Leaders warned: ditch surplus, cut taxes

Economists and business leader have warned Scott Morrison and Bill Shorten over their respective economic visions.

NAB group chief economist Alan Oster.

Scott Morrison and Bill Shorten have been urged to abandon surpluses and bring forward tax cuts in the next parliament to steer the economy through sluggish growth and an escalation of the US-China trade wars.

With pre-election uncertainty over the economic impact of climate change, housing and industrial relations policies, economists, chief executives and business leaders yesterday warned of inter­national and domestic headwinds, fuelled by political division and foreign trade disputes.

As voters head to the polls on Saturday, both Labor and the ­Coalition have struggled to explain the economic costs of their plans to overhaul climate emissions and the energy sector, and the potential impact of Labor’s $32.5 billion negative gearing crackdown.

National Australia Bank chief economist Alan Oster, a senior adviser at Treasury for 15 years, said neither the Coalition nor Labor was going into the election with a plan to stimulate a slowing economy. He said the Coalition should bring forward its $143.9bn personal income tax cuts to the early part of the next term of parliament, while Labor should dump plans to raise taxes on high-­income earners.

Both sides plan to reduce the tax rate for businesses with a turnover of less than $50 million from 27.5 per cent to 25 per cent in 2021-22.

“The economy needs help, and sure, you are going to get rate cuts but I don’t think that is going to help that much,” Mr Oster said.

“In the short term, you might have to bring forward the timing of some of these tax cuts in particular.

“They all argue over what is happening over the next 10 years, which as far as I am concerned is sort of garbage, because no one ­really knows what is going to happen. They have got no idea whether they are going to have a recession in the next five years or not. And if you have one, all those 10-year numbers are garbage.”

The NAB monthly business survey, released yesterday, showed conditions in the economy had fallen to their lowest point in three years. It was driven by a sharp decline in employment conditions, which fell below average for the first time since late 2016, suggesting the jobless rate will soon rise off its recent seven-year low.

Mr Oster has forecast growth to fall to 2.1 per cent next year, below the Reserve Bank’s expectation of 2.75 per cent.

The Prime Minister’s record as an economic manager is set to come under the spotlight in the days before the election, with inflation figures released today and jobs numbers tomorrow.

Mr Morrison yesterday used an escalation in the US-China trade war to warn it was the wrong time to switch to a Labor government.

“These tensions are not good for the global economy, and they are not good certainly for the ­regional economy,” he said.

The Coalition has accused Labor of planning to raise $387bn in taxes over the next decade, including $32.5bn from changes to negative gearing and $58bn from its franking credits crackdown.

Labor has not costed the economic impact of its 45 per cent emissions reduction target.

Mr Morrison said “we are facing more uncertain times economically over the next three-five years”.

“Australia is going into another difficult period. And so the issue for Australians is, do you want to go into that period, if you vote Labor, with higher taxes weighing down the Australian economy?”

Opposition Treasury spokesman Chris Bowen conceded there was a risk that worsening global economic conditions could have an impact on Australia.

“That’s why Labor has taken the IMF’s advice in seeking to rebuild Australia’s fiscal buffers now,” Mr Bowen said. “Labor is the only major party with a respon­sible budget plan that will encourage greater investment in the economy and ease cost-of-living pressures on low- and middle-­income earners, while running bigger surpluses to pay down debt.”

A deterioration in trade negotiations between the US and China sent the local sharemarket tumbling to its biggest fall in more than seven weeks yesterday, with the S&P/ASX200 sliding nearly 1 per cent to 6239.898 points. China announced duties of 5-25 per cent will take effect on June 1 on about 5200 American products, including batteries, spinach and coffee.

This was in retaliation for US President Donald Trump last week raising tariffs from 10 per cent to 25 per cent for $US200bn of Chinese imports.

Deloitte Access Economics director Chris Richardson said the trade war was looking “for the moment” like shaving 0.2 to 0.3 per cent off the nation’s economic growth.

Business has expressed concern about the ALP’s industrial relations platform but is critical of the Coalition’s lack of a new workplace policy agenda.

As well as reversing penalty rate cuts and urging the Fair Work Commission to back an above-­inflation pay increase to 2.3 million minimum-wage and award-reliant workers, Labor has a suite of proposals it aims to legislate this year, including changes to stop employers “gaming the system”.

Australian Chamber of Commerce and Industry chief executive James Pearson said the Coalition should keep industrial relations reform on the table, despite Mr Morrison last week saying the case for IR changes had not been made by business.

Suncorp chief executive Michael Cameron said: “Australia needs a stable government with a consistent approach to policies, and represen­tatives who will back business and investment to deliver a strong economy.”

Frasers Property Australia chief executive Rod Fehring called for a debate about longer-term linkages between property, population and employment.