ABC blinkered by ‘race call’ approach to economics

ABC political reporters on TV and radio should do some courses on economics and business.

Director of News Gaven Morris speaks during the ABC Annual Public Meeting in Ultimo, Sydney, last Friday.

ABC news director Gaven Morris may be well advised to consider sending some of his political reporters on TV and radio to courses on economics and business.

Many key journalists at the public service broadcaster show little understanding of economics and business. Like the left-wing Fairfax metro dailies, the received wisdom at much of the national broadcaster is left wing and anti-business on matters financial.

So the sharemarket is either the province of greedy billionaires ripping off workers or it is about to collapse, sending modern capitalism into the Dark Ages. Never mind the millions of ordinary Australians whose retirement nest eggs are invested in shares through the national $2.4 trillion superannuation scheme.

Ditto property prices. The ABC and Fairfax have been forecasting the collapse of residential property prices for five years. Readers and listeners who either did not buy homes or sold out early believing this tosh have done their dough.

As every finance journalist worth their salt knows, markets overshoot, periods of strong market growth in which share valuations get ahead of historic price/earnings ratios need market corrections and Sydney property prices never collapse — they fall a few per cent for those who must sell and flatten for a few years for everyone else before the upward march resumes. But market fundamentals don’t exist in the minds of some journalists. Trickle-down economics does not work because Frenchman Thomas Piketty wrote a book saying it doesn’t, tax cuts for business won’t stimulate the economy, Donald Trump can’t take any credit for the 12-month boom in share prices but he sure is responsible for the correction of the past week. Never mind the US real economy has responded exactly as economists predicted it would to Trump’s pro-business, tax-cutting agenda. Just as it did to Ronald Reagan’s agenda in the 1980s. Go figure.

On Sunday last week The Australian Financial Review’s political editor Laura Tingle, who really does know much better, said on ABC Insiders that most people knew 30 years of trickle-down economics — the idea workers benefit from stimulatory tax cuts for business — had not worked for them. The success of Paul Keating and Peter Costello cutting taxes should have convinced her, if not the public, otherwise.

Years of modelling by the National Centre for Economic Modelling in the noughties showed the bottom decile of Australian society was benefiting most in percentage terms from the economic reforms of the Hawke, Keating and Howard governments, and tax reform was a key part of their agenda.

All this blew up on Q&A on Monday night with a heated clash between ACTU secretary Sally McManus and Australian Chamber of Commerce and Industry boss James Pearson about plans by the Turnbull Government for more tax cuts for business — plans this paper on Friday said might have to be shelved. Deloitte Access Economics partner and former Treasury economist Chris Richardson explained on Q&A that in a world of mobile capital, lower corporate rates here would attract extra international investment which would eventually lift wages.

He said record low interest rates, low inflation and low wages growth were creating jobs. Indeed, the US has created 3.6 million new jobs in the past two years.

McManus demanded proof company tax cuts would lift wages. She said Britain had been cutting corporate tax rates for 10 years but wages had gone backwards. Pearson pointed out that many small business owners in Australia were earning less than the national median award wage.

But Richardson nailed McManus on the link between company tax and wages. How did he know? “Listen to all the experts, the modellers,” he said. He also said the large deficits of the past decade were ensuring the wealthiest generation in history was borrowing from future generations. He opposed personal income tax cuts and thought paying down the deficit was more important.

The real issues suppressing wages growth across Europe, the US, Canada, Japan and here have been increased competition from workers in China and India and the quantitative easing by the world’s central banks after the global financial crisis. In essence, workers are bearing the cost of policies that News Corp chairman Rupert Murdoch predicted in 2014 would only make the rich richer by lifting asset prices, channelling investment away from production and jobs into speculation.

By Tuesday morning Sabra Lane was on the case on ABC radio’s AM program, demanding to know from Treasurer Scott Morrison whether he would consider emulating Japan, which is moving to force corporates to lift wages in return for lower taxes. Morrison did not say so but the idea of emulating a mercantilist economy such a Japan’s should be a joke to serious commentators.

Lane cited research from the Greens’ preferred anti-business think tank, the Australia Institute, showing people would prefer better services to corporate tax cuts (wow, who would have guessed?). Morrison tried to explain why growing the economy was more important than slicing the economic pie equally.

Lane referred to the various versions of the Accord with the trade union movement in the 1980s, but Morrison pointed out that was a period of low wages growth. Indeed, containing wages and making the nation internationally competitive was precisely the reason that former PM Bob Hawke and ACTU secretary Bill Kelty agreed on the accord.

Later on RN Drive, Patricia Karvelas kept up the theme with Finance Minister Matthias Cormann. She demanded to know if he had modelling to prove tax cuts for business would eventually — you guessed it — trickle down as wage rises.

Now, no one is saying questions of wealth inequality in society are not important, as are questions of intergenerational equity. It’s just that the labour movement and the unions generally have always been more interested in those who pay union dues than the unemployed.

Chris Richardson and fellow panellist and former Reserve Bank board member Heather Ridout spoke the truth to union power when they said the real equity issues were low unemployment benefits and the lack of economic power held by the young.

As Keating always used to say, the best form of welfare is a job.

The situation of workers since the post-GFC slowdown in real wages growth is not all bad. Sure, childcare, education and health costs are up but inflation generally is low at 1.9pc. Unemployment is low at 5.4pc, house prices have doubled in the capital city markets and most superannuation has risen more than 10 per cent a year for the past two years.

Unemployment benefits, however, are low at $538.80 a fortnight for a single person with no dependants. This compares with a minimum wage of $694.90 a week or $1389.80 a fortnight, almost three times the minimum single benefit. Unemployment is dominated by the young, who also are failing to make headway in the housing market.

What does all this mean for journalism? Journalists should avoid the “race call” approach that views tax questions only through the lens of polling popularity, suggesting personal tax cuts would be more electorally advantageous than company tax changes. They should try to understand longer-term national interest questions.