It’s a gloomy vibe, for sure, but one that Labor must use to its advantage if it is to have a decent chance at getting the budget back on track this decade.
Tough love for a tough nation.
A tired country has endured an elongated pandemic and its attendant short fuses, debilitating episodes of drought and flood, and now faces a new world of pain next year – obscenely higher electricity prices, falling home values, pay packets that don’t buy as much, job losses and a tumble in stellar export prices.
The Treasurer is preparing the way for more difficult conversations with voters next year, because Labor and the Coalition avoided “straight talk” and long-term budget reality when they fought a bitter, bloody election five months ago.
Chalmers risked losing Labor’s bank of goodwill in his first big outing on the national stage by showcasing “Grim Jim”, but he had little choice if he wants policy credibility over the long haul.
Bad news is already dribbling through, but it’s going to get a lot worse as inflation surges and stays high and the Reserve Bank hikes interest rates to chase after its tail.
Household budgets will be belted and the pain will fall on those who can least cope with it, and naturally look to Labor for a helping hand.
That’s the background to Labor’s re-election bid and salvation – saying No to more cost-of-living relief because the budget cannot cope is a high bar.
In its commentary about the economic outlook, Treasury puts the risks in stark terms – insipid global growth and consumer spending at home, the two drivers of our post-pandemic recovery.
“Over the coming year, synchronised tightening in monetary policy poses the most significant downside risk to global demand,” Treasury warns as central banks put the squeeze on inflation.
A global recession or “hard landing” can be avoided, but war in Ukraine and big trouble in China could push the world economy to the brink, as the former hits supply and the latter stifles demand.
Treasury has modelled a bracing scenario where global inflation and global interest rates are higher than expected. In this miasma, a number of advanced economies, which narrowly avoid recession in the baseline forecasts, do fall into recession.
Growth in Australia’s major trading partners slips to 0.75 per cent in the year to March 2024. Since the global financial crisis our major export markets have averaged growth of 4 per cent.
Treasury says slower global growth mostly affects our economy through financial market and trade channels, with lower exports due to weaker demand. Under this view, our growth bottoms out at an abysmal 0.75 per cent in the year to June 2024, or half the vanilla baseline.
The unemployment rate would peak at 5 per cent in mid-2025, rather than the 4.5 per cent base forecast, and much higher than the current 3.5 per cent. Consumer spending would then take an almighty hit.
Treasury also looks at a purely domestic downturn in spending, brought about by higher interest rates to fight a surge in inflation.
If inflation persists, and goes to 8.75 per cent by the end of this year (rather than the baseline of 7.75 per cent), the consequent jobless rate would rocket.
Treasury warns this “weaker outlook could see households exhibit precautionary savings behaviour”, raising the jobless rate to 5.25 per cent.
Labor’s nightmare for employment and growth is if the domestic and global risks occur at the same time, just as Anthony Albanese is making his case for a second term. Budget repair won’t get a look in.
Labor is building a more resilient island for uncertain times
This election is a choice between the stability we are providing and our plan to build Australia’s future, and the risk posed by our opponents.
What have we done to deserve Labor?
Surely we are capable of better than this: a limp discussion among second-rate people of second-order issues – such as who can offer the biggest handout – is the sure sign of a nation in decline.
As he whipped his first budget speech to its climax on Tuesday night, Jim Chalmers suddenly strummed a melancholic, minor chord: “Australians know there are hard days to come, and hard decisions to accompany them.”