The Government’s Economic Credentials in Freefall.
If you want more evidence that the present
government is doing its best to wreck our economy, a stark example was
revealed just before Christmas, one that should satisfy the most
hardened of LNP supporters. It further illustrates their lack of
understanding of how our economy works.
When reporting the national accounts figures in early December, Joe Hockey stated that, “We have falling commodity prices and we have weaker wage growth.” Weall knew about the falling commodity prices and why that was happening
but little has been said about weaker wages growth and why that has an
impact on demand.
The LNP believes higher wages lead to higher costs and therefore
higher unemployment. That’s why they oppose them at every opportunity.
But wages growth as at September 2014 was just 2.6% for the year, which
translates to a drop of $2.3 billion in tax revenues from the 2014-15
budget estimates. No wonder Hockey was looking so despondent when
presenting the national accounts. And guess what? Unemployment is
increasing.
You would think it was a no-brainer. Higher wages means higher tax
revenue as well as greater demand for goods and services which then
feeds into more employment opportunities. But, it seems our three
amigos, Abbott, Hockey and Abetz, don’t see it that way. The irony is
that if they had their way, the wages growth figure would be even lower.
In an address to the Sydney Institute last January, Eric Abetz chided employers for being too willing to give in to excessive wage demands. In addition to that he said, “Employersand unions must be encouraged to take responsibility for the cost of
their deals, not just the cost to the affected enterprises, but the
overall cost in relation to our economic efficiency and the creation of
opportunities for others.”
On the face of it one would say this is perfectly reasonable. But the
subsequent actions of the minister throughout 2014 suggest a different
outcome in terms of economic efficiency. On July 1 he cancelled the
Commonwealth guidelines for cleaners on government contracts that
guaranteed them $22.02 per hour.
When their existing agreements expire they will receive the minimum
wage of $17.49 an hour, a 20% cut. That means they will pay less tax.
The offer of 1.5% to the defence forces, the one that got Jacquie
Lambie all fired up, was going to be the benchmark for pretty much every
other wage offer that would be put on the table. In addition, Abetz own
staff were offered a 0.5% increase. Other government agencies will get
nothing.
Bill Mitchell
All of these decisions are contributing to low wages growth that will
continue to impact on tax revenues. As Bill Mitchell, director of the
Centre of Full Employment and Equity at the University of Newcastle told
Peter Martin of The Age:
“It’s as if they don’t join the dots. They’ve got a range of
little narratives that they pull out at different times to suit
different needs. One is wage restraint. That’s to placate business.
Another is the health of the economy. Another is fiscal deficits. They
don’t seem to realise that they are connected,” he said.
This is the reason real wages are stagnant and consumer buying power
isn’t moving. This hasn’t happened since the late 1990s when Peter
Costello began producing surplus budgets and starved the economy of
money.
On that occasion consumer demand continued to grow but was financed
not by wages growth, but by a massive increase in private sector debt,
namely household credit card debt. Households were borrowing to meet
their needs.
Credit card debt today suggests that not much has changed. If wages
growth is constrained to the present 2.6%, credit card debt will
continue to rise and tax revenue will continue to fall. Ultimately this
will lead to a private sector debt bubble and a recession. It’s not
rocket science.
It is pretty obvious that the average man and woman in the street
already realises this. Their opinion of the government’s economic
credentials is in decline. An opinion poll taken in November reveals
that Tony Abbott’s popularity with all voters, but particularly women, suffers in all areas of management, but particularly in the area of the economy.
“While 29 per cent of men rated as good the government’s performance on economy and finances”, only 16 per cent of women did,” writes Jacqueline Maley of The Age.
PerhapsAbbott’s recent reference to the carbon tax and women’s concerns about
household budgeting missed another more crucial factor, i.e. wages
growth or lack of it. The problem is neo liberal ideological paranoia.
So much of what they believe centres on the private sector thriving.
But the private sector is not thriving and if it is allowed to
continue this way without some injection of government spending similar
to Kevin Rudd’s 2008 stimulus, the economy will implode. That’s not
rocket science, either.
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