The Australian economy has been sliding since 2011 but Canberra is not helping.
Indeed the thousands of job losses since September 2013 have not been compensated by job creation and the economy risks shrinking – hopefully not like the UK economy’s 10- per-cent shrink since the GFC.
An early warning in December 2013 came from a prominent business leader, NAB Chairman, Michael Chaney, highlighting patchy business confidence in the absence of clear policy from Canberra, compounded by the high exchange rate, a soft labour market, Canberra’s efforts to return the budget into the black and wary consumers saving; all conspiring for the Australian economy to continue its downward slide.
Let’s look at the canary in the mine: Rex Airlines announced that its corporate business has dropped significantly throughout the regional Australia network it services; as the Australian economy is slowing down.
Upon taking office, Prime Minister Tony Abbott promised “a methodical, measured and unrushed approach” of his government and there would be ”no climate of unnecessary haste”. That was six months ago.
Now, more than ever, Abbott and his Treasurer urgently need to articulate their economic vision and outline the roadmap required to achieve this in the near future. Business cannot wait until the first Hockey budget in May 2014 because the economy is more important than government fiscal activity, as explained further below.
Since 2008, Australia’s economy weathered the Global Financial Crisis better than most Western economies but since then the economy has been slowly moving sideways, indeed, spiralling downwards since Julia Gillard negotiated a minority government in August 2010.
However, the business sector, the engine of the Australian economy, continues to suffer an investment hiatus because there appears to be no clear plan for kick-starting the economy since the election.
The small business sector, in particular, pinned hopes on a surge in economic activity after the Coalition government won office. Instead, there has been a ‘dead cat’ bounce since the election. Recently-released growth rate statistics only shows a rear-view mirror of decisions taken years ago.
The business community still awaits economic leadership and direction from the Abbott government.
Investment activity remains on hold, with negative effects cascading throughout the economy. Indeed ABS statistics released at the end of February reveal investment fell 5.2 per cent in the last quarter of 2013, equalling the worst during the GFC.
Abbott’s long-term plan is to cut taxes, underpinned by scrapping the Carbon Tax and the Mineral Resource Rent Tax; getting the budget “back into the black”; and to be remembered for infrastructure-building.
Unfortunately both taxes cannot be scrapped until July 2014 and that is contingent on Abbott facing a less hostile Senate (all the while his government has earned $232 million from the former and somewhat less for the latter taxes).
Budget cuts not only aim at cutting the public service but more importantly at cutting programs and targeted grants to stimulate certain sectors of the economy, for example tourism in regional Australia.
Planning for infrastructure-building has a very long lead time, so there won’t be jobs created during the current term of the Abbott government. Indeed, Abbott is unwinding the only new but costly NBN infrastructure project.
Abbott’s ‘laissez faire’ ideology has led to increasing blood-letting of Australian jobs in manufacturing companies such as Electrolux, Alcoa, Holden, Toyota, SPC Ardmona, Forge and the supporting upstream industries reliant on these, and now spilling into the service companies of Qantas and Sensis.
In coal-rich Queensland, 12,000 jobs were lost in January. WA unemployment rose to 5.1 per cent from 4.6 per cent the preceding month, compared to 4 per cent in January 2013. Only SMEs can make up for these tens of thousands of job losses but, without clear direction from the Coalition Government, investment remains in abeyance, projects remain on-hold, and economic growth remains stunted. What is the short-term plan, Mr Abbott?
Hockey’s mantra of “living within one’s means” is commendable, and there is a strong symbiotic relationship between business and governments to achieve this. But let’s not forget that individuals invariably take out mortgages when purchasing a home. Can Hockey not take out a ‘mortgage’ for the sake of growing the Australian economy?
There is a perception by the finance commentariat (“On the budget and the economy, Joe Hockey is faking it” Michael Pascoe, SMH, 4/3/14, here ) that the current government is simply blinkered towards addressing the government budget deficit at the expense of the economy. Simply put, the Australian Government budget is $400 billion and the overall Australian economy is $1.5 trillion – in other words – only 26.7 per cent of GDP. Let’s not forget or neglect the remaining 73.3 per cent!
ABS statistics predict a 17 per cent fall on investment for 2014-15 compared to the current financial year. Hardest hit is mining investment down by 25 per cent, followed by manufacturing down 20 per cent. This lack of direction, coupled with the strong dollar, and Canberra’s ambivalent attitude to foreign investment (viz. Hockey’s blocking of a US-based global grain group bid for GrainCorp in November 2013), is not conducive to encouraging either a domestic or foreign led investment to kick-start the economy.
Given the lag factor for investment activity to flow throughout the economy and its effect on creating employment, the Abbott Government could well find itself in an unenviable position of achieving a surplus budget by the end of its term but having neglected the rest of the economy in the lead up to the next election.
The only way to turn around the investment and unemployment crises is for Prime Minister Abbott to clearly enunciate his economic vision and short-term plan now so that Australian business can get back to work. The way forward is to scrap the Prime Minister’s $5.5 billion paid parental leave scheme and instead give $4 billion to small business in tax concessions.
Phil na Champassak owns The Madsen Boutique Hotel in Penguin and is a founding board member of the Cradle Coast Innovation Inc fostering enterprise facilitation. He is also a board member of the Cradle Coast Tourism Executive, the regional tourism organisation for NW Tasmania. Formerly a diplomat and DFAT policy analyst, Phil has worked on trade, aid, public diplomacy, consular, international security, and bilateral relations with PNG, the US, and NZ, and was most recently DFAT State Director for Tasmania. Prior to that Phil worked for the UN Development Programme in New York, West Africa and PNG. Phil also served as election monitor to the first elections in Cambodia (1992) and South Africa (1994) and was a peace monitor in Bougainville (2002). He has contributed to publications on human rights, election monitoring, and UN issues. Awarded in 2003 a Australian Service Medal. Phil was a guest of ABC Radio Richard Fidler’s ‘Conversations’ in November 2013.