It’s time for Treasurer Jim Chalmers and Finance Minister Katy Gallagher to explain

Government spending has been driving employment for some time, so why did retail spending suddenly take off in late October/November? Picture: NewsWire / Martin Ollman

With the Parliament now shut down it’s time for Treasurer Jim Chalmers and Finance Minister Katy Gallagher to go out into the real world and discover what is actually happening.

The large, non-food retailers have had an incredible sales month in November that is far above last year and beyond anyone’s expectations. While the Black Friday sales were spectacular they merely topped off a remarkable month.

Those large non-food retailers who report to their shareholders that sales were sluggish in November have a structural problem.

Certainly, among those with structural problems are the smaller stores on the “High Streets” of Australia.

While most held their ground in November they did not enjoy the boom. Longer term, to survive, they will need to adapt to a changed world.

If Reserve Bank officials leave their Martin Place bunker and check on the real world they will have enough information to prevent rate cuts later this month.

By February, the official figures will be available and any thought of lower interest rates will be banished.

Those within the Reserve Bank who were advocating for higher interest rates will now have their case strengthened, but I don’t think it’s likely that the Reserve Bank will lift interest rates on the eve of an election.

Clearly the battlers with rent and mortgage stress are not part of the November retail charge but, even in this area, as I will describe below, there may be a surprising development.

There are two clear reasons why areas of the economy such as non-food retail are surging ahead and taking lower interest rates off the short term agenda.

A large number of Australians, particularly those in the public service have received substantial pay rises and state and federal governments are spending money like drunken sailors.

Most states, led by Victoria, are going deeper into debt and there is no sign of any major restraint in spending so consumers are feeling it’s time to spend.

The job market is tight because of direct government hiring and hiring by enterprises relying on government income.

At some future point credit markets will tighten and force well overdue public service administration cuts but at this stage the sky is clear.

Both Chalmers and Gallagher need to tell the Australian public the truth and explain that interest rates are high as a result of big spending both from Canberra and the states.

And we also have a $660bn energy spending plan spread over the next 25 years that will substantially increase the cost of electricity and from time to time there will be power crises.

As part of its spending the Federal government will subsidise power but, of course, the Reserve Bank does not take that into account in assessing underlying inflation.

Government spending has been driving employment for some time and so why did retail spending suddenly take off in late October/November?

Here I am in speculative territory but let me canvas three possible reasons.

Firstly, and the least speculative of the reasons, is that large segments of the population have built up their savings rate, including the tax cuts, and are sick of not spending.

Their balance sheets and income levels are better than they were six months ago and they like spending money. A few discounts late in October and early in November plus intelligent marketing triggered the pent up demand.

Secondly, opinion poll after opinion poll show that the popularity of Prime Minister Albanese is falling and so for some affluent spenders there is now a real possibility of a change in government including a proper energy policy. This boosted confidence.

My third reason is the most speculative of all. As I moved around the nation I discovered a twinkle in the eyes of those who arrange the so-called “Part Nine” debt arrangements. These groups boomed prior to Covid but since then have had lean times.

During the Covid years, bankruptcy proceedings were frozen and more recently there has been a lot more restrained lending by banks including credit cards. Other forms of financing are emerging and banks are very reluctant to evict people from their houses so there is an inner confidence among those under mortgage stress.

“Part Nine” debt arrangers believe his latest spending spree may represent the last throw of the dice by those that are over extended. There are all sorts of restrictions on those who can enter a “Part Nine” agreement with unsecured creditors and a great variety of different agreements.

But in the boom days the most common agreement was an acceptance by creditors of around 65 cents in the dollar of principal and the regular payments at about the minimum level stated on credit cards. The alternative is bankruptcy.

“Part Nine” organisers think that there is a great deal of hidden debt distress which will be brought to the surface in 2025 via a late rush of non-bank borrowings in the current retail spending boom.

But the vast majority of the boom is not driven by those in trouble but rather those with pent up savings that they were itching to spend.