The ABS said the industries driving the rise in GDP in the quarter were manufacturing, mining, health and finance, with each contributing 0.1 per cent to the increase. The terms of trade fell 2.7% in the quarter to be down 13% over 2012 and the savings ratio was steady at just over 10%, indicating continuing consumer caution. The ABS also noted that GDP per hour worked (in trend terms) rose 0.5% and Gross Value Added (the market sector) per hours worked rose 2.3% through the year.
Clearly that productivity crisis is still raging along!
But more than ever the national accounts are more backward looking than normal because there are tentative signs of a small uplift in the level of activity in the economy. So, all the more reason for the RBA to sit on the sidelines for now, waiting to see how much impact its previous cuts will have, a stance supported by the December quarter’s figures.
Now, in the good old days of spend-a-thon election campaigns and “budget bounces”, the RBA could have relied on a budget just a couple of months out from an election to provide some domestic stimulus. But both sides are instead trying to convince voters the other can’t be trusted on spending.
The focus of the beleaguered Gillard government is to use the May budget to construct the “structural savings” needed to pay for its Gonski education reforms and the national disability scheme. Both will take heroic efforts of long-term budget cutting and rebalancing.
That’s appropriate in the long-term, yes, but the May budget also needs to complement the RBA’s focus on kickstarting a housing-led recovery and lifting the performance of the non-mining economy. The government would argue its recent ‘manufacturing package’ will help boost investment, but, that package, where it will be effective, is more about making our manufacturing sector more innovative and competitive in the long-term.
If the government had kept its eye on the housing supply issue after that went off the boil in 2010, it might not need to rely on fiscal measures to help kick start the housing sector. But that issue was put on the backburner once the headlines about Asians buying Our Homes disappeared from the papers.
And the Coalition’s fiscal policy is a bizarre mix of magic pudding and ferocious discipline. We’re being told savage cuts are needed to end the Labor profligacy and voters can’t have things there’s no money to pay for, but somehow that everyone will come out better off at the same time. If you listen to Joe Hockey, a new Coalition government will be slicing a huge whack of demand out of the domestic economy with further big spending cuts. If you listen to Tony Abbott, everyone will somehow come out ahead.
But oppositions have the privilege of irresponsibility and confusion. Governments have to govern, even when they’re campaigning. A key test of the budget will be whether Labor takes on challenge on working with the RBA to engineer the transition to the post-mining boom economy.
In the early 1990s, another Labor government was tasked with managing the climb-down from a period of unsustainably high growth brought about by the unleashing of Australia’s finance sector by the Hawke-Keating reforms. “Soft landing” was the mantra from the Hawke government as the RBA ratcheted rates up and the government applied the brakes and embraced further reform.
But there was no “soft landing” — policymakers both in Martin Place and Canberra botched it, badly, and gave us a recession that people now joke about as “the one we had to have” but which cost hundreds of thousands of Australians jobs and left many unemployed for years.
Engineering the transition to the post-boom economy doesn’t – we hope – come with quite the same risks of human misery. But it demonstrates what can happen when these key transition points aren’t handled well.
This article first appeared on Crikey.
