Australia's economy in free fall - end of the golden weather
December 14, 2014
By Matthew Tukaki (image: Australian Prime Minister Tony Abbott and Treasurer Joe Hockey)
Less than a few years ago Australia was being touted as an economic miracle. The country had seen its way through the heights of the global recession insulated by a strong mining sector and insatiable demand by the Chinese for everything from coal to iron-ore – but, today, the economy is in free fall and the Government is now stuck in between a rock and a hard place.
It is widely anticipated that the Government is going to be announcing further cuts to its expenditure as it releases its mid-year economic forecast (known as MYEFO in Australia) and this has already been foreshadowed as leaks show that the foreign aid budget is in line to take a further reduction hit by more than $300 million. Finance Minister, Matias Cormann told Australian national radio this morning that it was becoming harder for Australia to weather “significant global economic headwinds”
Estimates suggest that revenue is down by a further $6.2 billion in just over six months with the Treasurer Joe Hockey telling audiences that the budget would be a “shock absorber” that will act to protect the economy. The reality is, odds are against the Australian economy with unemployment rising in the Month ended November to 6.3%. This is even though the Australian Bureau of Statistics indicated that there was actually an increase in employment by 42,700 – but once the figures were more closely analysed (and with adjustment to offset the number of jobs lost or those no longer participating in employment) total full time employment only increased by 1,800. The hours of work decreased in November by 4.4 million hours.
Unfortunately for Australia the real impact is going to come as iron ore prices dip even further. In May the Treasurer estimated iron ore prices to be at about $92.00. It is expected that the forecast will reduce dramatically to $60. The Treasurer is blaming the Australian Senate for obstructing legislation to reduce the size of expenditure in the budget – but now, 7 months later, much of the budget has been back flipped on and to make things worse it is about this time of the year that Government departments and agencies begin forecasting what they will need for the next budget due in May.
Mr Hockey suggested that "Without change we are going to weaken ourselves, therefore, we have to undertake economic reform to strengthen the Australian economy, to make us more robust to meet head on the challenges of the future."
And has said of the Senate that "It is important that we allow the budget to continue to be a shock absorber and I say to the Labor party, the Greens and Independents: if you want to see the Australian economy cope better with the challenges that are beyond our control work with us to strengthen the Australian budget,"
It’s been a very bad year for the Australian Government and as if the news couldn’t get any worse the quarterly Choice Consumer Pulse Report has indicated that almost a third of Australian’s are now rating the Government’s handling of the economy as poor. Of course, one could argue that two thirds don’t necessarily agree. However, when you look at the Westpac-Melbourne Institute Index the reality hits home as it showed a marked decrease in consumer confidence by a fall of 5.7% to a level of 91.1.
The latest Newspoll (conducted by the Australian Newspaper) is showing an almost reversal of fortunes between the Labor and ruling Liberal National Coalition with the Opposition now showing a 54 -46% two party preferred lead. The Government hasn’t done itself any favours with a disastrous negotiating style with the cross benches in the Parliament’s Upper House.
The Education Minister has failed to get the higher education reforms through, the Health Minister has been unable to convince the Senate (let alone the public) that a health co-payment contribution would save the budget billions and the Defence Minister claimed that an Australian Government owned corporate responsible for delivering a raft or projects couldn’t be trusted to build a canoe (the projects include large naval vessels and the maintenance of the nation’s fleet of Collins Class Submarines). Of course, the light on the hill has continued to be the Immigration Minister's ability to get his changes through that will see the release of all children from immigration detention centres by Christmas.
This has bought out the inevitable leadership speculation with the Prime Minister being forced to defend his Chief of Staff against attacks – but here’s the kicker – the attacks aren’t coming from the Opposition so much as they are coming from disgruntled Governments MP’s – even, it is claimed, some senior Ministers. Stories abound every day of MP’s backgrounding to the media about the challenges they are facing trying to explain policies that just don’t resonate in the electorate.
Image: The Treasurer and Prime Minister ahead of the May 2014 Budget
Of course, there is rumour of a cabinet reshuffle which will be based largely on performance. In the New Year there is no doubt that casualties will be the Defence Minister and potentially the Treasurer and Education Minister. In fact, even the Health Minister could be up for a change. The Foreign Minister, the Minister for Immigration and the Communications Minister are all high performers – and also seen as leadership contenders.
But therein is the problem for a Government and its members who may very well have been tempted to change leaders to address sagging poll numbers and voter discontent. If they do then they are at risk of losing the argument they ran against the former Government who took a knife to Prime Minister Kevin Rudd in his first term and that led to considerable destabilisation of the replacement Gillard Government. Ultimately the toxicity led to the fall of Gillard and the return of Rudd – all too late as Labour was thumped at the polls. This is not something that the Liberal National Coalition would want to entertain – unless the numbers became so overwhelmingly troublesome.
The fact is the Government is going to face tougher times ahead. Labour is now back in Government in Victoria and as the result of a by-election in South Australia that Government now has a working majority. It is possible that the State of Queensland may return to Labour at the election expected next year with the Northern Territory also potentially heading back to Labour. This would leave only Western Australia, New South Wales and Tasmania in the fold.
So what does this all mean for entrepreneurs and business looking to set-up in Australia? The Government says that the country is open for business but it hardly looks that way. The economy is in trouble and no number of free trade agreements will save it from the need to diversify. Amongst the general public the cost of living is continuing to increase while wage growth has slowed. Voters won’t put up with that for long. Perhaps the one thing that has surprised many is now the number of New Zealanders leaving Australia – a trend that has not reversed in some years. Could it be the sign of a sinking ship when those who came here to build wealth are now getting off and making for the hills?
Here’s the reality though – it actually would not matter who was in Government. The mining boom is over and the opportunities Australia needed to make around the diversification of its economy have been lost over the last decade. This means that the medicine Australians are being asked to take will increasingly be harder to swallow.
Where to from here? Well, that is the thing – no one quite knows and when the left hand doesn’t know what the right hand is doing then you’re in trouble.
About the author: Matthew Tukaki is the editor of EntreHub and Chairman of Deakin University CSaRO and a member of the Board of Suicide Prevention Australia. He led Drake International during the global financial crisis and sits on a number of both private and public sector boards. Follow him on Twitter
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