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Malcolm, don't just stand there - do nothing!

Peter Switzer
18 March 2016

By Peter Switzer

There’s a really good case for Malcolm Turnbull and his Government to do precious little in this Budget but the media just wouldn’t allow it. And frankly, if Scott Morrison framed a really sensible, long-term fiscal strategy, it would probably get called a “do nothing Budget" and Turnbull would continue to be called a disappointment.

Frankly, because we’re at an appropriate time in our economic cycle, my best advice to the PM would be “don’t just stand there — do nothing!”

You see, the economy largely looks pretty good but I’m seeing a few small issues, which means we don’t need to hear any too tough talk from the Treasurer on May 10, if that remains Budget day (as looks to be the case).

The question of when the Budget will be held was basically a media beat up. Stupidly, the Government gave it oxygen by a number of Ministers, who, when asked about the timing of the Budget, kept saying “it would be in May.” Yes but that silly answer kept the door open on a May 3 Budget.

The Government should have said the Budget would be on May 10, until they decided otherwise. If they changed their mind, they could just say conditions changed so the date has changed. After all, as a society, we seem pretty relaxed with broken promises from the likes of BHP-Billiton’s leadership over a progressive dividend, which they dumped a few weeks ago. That was too bad for those investors who bought BHP because the CEO had promised the dividend wouldn’t be cut!

That’s why I yelled ‘sack Jac’ on my Sky News Business channel program, referring to the chairman Jac Nasser. I didn’t get a bull rush of support so I guess we’re comfortable with broken promises.

The good news on the economy that says the Government can avoid short-term change ideas that could spook us all, just as their GST-talk did, looks like this:

  • Economic growth came in at 3% when 2.5% was expected.
  • 3% growth is good for the unemployment outlook, with a number of banking economists now expecting the jobless rate (now at 5.8%) to fall to around 5.5% this year.
  • Job ads have risen in trend terms for 27 months.
  • The weekly ANZ/Roy Morgan consumer confidence rating rose by 3.5 point (3.1%) to 114.8 in the week to March 6. Confidence is up 4.1% over the year and above the average of 111.9 since 2014.
  • The NAB business conditions index rose from +5.4 to +8.3 points in February. And the rolling annual average rose to a 7-year high of +8.3 points. And the business confidence index rose from +2.7 points to +3.4 points. 
  • Tourist arrivals from mainland China and Hong Kong rose to a record 1,305,200 in the year to January up 23.6% over the year – the first time annual tourist numbers have surpassed 1.3 million.
  • There were 96,443 in February, up 6.7% over the year. In the year to February, a record 1,163,684 new vehicles were sold – marking the strongest 12-month period on record.

And now for the slightly worrying stuff:

  • Total lending is down by 7.4% on a year ago – the biggest annual decline in 3½ years.
  • In non-trend terms, job ads fell by 1.2% in February, after lifting by 0.8% in January. It was only the second fall in job ads in seven months.
  • Petrol prices are rising, as the oil price recovers from its recent lows.
  • Banks have raised interest rates for investor home loans and, generally, the interest rates on offer are getting a little higher.
  • The dollar is rising but a lower currency is better for economic growth.
  • A radio adman, who works for a significant network, says ad spends are softening and these kinds of indicators can be predictive of what might lie ahead. 
  • Elections often stop businesses and even consumers from making decisions and talk about negative gearing changes could easily affect property buying and even push up sales, which could bring down prices.
  • Dwelling approvals fell by 7.5% in January, driven by a 9.1% fall in apartment approvals. House approvals fell by 6.1% in January. Over the past year, 231,752 new homes were approved, easing further from the record high 237,242 in the year to October 2015.

As the lists above shows, the economy is looking good but a few negatives are creeping into the picture. That’s why this Budget should be about the long-term. It should focus on infrastructure spending over the next five to 10 years. A tax summit should be proposed for after the election so a new Government can get a consensus on how you create a better and fairer group of taxes that also helps bring down the Budget deficit and the country’s foreign debt.

In a perfect world, Scott Morrison would announce all  the tax stuff above at the Budget but I worry that we (and the economy) are not ready to stomach the hard medicine that might be necessary.

Given that and given that the economy is doing well without much Government interference, then maybe Mal and Scott should keep playing low profile roles. Imagine that — non-grandstanding politicians not getting in the way of the economy — there’s a certain appeal about that!

 

 

 

 

 

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