what you’ve got to do in terms of the economic fundamentals is understand the iron laws of economics and one of those iron laws is that government doesn’t create wealth, business creates wealth. Sensible governments never go around attacking wealth creators, they never go around accusing people who have invested millions, created thousands of jobs, of being a danger to democracy as this government, I regret to say, has. Sensible governments understand some of the corollaries of the iron laws of economics such as that you don’t speed up the slow lane of our economy by slowing down the fast lane, such as that you do not boost our economic strength by targeting the strongest sectors of our economy and you can never, never, tax your way to prosperity.

Now, I believe that the Coalition I lead understands all of this in the marrow of its bones and that’s why I am confident that should there be a change of government later in the year, there will be an instantaneous adrenaline charge in our economy. There will be an instantaneous surge of confidence because an incoming government will understand that simple truth that business is the source of prosperity, business is the source of economic growth and it will want to work with business rather than against business in boosting the prosperity of every Australian.

The Coalition’s strategy to boost economic growth is really quite straight forward and it starts with getting taxes down. There’s been a lot of talk about the carbon tax. There’s a lot of talk from the Government that the carbon tax hasn’t really been noticed. Well, everyone notices a new tax and people are particularly conscious of a new tax which doesn’t serve any reasonable economic purpose. The problem with the carbon tax is that it’s damaged our economy without helping our environment and that’s why it will go as the first priority of an incoming Coalition government.

This is plain wrong. The carbon tax changes prices, it doesn’t damage growth. In fact, at this point, it’s probably provided stimulus given the rebates have gone out ahead of what price rises we’ve seen. And it will be stimulating investment in new power generation.

Then there’s the mining tax. Now, the mining tax was always a bad idea. This idea that miners don’t pay enough tax is just misleading at best and dead wrong at worst. Miners pay the company tax that everyone else pays. Mining staff pay the tax that every employee pays. But miners have always paid royalties, always have and no doubt always will. So the mining tax was effectively a third tax on a sector which can easily go somewhere else. This idea that the only place you can mine is Australia, again, just dead wrong. Mining capital can go to many other places and it has started to go to many other places since the mining tax was introduced.

Then, of course, there’s the way it was introduced and the outcome of its introduction. It has turned out to be a lose/lose tax, a tax which impacts on investment, impacts on employment but in the end raises hardly any revenue at all and we’ve had the really rather sad spectacle in Parliament this week of minister after minister in denial about this particular tax.

The mining tax is a joke because it’s a failed tax not because it deters investment. If there has been damage it is to government revenues. Royalties are not a tax, they are land use payments. Company tax is a tax, yes. The mining tax was supposed to cut the company tax as I recall.

The trouble with government which is spending unsustainably is that it is always looking for more taxes. There’s the carbon tax, there’s the mining tax, and in all candor there are the coming additional taxes on superannuation. They thought they could get away with a carbon tax because that was only going to be paid by the so-called big polluters. They thought they could get away with a mining tax because that was only going to be paid by the wicked multinationals. But those taxes aren’t raising enough money. That’s why they’re now coming for the ordinary people of Australia with new taxes on superannuation. Well, under the Coalition the carbon tax is gone, the mining tax is gone, and there will be no further fiddles with superannuation because people’s savings don’t belong to the Government. People’s savings belong to the people and the Government has to respect that.

We’ll get taxes down and we’ll get government spending down. But we will do it honestly, not dishonestly. When the Treasurer said that he was going to deliver a surplus in the current financial year, something that he said on at least 366 separate occasions, I applauded him. Joe Hockey applauded him, Malcolm Turnbull, Julie Bishop, Warren Truss, we all applauded him because a surplus is, as the Treasurer said, the mark of sensible economic management. We deeply lamented the fact that it wasn’t a straight surplus, that it was a fiddle the books surplus but at least the fact that it was going to be a surplus was something that we could applaud, and now that’s gone. That’s gone. But unfortunately though the surplus is gone the fiddling continues. Just this week there was an adjustment to the forward estimates for border protection costs. The Government has reduced border protection costs over the forward estimates period by $2 billion, even though illegal boat arrivals are at an all-time record. That, alas, is the quality of candor that we currently get from our Federal Government.

Now, the Coalition will get spending down. We will do it in ways which we believe are responsible. Some of the ways we will do it will be controversial. For instance, we’ve announced that the so-called school kids bonus will go because this is a cash splash with borrowed money that has nothing necessarily to do with education. We won’t go ahead with the 6,000 person a year increase in the refugee intake because that would send the wrong signal to the people smugglers and in any event, at the moment the people smugglers are determining that intake. We will trim back the Commonwealth public sector, not because we fail to respect the work of public servants – as a minister for nine years I very much respect the work of public servants – but there’s 20,000 more in the Commonwealth public sector than there were five years ago and there hasn’t been a commensurate increase in service delivery or efficiency. So, just those changes will save about $10 billion over the forward estimates period.

