MYEFO: Voters right to be wary of fine print in the forecast

Treasurer Josh Frydenberg on Thursday. Picture: Gary Ramage

Josh Frydenberg could not have wished for a better set of monthly employment numbers, with the easing of Covid restrictions in NSW and Victoria reversing October’s jobless surge to help deliver a remarkable jump of 366,100 jobs nationally in November.

While the Treasurer was talking up the labour market recovery, the fine print of the government’s mid-year economic outlook offered a more sobering picture for workers just months from casting their verdict on the Morrison government.

According to the Treasury, after years of stagnating wages, inflation is forecast to outstrip wages growth this financial year.

In short, the Coalition, by its own admission, is promising to deliver a cut in real wages in an election year.

The timing of Thursday’s strong labour force figures just an hour before Frydenberg made his latest pitch to voters was fortunate for the government. Not so the surge in daily Covid cases in Victoria and NSW which should have been enough to make even the most rusted on Liberal voter sceptical about some of the key assumptions underpinning the economic forecasts.

While a “temporary strengthening of activity restrictions” might be required to respond to rising case numbers, the forecasts assume no more lockdowns.

Treasury also says “the Omicron variant is not assumed to significantly alter current reopening plans or require a reimposition of widespread health and activity restrictions”.

This looks like a courageous assumption. As Reserve Bank of Australia governor Philip Lowe noted on Thursday, the Omicron outbreak “does represent a downside risk and it is difficult to know how things will develop from here. But we do expect the positive momentum in the economy to be maintained through the summer …”

Given Morrison will go to an election by May, he will welcome Lowe’s comments about the months ahead. But voters are right to be wary.