The following article originally appeared in the March edition of the Melbourne Review.
If the electorate focuses on the economy as it votes at the Federal election on September 14, the Labor Party should win.
An era of rising wealth, sustained solid growth, near full employment and on-going lift in living standards are the material that should get an incumbent reelected.
While it is political poison to say to the general population, “you’ve never had it so good”, the cold, hard macroeconomic facts on the economy, real wages growth, wealth and incomes suggests Australians have never been richer, never been better off.
At a macroeconomic level, the economy grew by a healthy 3.1 percent through 2012, while annual inflation ended the year at 2.2 percent, in the lower half of the Reserve Bank’s target band. Right through 2012, the unemployment rate was low, holding between 5 and 5.5 percent which in fact locks in a decade where Australia’s unemployment rate has been below 6 percent. This is a remarkable achievement given global events, the near depression in the developed world and the substantial structural changes that have occurred in the local economy.
While there is nothing particularly spectacular about 3.1 percent GDP growth, 2.2 percent inflation or the unemployment holding at 5.5 percent or below, to have them occurring simultaneously is rare.
Australia’s economic history has many examples where GDP growth has been well above 3 percent, but this has normally seen inflation rise, which eats away at real incomes and forces interest rates higher. Similarly, there are many episodes where the annual inflation rate has been 2.2 percent or lower, but this has usually occurred when the unemployment rate is high and rising. To have this trifecta of excellent macroeconomic news owes a lot to the economic management of the economy and is something that is overlooked by an electorate that seems to be preoccupied with boat people, the marginal hip-pocket impact of the carbon price, the trivial levels of government debt and other ephemeral issues.
Looked at another way, there is absolutely no doubt whatsoever that whoever wins the election in September, they would be delighted to lock in a further three years where the macroeconomic numbers we have before us now are repeated each and every year of their term of office.
Frankly, it is just about impossible to do any better.
Having said that, it is clear that not everyone is sharing the benefits of the purple patch for the Australian economy. There are regions, industries and individuals that are not sharing the good times that the strong economy is delivering.
Such unevenness is inevitable whether the economy is strong or weak, but it is important to emphasise that it is not the job of the RBA to set interest rates for Tasmania or manufacturing, for example, or for the government to spend too much money propping up industries that are succumbing to the reality of extinction due to high costs, inefficiency or some other factor outside the government control.
Where the government can and should help, and this is where the current government has done well, is to provide a framework that provides a safety net for the sectors, businesses and individuals who are hurting as the rest of the economy powers ahead.
The mining tax raised revenue to boost superannuation for those not directly involved in the boom sectors. Retraining, skills and even some financial support is allocated to individuals who lose their jobs as the sectors they work in shrink. Maintaining a strong overall economy will also see job opportunities show up in the sectors in the fast lane expand.
For all of the thousands of jobs lost in recent years in Qantas, Boral, the banks, the steel and aluminum firms, Santos, Holden, Toyota and Caltex, to name a few, there are 850,000 more people employed today than there were five years ago. Presumably the bulk of the people who were proverbially “thrown on to the unemployment scrap heap” have been re-engaged elsewhere in the workforce.
On an individual level, the recent sharp rise in share prices and the resumption of what appears to be solid growth in house prices is good news for the bulk of the electorate. From the low point in 2012, the market value of the ASX 200 stock index has risen by close to $350 billion, including dividends, which will be a nice boost to retirees and those with a superannuation fund.
The rise in house prices has added around $125 billion to the wealth of residential property holders in the last three months alone. This should be pleasing to the two-thirds of the population that own a house.
Having a job, rising wealth and rising real wages is good news and cannot be due to simple dumb luck. Generally prudent monetary policy and use of fiscal policy in a counter-cyclical way has underpinned the current economic strength.
The polls are showing that the Coalition will romp in at the election in September, even though the mix of hard economic news has rarely, if ever, been better.
Stephen Koukoulas is Managing Director of Market Economics. He writes a daily column for Business Spectator.
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