Government stress showing as economy starts to falter

An unmistakeable air of confusion and looming crisis has engulfed the federal government on the economic front with inflation still too high, growth stalling and big business reeling at the impact of industrial relations reforms and the whip hand they deliver to unions. By lashing out at the Reserve Bank over interest rate policy, Jim Chalmers has effectively sought to shoot the messenger. His claims on Monday that there was nothing new in his comments that the economy was being “smashed” by the RBA’s tough line on rates told only half the story. The Treasurer failed to acknowledge the RBA’s hand was increasingly being forced by high levels of public sector spending from federal and state governments, with more to come. The federal budget remains in structural deficit with a sharp rise in borrowing over the forward estimates. Lifting rates to crush demand is the RBA’s only weapon to rein in inflation. Its job is being made more difficult by government. And the pain is being disproportionately shifted to the private sector, where company failures are at a high level and unemployment is rising.

Subsidised power bills, higher welfare and rent assistance, more care economy workers and subsidised wages might ease the immediate pain for some people. But it will only make the RBA’s job more difficult.

Big business has belatedly joined the dots on what the federal government’s IR policies entail and has started to push back. As we report on Tuesday, Workplace Relations Minister Murray Watt will hold crisis talks with frustrated West Australian mining companies and business chiefs to ease concerns about dire economic consequences triggered by Labor’s multi-employer bargaining and same job, same pay rules. After meeting union officials on Monday, Senator Watt will convene a business roundtable on Tuesday where he will seek to allay fears that unions will use multi-employer bargaining laws to undermine the Pilbara mining region. WA business leaders claim the union movement is moving to re-unionise the Pilbara with pattern bargaining in a throwback to the dysfunction of the 1980s. The result is likely to be less investment, a less productive economy and continued higher inflation.

Dr Chalmers’ latest attack on the RBA is a recognition that economic growth is faltering. Stung by criticism of the comments, the federal government sent mixed signals. Assistant Immigration Minister Matt Thistlethwaite said: “We don’t want to see the Reserve Bank go too far, we want to make sure that we do continue to grow as an economy and, importantly, the people remain in employment.” Anthony Albanese later said: “The Reserve Bank, of course, is independent, and so we don’t tell the Reserve Bank what to do.” The problems for the government are reflected in the latest Newspoll, where the Prime Minister’s personal approval rating has fallen to its equal lowest level since he took office.

The bad news for Peter Dutton is that voters are not convinced the Coalition would do a better job on the economy, with only a quarter of voters believing inflation would be lower under the Coalition, while 18 per cent ­believe it would be higher. Both sides must act quickly to lift their game. Labor must take seriously the likely impact its IR changes will have across the economy. And the Coalition must put forward a plan to convince voters it has the answers to improve productivity and grow the economic pie.

Failure to do so will only increase the chances of a hung parliament, in which the Greens will have a stronger hand to push their economy-wrecking ideas on housing, mining and retail.