Has anyone noticed a change in Joe Hockey’s approach to the economy? It seems we are not in a budget emergency after all. It seems the latest national accounts figures suggest things are on the improve.
The latest national accounts figures show a growing economy; 0.8% for the December quarter. That’s a much better result than the September quarter’s 0.6%. Treasurer Joe Hockey says it is still below trend of 3-3.25% per annum but he was being cautious. Considering all the doom and gloom he was predicting prior to the election one would expect him to be guarded in what he said but, given this unexpected upturn, he must find the latest figures something of a dilemma. He should be over the moon but he knows he can’t take any credit for them because he hasn’t done anything yet. They belong to Labor. And, if you multiply December’s 0.8% by 4 you get 3.2% per annum which if it continues at that rate, is bang on trend. And none of it will have anything to do with Joe Hockey. It will all belong to Labor.
This does not mean, however, that a surplus budget is just around the corner. Far from it. Targeted spending by the previous government produced deficit budgets to keep the economy moving. Labor’s four-year projections to 2017 will require more money than revenues are projected to raise. That means the shortfall has to be borrowed and Hockey will have to keep borrowing unless he cracks the jackpot at some fantasy casino. Hockey’s dilemma is that he promised to stop the spending. If he doesn’t, the forward projections, if left as they are, will likely produce a national debt of more than $600 billion by 2017.
When you consider that the national debt as at September 2013 when the Coalition came to power was just $284 billion, you can see the problem. Joe Hockey doesn’t want to see that figure climb up to $600+ billion on his watch. What a dilemma; how to keep the economy growing and not continue to borrow; how to make those horrible debt projections go away. It would be easy to blame Labor all the way through to 2017. If you hear anyone on the government side say Labor left them with a $600 billion debt, this is how they arrived at that figure. They are talking about the projected debt for 2017, but I doubt blaming Labor will wash with the electorate.
There are three things that Joe Hockey can do about this. One is to slash social spending (health, education, welfare, services), but even if he did, that won’t come close to the result he needs. The second is by raising taxes which he won’t do. He wants to lower them. The third is to place his trust in the private sector and convince them to get off their bums and invest in the future. This is what he means when he talks about the need for growth. Growth will increase revenues and improve the budget bottom line. Otherwise, when we come to the next election and Labor exposes the state of the economy as being exactly where they had projected and forecast it to be back in 2013, Joe could be seen as having done nothing to rein in debt and deficit. There is a fourth option open to him and that is to sell off everything they can get their hands on. The bad news is, that won’t help much either. It will help with some infrastructure projects, but it won’t rein in debt.
When the national accounts figures were released last week and they showed surprisingly good results for the December quarter, you would have thought Joe would be thrilled. But he wasn’t. One possible reason is that it forces him to accept that Wayne Swan and Labor were on the right track and that the need for continued borrowings was perfectly reasonable under the circumstances; in fact, it is even more so now, given the parlous state of Australian manufacturing and rising unemployment.
Can you imagine the spin doctoring we will be fed in 2016 when Abbott and Hockey have to explain why debt and deficit are no better than they were in 2013? I just hope Labor are on their game when that happens. In the meantime, there is another big problem that is quietly brewing away within the Coalition ranks. It’s the same problem Labor suffered to its great shame. It is the foul winds of disunity, infighting, undermining and front and backbench alignments. The vultures are stirring in Coalition-land, if not yet circling. There are deep internal divisions within the government outlined quite succinctly by Laura Tingle in the Australian Financial Review last week. Joe’s relationship with Tony Abbott is slowly going the way of…you know…and pretty soon I suspect it will be out there for all to see.
But that’s another story.
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