Time you’re told the truth about the economy

The PM said people are ‘feeling pressure as a result of global inflation’. Global inflation? Actually, inflation is back under control in most like-for-like nations around the world.

Unfortunately, Anthony Albanese’s solution will elongate the high inflationary times we’re living through, reducing the chances of interest rate cuts this year, writes Peter van Onselen. Picture: NCA Newswire / Gaye Gerard

The Prime Minister held his first media conference for the year on Wednesday, flagging cost-of-living relief for Australians doing it tough. They are doing it tough because of unnecessarily high inflation, which isn’t coming down nearly quickly enough.

Failures of fiscal and monetary policy settings sit alongside economic reform neglect. Unfortunately, the PM’s solution to their woes will elongate the high inflationary times we’re living through, reducing the chances of interest rate cuts this year.

While Anthony Albanese deployed rhetoric to stipulate that he didn’t want to stoke inflation when providing cost-of-living relief, anyone with the most basic understanding of economics knows that’s all but impossible. The PM said people are “feeling pressure as a result of global inflation”. Global inflation? Actually, inflation is back under control in most like-for-like nations around the world. Here, however, it is too high, at 5.4 per cent. That’s because of domestic policy settings, which we will return to shortly.

If the government spent as much time working to solve national problems as it does spinning falsities, voters might have more respect for the job they currently aren’t doing.

Choose your country of comparison: Canada’s inflation rate is 3.1 per cent; in the United States it is also 3.1 per cent. The UK is 3.9 per cent, Germany 3.2 per cent, France 3.5 per cent.

Across Europe, inflation averages just 2.4 per cent. With my Dutch heritage, I’ll throw in The Netherlands too, at 1.6 per cent.

Closer to home it’s 2.6 per cent in Indonesia, 2.8 per cent in Japan, 3.2 per cent in South Korea and 3.6 per cent in Singapore.

Having read all these figures, that are within or close to the Reserve Bank of Australia’s target range of 2-3 per cent, where does the Prime Minister get off claiming Australia’s 5.4 per cent inflation rate is part of a “global inflation” problem? It was a problem overseas, but not anymore.

Remember when unions, the Greens and even some Labor MPs lampooned former Reserve Bank governor Philip Lowe for putting interest rates up too quickly in a bid to get inflation under control? There were calls for him to resign and be replaced (which he ultimately was) – and even for government intervention.

The economic ignoramuses were enjoying their full moon, at the urging behind the scenes of some ministers who really should know better.

The false rhetoric the PM deployed in his first media conference for 2024 is all about deflecting blame for the economic pain Australians are going through, as the nation battles stubbornly high inflation which is in fact primarily a result of domestic factors. The (mis)use of spin is also a portent of what’s to come this year. While Albanese ruled out an election in 2024 that doesn’t mean we won’t endure a year-long election campaign ahead of an early election next year, turning this year’s May budget into an election budget.

Australia’s high inflation problems are being fuelled by wages growth (in some sectors), budget profligacy (which is only going to get worse in an election year) and industrial relations laws, which won’t be fit for purpose when the economy eventually slows. They will instead contribute to higher unemployment.

Back-slapping about a balanced budget also ignores the structural deficit and baked-in spending from the pandemic years. Neither side of politics was prepared to slice into pathological overspending, which has been a key factor stoking inflation.

Treasurer Jim Chalmers even gloated about somewhat anaemic economic growth figures in the back half of last year, calling them “steady and sturdy”. The nation may not be in a technical recession right now, but that’s only because half a million new migrants arrived in a single calendar year. On a per capita basis, we’re already in recession, making it a high inflation per capital recession. Not the sort of combination any politician should be proud of, nor an easy sell at an election. No wonder voters are ­beginning to question the government’s economic management credentials.

Perhaps the PM wasn’t being deliberately misleading and deceptive with his global inflation furphy. He might not realise what the inflation rates abroad really are now. Or he might have simply been comparing us to, say, Argentina and Turkey, both of which are caught in hyper-inflation cycles. Our inflation rate looks good in such company. But I suspect no one in the government wants to compare us with Turkey, much less Argentina: basket case economies to be sure.

False rhetoric has always been a feature of politics, but it needs to be called out. Our problems are home grown and therefore are capable of being corrected with domestic policy decision making. If only the political class of today had the reforming courage of generations past.

For that to happen, substance will need to trump the superficial, which means the cabinet must lift its game. By supporting wage rises only hand in glove with productivity improvements. Otherwise, inflation will be entrenched, eroding any wages rises and then some.

Stage three income tax cuts have already been legislated, but when they take effect halfway into this year, they will certainly be inflationary. Addressing the stifling impact of bracket creep is the greater evil needing treatment, because sky high taxes on human capital reduce labour market productivity. Luckily, there are plenty of ways for a reforming government to concurrently ameliorate the inflationary impact of stage three: via GST reform, rent and wealth taxes, and fixing the tax and transfer failures within the federation. Unluckily, this government won’t do that.

The problems don’t end there. Growing the size of government doesn’t sustain a modern economy in and of itself; private sector growth does that. Big government is possible only if it supports a vibrant private sector economy that pays for it. Via policy settings that reflect our social liberal capitalist construct rather than run counter to it. Profits aren’t evil, as long as taxation settings are appropriately structured and enforced. That requires heady reform, which happens only when politicians do more than plod. Unfortunately, there are more plodders than performers in parliament these days.

Peter van Onselen is a professor of politics and public policy at the University of Western Australia and Griffith University.