The real issue in that event would be whether tax cuts are simply handed back to voters, Howard style, or they are used to eliminate inefficient taxes or encourage investment.
In short, the Coalition’s commitment to tighter fiscal policy is unlikely to materially affect overall growth, although if broader economic conditions are soft, blindly following a tighter fiscal policy will exacerbate that softness and may precipitate a downturn. The Reserve Bank will have some additional room to cut interest rates, but the stimulatory impact of monetary policy is likely to decline, given the RBA already has rates at extraordinary lows. On monetary policy and finance more generally, Joe Hockey has promised a major inquiry into the financial system, and also seemed to suggest he will be more effective at convincing the big banks to pass on all interest rate cuts. If that were the case, the RBA would actually be able to cut rates less, knowing the full cut will be delivered through to consumers.
A tighter fiscal policy might also place upward pressure on the dollar, by reinforcing Australia’s safe haven status, especially if the RBA has little room left to further cut rates?—?but again, the material effect is likely to be limited.
Economic growth might also benefit from any rise in consumer confidence that comes from the return to majority government, potentially flowing through to retail sales, although retail’s “problems” are primarily structural rather than due to a lack of consumer vim and vigour.
But nothing in the Coalition’s current policy set appears aimed at addressing the persistent stagnation of residential construction, which the RBA is hoping will pick up the slack through this year as the mining investment boom peaks and comes off the boil.
The Coalition policy to cut red tape worth $1 billion a year, while worthy, is unlikely to have any significant economic impact; as the majority of red tape costs are in the time and resources required for compliance (particularly for small business), such savings are likely to be absorbed directly by business, and in any event are too small to produce a noticeable difference to economic growth.
And any additional investment generated by reductions in red tape may be offset by increases in reporting requirements for foreign investors proposed by the National Party, re-regulation of wheat sales at the behest of an uncompetitive section of wheat industry and the imposition of even more “anti-dumping” laws, an issue on which the Coalition appears determined to outflank Labor to the Left.
The Coalition is, however, likely to have mixed fortunes on productivity, which it identifies as a priority. Multifactor productivity is likely improve naturally as the vast spate of mining projects currently under construction mature. It may also benefit from greater investment in infrastructure, which is the goal of Robb’s (inaptly-named) infrastructure bonds proposal, although that will be balanced by the abandonment of the NBN in favour of Malcolm Turnbull’s bizarre, copper-based FTTN proposal.
Workplace relations reforms intended to give employers more power to drive productivity reforms will, perversely, likely lead to reversals of the labour productivity gains currently occurring under Labor. The decline in labour productivity under WorkChoices has been well-established and indeed was predicted by Treasury prior to the introduction of those reforms; any move back toward WorkChoices-like workplace relations laws are likely to once again send labour productivity into reverse. On the upside, there is likely to be fewer days lost to industrial disputes. Against that, the restoration of the Australian Building and Construction Commission will see a rise in the number of construction workers being killed and injured on the job.
The Howard government presided over a significant increase in workforce participation (one area where Labor has performed poorly). A more generous paid parental leave scheme may help marginally, as will IR deregulation (a key reason for the decline in labour productivity under WorkChoices was the entry into the workforce of poorly skilled workers made more employable by the ease with which they could be sacked). It should also be noted that a big rise in participation will send the unemployment rate up, with more people looking for work.
And whatever gains have been made in the decarbonisation of the Australian economy by the time the removal of the carbon price is achieved are likely to be reversed under the Coalition; its “direct action” policy is grossly underfunded and, in the absence of a fairly significant funding increase?—?of some billions?—?is likely to ensure Australia fails to achieve its emissions reduction target by 2020.
All up, the economy under the Coalition is on current evidence unlikely, at least over the course of its first term, to look significantly different to how it looks now, assuming similar conditions. A global slowdown or difficulties in China would mean slower growth and demand more fiscal flexibility from the Coalition that its hairy chested rhetoric now suggests. But that picture may change substantially once we start seeing some real detail about what Joe Hockey would do as Treasurer.
This article was first published on LeadingCompany’s sister site, Crikey.
