Public patience wearing thin on Labor’s economic vision

For Treasurer Jim Chalmers, a man who wrote his PhD thesis on how Paul Keating held power having risen from treasurer to prime minister, the recent dismal news on the economy and the blowout in budget deficits revealed in the federal government’s mid-year update surely represent a Rubicon of sorts.

Treasurer Jim Chalmers at a press conference on the MYEFO data this week in Canberra.Credit: Alex Ellinghausen

The figures from the Australian Bureau of Statistics showing that growth in the September quarter was an anaemic 0.3 per cent, that annual growth was the worst – with one exception – since Keating’s “recession we had to have” in 1990-91, and that GDP per person had fallen by 2.2 per cent, or $1660, over the past year, were an unmistakable call to action.

The exception on annual growth is an important one: the recession that hit Australia during the COVID-19 pandemic. That once-in-a-century event led to two decisions – one fiscal, one monetary – that haunt our politicians now.

The first was the decision to throw government money at people to combat the feared impact of lockdowns. As our economics editor, Ross Gittins, wrote, “the medicos had no idea how bad [the pandemic] would be or how long it would take to develop a vaccine, and like all governments everywhere, our government and its econocrats decided it would be safer to do too much than too little”.

The second was then-Reserve Bank governor Philip Lowe’s decision in February 2021 to state publicly that interest rates were unlikely to rise until 2024 in a bid to encourage spending at a time of continued uncertainty.

Each of these decisions plays into the difficulties facing the Albanese government. In August, Chalmers rejected the idea of increasing government spending before the election, telling our Inside Politics podcast: “What we’ve shown is a willingness to make the right economic decisions for the right economic reasons, and the politics, I believe, will take care of themselves if you get those big calls right.”

Yet, this week’s mid-year economic and fiscal outlook numbers show billions of dollars in extra spending, while the tax burden is still being carried mainly by wage-earning individuals, and the money government collects from tobacco, petrol and diesel excise is set to dwindle even further. Much of this spending is needed to address long-term failures to properly fund care for the elderly and children, as well as the promises made by successive federal governments over the GST.

In his interview with The Age this week, Chalmers insisted that progress was being made. “We’ve been able to keep unemployment very low,” he said. “We’ve been able to create a million jobs. We’ve been able to get real wages growing again. We’ve been able to see inflation moderate.”

The question is whether the treasurer’s talk of a “soft landing” will convince voters that the government is doing enough to alleviate the hardship they are experiencing. While interest rates are still not coming down, it’s difficult to see the politics taking care of themselves. Public patience has worn thin.

While Chalmers was criticised for his September remarks on the RBA’s maintenance of high interest rates, leading economists are now wondering aloud whether the bank needs to rethink its approach. It has consistently pointed to the risk of wages growth fuelling inflation, a risk that shows little sign of becoming reality.

In his Age interview, the treasurer warned that the opposition’s approach would have the country in recession. But it is difficult to get people to rally around the idea that they could be worse off in some alternative reality.

What is real is the pain experienced by Australians on variable-rate home loans, whose response to higher interest rates is always going to be curtailed spending in other areas of the economy. As we have reported, people are working extra shifts, dipping into their savings and avoiding medical appointments to cope with cost-of-living pressures. It is scarcely surprising there is anger.

The government failed to sell its vision of the Voice to parliament to the Australian public. It’s still not selling its vision for the long-term future of our economy, or how that vision will be paid for. As long as our demand for improved services from government grows, without structural changes to our system of taxation, politicians are going to struggle to make ends meet, fiscally and politically. Or as senior economics correspondent Shane Wright put it, “the Australian goose could be cooked”.

As for the government’s goose, Chalmers’ forecast that “there will be more savings, there will be more restraint, and there will be more announcements” shows the government is caught between the need to have an appetising election offering and the fear of piling debt on future generations.

He surely hasn’t forgotten the line in his thesis that states: “[Keating’s] downfall was the result of the ultimate power wielded by the Australian electorate used to devastating effect.” The clock is ticking.

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