OK, so does this amount to an immediate shot of adrenaline for the economy?

Scrapping the carbon tax does nothing to stimulate unless Abbott leaves the tax cuts that it funds in place. Let’s assume that’s the case so it will mean he’ll have to cut a lot government spending, beyond what he has outlined to reach a surplus. It will stimulate growth in time.

Scrapping a mining tax that is collecting no revenue does nothing.

If the other spending cuts produce a Budget surplus, as opposed to a deficit without them, then they will be contractionary, just as Howard’s were in 1996 and Newman’s were this year. Over time they could restore greater growth if they cause interest rates and the dollar to fall, boosting private debt and tradeables investment. But right now both are weak and will not respond quickly. Moreover, if Abbott pursues this agenda in September he will be doing it in conjunction with the peak in mining investment, materially increasing an already not insignificant risk of recession.

Then again, there appears to be no actual promise to reach surplus in this speech. And there is the line about restoring growth to produce a surplus. So perhaps the plan is to also abandon the surplus and offset the carbon tax cuts against the promises spending reductions. He just can’t say so. But who knows?

If we don’t go ahead with the National Broadband Network in its current form, that’s about $50 billion less that the Commonwealth will need to borrow. So, we will get government spending sustainably down and most importantly, ladies and gentlemen, we will get productivity up. Now, the last thing I want to do is blow my own trumpet but as a minister I think I had a good record when it comes to getting productivity up. Some of you would remember the Cole Royal Commission into the commercial construction industry and the subsequent Australian Building and Construction Commission. $5 billion a year worth of productivity improvements was the result of the work of the ABCC and the ABCC will be fully restored under an incoming Coalition government.

It is important for all sorts of reasons, productivity not the least of them, that we restore the rule of law in all sectors of our society but particularly, in our workplace. Another announcement from the Coalition that you might have noticed this week is that union malefactors would face the same level of penalties and potential criminal sanctions as corporate malefactors. There ought to be a level playing field for wrongdoing. Wrongdoing is wrongdoing, whether it happens in a company or in a union. So we will make sure that wrong doers face the same penalty for the same sorts of crime, and we will establish a registered organisations commission to act as a watchdog and policeman for the union movement and for employer organisations in the same way as ASIC polices corporate organisations.

The NBN is about the only government initiative underway that is a genuine investment in productivity so putting that in this paragraph is pretty ridiculous. Despite that, the productivity discussion is welcome. However, there is almost nothing here to suggest Abbott can do anything about the issue. Curbing renewed union power will help a little at the margin. The rest can only be achieved through the long slog of increased manufacturing investment, increased infrastructure investment, increased education investment so on and so forth.

There will be a one-stop shop for environmental approvals and this will be part of our campaign, our pledge to reduce your red tape costs, business red tape costs by $1 billion a year, at least $1 billion a year over the life of a Coalition Government and we will get the public sector’s efficiency up by measures such as working with the States to ensure that public schools and public hospitals are run more by their communities and less by distant bureaucracies.

If we get government spending sustainably down, if we can lower the tax burden, if we increase productivity we can make our economy so much stronger. We can unleash the creativity of Australia’s business people. I know that we are capable of more than we are currently achieving. I know because I have seen with my own eyes very successful Australian businesses competing and succeeding in very difficult fields. There is a factory in Burnie in northern Tasmania which produces 25 per cent of the world’s underground mining equipment. There is a workshop in West Gosford which, believe it or not, produces 10 per cent of the world’s aerosol springs – not a particularly glamorous product, ladies and gentlemen, but absolutely necessary to a modern economy and 10 per cent of the world’s billions of aerosol springs are produced at this little workshop in West Gosford. There’s the R.M. Williams factory in Adelaide which successfully produces high quality footwear and clothing, something which we are supposed not to be able to do anymore in this country. So, given that we can do a lot, even now, under unpropitious circumstances, how much more could we do and do well under better circumstances?

This is music to my ears. But what is Abbott going to do help these and other businesses grow into export power houses? He hasn’t even mentioned the dollar. This is a token mention of an interest group.

That’s the challenge that the Coalition faces. That’s the challenge that I believe we are more than capable of rising to, to put the economic policies in place that will once more give us a dynamic, five pillar economy with a strong service sector and a strong education sector, a resilient and sustainable manufacturing sector as well as the mining and agricultural sectors which have been so important to us over the last few years.

Ladies and gentlemen, I am full of confidence. Yes, these are not great times but great people are more than capable of overcoming difficult circumstances and I think we are a great people. Yes, a great people currently held back by a poor government, but a great people who are just waiting to seize the future that is there for us.

I think there’s very little wrong with our country that a change of government wouldn’t fix and my colleagues and I are working steadily, diligently and enthusiastically to give a great people the better government that they deserve.
Ladies and gentlemen, thank you so much.

Sigh. If this speech captures the state of the nation then we are a sausage stuffed with risk, broken ideology, dated growth hopes and empty promises.