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Our economy isn't "going down" and influentials like Andrew Bolt need to tell the real story for the sake of the Australian economy and the people he talks to each day.

Why Andrew Bolt is wrong on Malcolm Turnbull

Peter Switzer
2 February 2016

In case you’ve missed him, the arch-right winger, Andrew Bolt, is back from holidays and is again on 2GB, 4BC and 3AW with Steve Price at nights from 8pm. I hear them as I come home from Sky News after doing my TV show and I just want to set Andrew right.

Andrew, you’re wrong when you say the economy is “going down”, as you declared last night. This was said in the context of his criticism of Malcolm Turnbull and his Treasurer, Scott Morrison, for not doing anything since they assumed power in the country’s top jobs.

He is right on that subject. It is really hard to point to anything substantial that has come from the new team in Canberra. However, as an economist, I’d argue that Mal and Scott have inherited an improving economy, so it doesn’t need anything that could jolt us off course.

Fortunately, after listening to Andrew for some time, I’ve heard him admit that his knowledge of economics isn’t impressive so he’s probably influenced by some of the influential, right wing economics commentators in the media.

These people are smart but biased and their inclination to say sort out the Budget Deficit and our foreign debt problems always dominates their analysis, which means they opt for ‘responsible’ policy options that could really hurt a vulnerable economy that’s on the improve.

Only months ago, the Fairfax press ran with stories of forgettable economists from well known financial institutions, who were tipping a very high likelihood of a recession for Australia. This could be one reason why Mal and Scott have delayed tough policies. Their talking about a GST going to 15% is worrying enough but at least they’re canvassing a tough issue that needs to be talked about.

I know Andrew is a big Tony Abbott fan. Even though Abbott did act on a lot of his promises, such as turning back the boats, killing the carbon tax and the mining tax, he didn’t go as far down the GST and overall tax reform road as the new team. He probably wanted to but wasn’t popular enough to pull off a GST debate. That was part of why the Government changed teams.

His unpopularity meant Joe Hockey went for a more stimulatory Budget in 2015 and this partly explains why the economy is on the improve. The lower dollar is also proving to be a big boon as well. And don’t forget that interest rates are at historically low levels but this has really hurt low-income retirees, who love the safety of higher term deposit rates.

The key goal of Canberra and the Reserve Bank is to get the economy growing faster. Therefore, scary, responsible policies, such as spending cuts that would slow the economy down, when the private economy is still wary of the GFC effects even after seven years, have to be delayed.

I know right wing commentators need to complain about something but doing too much scary stuff too quickly isn’t wise right now. Of course, when growth is stronger, then Canberra must tackle the debt issues that Labor let slide but I have to say the economy was weakening towards the end of their regime.

Andrew referred to Treasury boss John Fraser, who last week said we have to get serious about deficit reduction. He’s right but the timing of it is important. Fraser has also said that if we can grow at 4% for four years then our deficit disappears!

This 4% is out of our reach for some time but 3% growth isn’t. However, you won’t get even 3% if the Government cuts back on spending too hard now. The Government has to lead the private sector to get it more positive then it has to gradually withdraw.

Then a faster growing economy will raise tax revenue and have less government spending on things such as the dole, so the deficit will start to fall. However, growth is critical.

On the economy right now, here are the good things that say growth is improving but it doesn’t need dramatic deficit/debt destruction tough talk out of Canberra, just yet:

  • The Australian economy grew by 0.9% in the September quarter, after a 0.3% increase in the June quarter. Forecasts had centred on 0.8% growth in the economy in the quarter and the result was the best in 18 months!
  • Home prices were up by 7.4% over the year to January but they rose in just four of the eight capital cities in January. This means we don’t have a worrying home price boom but we’re doing OK, considering the RBA has tried to slow price growth down.
  • The Performance of Manufacturing index fell by 0.4 points to 51.5 in January. Any number over 50 means the sector is expanding but that expansion isn’t fast enough to cope with tough policies out of Canberra.
  • Inflation is only 1.7% so the economy isn’t going gangbusters yet, so again tough policies now are not appropriate,
  • At the end of the September quarter, a record 194,252 homes were being built – the most in Australian history. This is the sector that will help to offset mining’s demise.
  • Consumer confidence is falling because of stock market worries but it has been positive and above the 100 reading, following the change in PMs. The Westpac/Melbourne Institute index of consumer confidence fell by 3.5% in January to 97.8, so why would Canberra get tough now when the stock market is spooking everyone?
  • However, we are starting to borrow again, with total new loans (personal, business, housing and leasing) rising by 1.4% in November to a 7½-year high of $75.4 billion. Total lending is up 20.1% on a year ago.
  • Vehicle sales were at record highs over the 2015 calendar year.
  • In November, a record $22 billion in home loan commitments was actually advanced to borrowers, up 30.5% over the year.
  • The unemployment rate is 5.8%. Remember when economists were tipping it would peak at 6.5%? This is an improving economy and this number proves it.
  • A total of 301,300 jobs were added over 2015, the strongest calendar year gain in nine years. Even if the ABS is wrong by half that number (and I don't think it is), 150,000 new jobs would be a great effort. (Hockey and Abbott helped create these jobs too with their last Budget.)
  • Job vacancies rose by 3.5% to 167,600 in the three months to November – the highest result in over three years. Job vacancies are up 11.8% on a year ago, so the future is looking OK too!
  • Tourist arrivals from mainland China totaled 1,013,700 in the year to November – the first time annual tourist numbers from the country have breached one million. This shows how the lower dollar will help the economy going forward.
  • The ANZ/Roy Morgan look at family finances found they were in the best shape in seven years!

I could go on but even sight-challenged Freddy could see that we have an improving economy that has some challenges here and there but the growth outlook is on the improve. However, you wouldn’t want to rattle confidence right now.

I suspect the May Budget will reveal more about the plan ahead but if the economy keeps getting stronger (as I suspect), then we’d be ready for some real policy changes after the Budget and then the election.

Too many economists underestimate the importance of confidence because they’ve never run a business. Since Malcolm took control, business confidence has started to rise. Yesterday, the Australian Chamber of Commerce and Industry (ACCI) business confidence reading confirmed it with a big spike.

Sure, I know it’s not all Malcolm. The economic story above is a big part of the tale and Joe and Tony were in that, but a lack of confidence in Canberra until Malcolm Turnbull took over can be seen in all of the graphs for business, consumer and voter confidence.

There will be a time for tough talk and tough policies but that time is not right now. However, our economy isn’t going down and influentials like Andrew Bolt need to be telling this positive story for the sake of the Australian economy and the people he talks to, and on behalf of, each day.

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