At the start of the campaign last month, Prime Minister Scott Morrison framed the election as “a choice between a strong economy, and a Labor opposition that would weaken it”.
The economy has been a recurring theme. The campaign began with Opposition Leader Anthony Albanese unable to state the unemployment rate, or the Reserve Bank’s cash rate. It was a bad stumble that had some commentators wondering if Labor’s campaign had blown up at the starting line. Then came news from the Australian Bureau of Statistics that unemployment had fallen to just 4 per cent in March, the lowest level since the current statistical series started in February 1978.
A few days later, the bureau released figures showing the fastest quarterly and annual inflation since the GST was introduced, almost 22 years ago. Finally, the Reserve Bank confirmed the inevitable, lifting its official interest rate, from 0.1 per cent to 0.35 per cent.
Amid this turmoil, and against a backdrop of rising geopolitical uncertainty, bluster and bluff on the economy have come from both sides of politics. The Coalition has repeatedly warned that Labor can’t manage money, that a Labor government would lead to higher taxes and interest rates, and that Albanese is not across the detail needed to manage the economy during a complex period. Labor has focused on the soaring cost of living, rising interest rates, falling real wages and Australia’s flagging productivity performance.
But despite all the talk, both sides have side-stepped the big issues facing our economy, and the significant challenges ahead. The debates have an air of unreality about them, as though the several elephants in the room are being willfully ignored. It is easy to forget that the economy was already weakening before the pandemic struck. Indeed, the last time the Reserve Bank raised interest rates to take heat out of the economy was almost 12 years ago, in November 2010. Ever since, it has cut its cash rate to keep the economy growing, with the productivity gains from economic reforms of past decades long since depleted.
By the time the pandemic struck, the Reserve had delivered no less than 15 consecutive interest rate cuts, taking the cash rate from 4.75 per cent to just 0.75 per cent by October 2019. A further three cuts in 2020 took it to just 0.1 per cent.
This underlying economic weakness was papered over during the pandemic, partly by unsustainably low interest rates, and partly because the Morrison government rightly tipped billions of dollars worth of stimulus into the economy to protect jobs. The Coalition deserves credit for this, particularly for its JobKeeper income support scheme. It also deserves credit for almost bringing the budget back to balance before the pandemic struck.
But The Age is concerned that a day of economic reckoning is coming, whichever side of politics forms government. Getting out of the high inflation environment we are now in will require fresh reforms to lift productivity. At the same time, getting the budget back on track so that Australia can begin to pay off its debts will require fiscal discipline and – potentially – tax reform. So far, both sides have skirted around the real economic debate, instead focussing on rhetorical attacks and often generalisations that count for little.