Contest over who has best plan to grow the economy

The Australian economy hit the brakes in the last three months of 2018, with farm output wounded by drought and a tapering off of activity in the housing industry. Gross domestic product grew by an insipid 0.2 per cent in the December quarter, to be up by 2.3 per cent in the year; a year ago the national economy was growing at above 3 per cent. In 2018, public works and more public servants were the mainstay of GDP growth. Weak wage rises and the negative impact on household wealth from the home-price slump are behind the reluctance of consumers to swipe their cards or splash cash. The second successive fall in GDP per capita — a proxy for living standards — casts a shadow on the Coalition’s economic credentials. Strong population growth, especially in Sydney, Melbourne and southeast Queensland, has been stoking the economy. Ahead of the April 2 budget and the federal election campaign, yesterday’s national accounts figures are a reality check for Scott Morrison and Bill Shorten.

Both leaders are road-testing their slogans but the nation needs much more than a spending spree and a class war. After a bipartisan reform hiatus following the global financial crisis, the budget is in deficit, debt levels are high and productivity rates are abysmal. The nation needs to go for growth. Public spending, including healthcare and the National Disability Insurance Scheme, is keeping the economy ticking over. So, too, are big-ticket government infrastructure projects such as WestConnex in Sydney, Melbourne’s Metro Tunnel and the Bruce Highway upgrade in Queensland. These are important projects, to be sure, but falling private sector investment is a drag on growth, as the mining boom shifts from the construction phase to production. One bright note in the figures was oil and gas production increased by 7.7 per cent in the quarter. Even though employment continues to grow and the labour market tightens, the economy remains in drift and wages, while not quite stagnant, are rising at a slow rate. This is worrying and perplexing, as Reserve Bank governor Philip Lowe noted yesterday.

While the RBA, almost alone, holds to a 3 per cent GDP growth forecast, private sector economists are paring back their estimates; financial markets are factoring in a cut in interest rates sooner rather than later, perhaps more than one this year, to stimulate the economy. Labor’s Treasury spokesman Chris Bowen, who may be the steward within months, was scathing about the Coalition’s economic management, giving it an F for a “quarter of failure”. While the Coalition’s internal travails and minority status have not helped consumer or business confidence, Mr Bowen’s rhetoric is overcooked, a symptom of national politics.

Searching for a ray of joy in the accounts, Treasurer Josh Frydenberg pointed to solid growth in nominal GDP, the basis for tax collections, which was in line with improvement in the prices for our exports. Last year, the company tax take increased by 12 per cent as profits boomed, while personal tax rose by 8 per cent. The cash surplus projected in the budget’s mid-year update for next financial year is razor thin, as are balances projected in the years ahead. In that fiscal update last December, Treasury wound back its real GDP forecast for 2018-19 to 2.75 per cent from the 3 per cent expected in last May’s budget. This GDP result casts a pall over Treasury’s economic forecasts for the coming year and “out years” and expected surpluses; it demands restraint during the federal campaign. There is no scope for reckless spending promises or crazy policy auctions in the months ahead.

What is required is a national economic strategy, not a carve-up of a shrinking pie. Mr Shorten yesterday embraced the ACTU’s concept of a “living wage”, which would require a hike in the minimum wage. That’s a recipe for rising running costs and wage inflexibility, especially for small and new businesses, and goes against the tripartite approach of a partnership with business pioneered by Bob Hawke in the 1980s. Mr Shorten claims he wants co-operation to improve growth, productivity and prosperity. But the Labor leader knows better ways to wages growth are through the improved health, education and skills of workers and profitable businesses.

The Prime Minister must also sketch out a plan for economic renewal. A fear campaign invoking a recession under Labor may win ground on some days, in some electorates, but his rival will remind voters of the “recession in living standards” they are experiencing. The Coalition should outline a program for achieving higher rates of GDP growth and incomes through productivity-enhancing reforms. The goal should be to lower taxes on business, facilitate investment, lower trade barriers, encourage research and development, and provide better infrastructure. As well, Canberra has to rein in spending on itself. The call on the public purse for aged care, health and pensions can be sustained if cuts are made to programs that pump up the bureaucracy and do nothing to raise the productive capacity of the nation. The party that best demonstrates mastery of a growth agenda deserves the support of voters.