Last week’s Federal Budget left us all doing the maths on what the new tax changes would cost us investors. One economist, however, thinks it doesn’t go far enough.
Speaking on last night’s new-look Switzer TV, Independent economist Chris Richardson says the federal budget didn’t address the deeper problem facing Australia. Specifically, it doesn’t do anything to tackle the country’s failure to lift living standards over a decade.
Richardson, now operating as a sole trader through his consultancy Rich Insight, is one of Australia’s most-respected economic voices.
He believes the most fascinating test in the years ahead will be whether Australia can change at all.
“In the last, certainly some time, we haven’t had politicians challenging us to change,” he said. “In many ways, if you ignore the particular announcements in the budget and sit back, the most fascinating test will be, can Australia change? We’ve just had the fortieth anniversary of Paul Keating and the banana republic comment, and that kind of grabbed attention, got the public interested around some stuff and realised that there was a need to change. I think there’s a need to change in Australia right now.”
Lifting our standard of living
Richardson’s believes Australia has failed at one of the two jobs an advanced economy is meant to do for its citizens. A nation tries to lift the living standards of the average citizen, and to share that prosperity around. Australia has not delivered the first half of that equation for the past decade.
“Under both sides of politics, we’ve failed on the prosperity front. Living standards in Australia haven’t risen much at all over the past decade. That is making our politics much, much grumpier.”
The gap between citizens’ living standards and where they should be after a decade of growth is the underlying force behind the country’s current discontent. Asked by Peter whether housing reform alone would have been enough, or whether the country needed GST and income tax reform on top, Richardson’s answer was both.
Watch the interview:
“To just look at the budget, I think is not enough. There’s the state budgets, there’s the regulation in Australia, there’s the way we do a bunch of things that is increasingly broken.”
Richardson honed in on the nation’s shocking productivity stall, adding that one big bang like a Budget isn’t enough to jump-start the engine the way Treasurer Chalmers wants it to.
“Most productivity gains occur because of things that move slowly. How well educated is our workforce? What sort of skills are they getting in their workplace? Can they use their skills? Can they move to the next job without getting into trouble? Our non-compete clauses are getting in the way. New technologies, do we run scared of them because they could go wrong, or do we try to get the most out of them?”
“For almost twenty years now, our politicians have not challenged us in ways that would make us more flexible and more productive. We have an economy in which the main answer to most things is no.”
More changes to housing policy needed
The single area of public policy Richardson singled out as most destructive is housing. His view is that the capital gains discount changes in the budget will reduce house prices slightly compared to where they would otherwise have been, but the underlying problem is structural and the budget did not touch it.
“If you actually want to repair affordability in Australia, we have to change our housing policy from being the word no. Or on the rare occasions when we say, okay, you can do something, putting so many rules and restrictions around it that it becomes ridiculously expensive to do that.”
The housing argument links directly back to productivity. If labour cannot move freely because housing in the cities where the jobs are is unaffordable, the entire economy slows down.
The big recession question
Richardson said in his interview that he does see Australia’s economy slowing, but not contracting. His base case is that the economy slows in response to higher interest rates, higher fuel prices, and higher uncertainty, but does not tip into recession.
The wild card is consumer confidence, which Richardson said is now at its lowest level in half a century by at least one measure.
“Australian families are feeling more worried than at any other time in half a century. I don’t think they should be that worried, but the Australian public right now needs a lot of reassurance. Most of the media is talking about this catastrophe, that catastrophe around what might happen. The most likely thing is Australia’s economy slows but does not go into recession.”
The exception, and the variable Richardson said he is watching, is diesel.
“Recession would take further bad news out of the Middle East, fuel prices going up, and in particular if Australia really starts to struggle to get diesel into this nation. We’re not, as of today, but diesel is make or break around recession. Our farmers feed the world, our miners make us the big bucks, our transport sector, they all absolutely rely on diesel. It’s interruptions there that I would see as the major short-term recession risk.”
That framing echoes Amy Lomas from PwC, who made essentially the same call on the show last week, before the budget was delivered.
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