Before the release of the Mid-Year Economic and Fiscal Outlook, there was a lot of talk that it would be the beginning of a concerted attempt by the Abbott government to reset the economic narrative. As it turned out, the release coincided with the Martin Place siege, and therefore received hardly any coverage on the day. More significantly, the government has done nothing with the MYEFO statement since its release. Treasurer Hockey issued a media release on the day, and nothing since. Finance Minister Cormann did a couple of media interviews on the day, then nothing. Tony Abbott has been completely silent.
The reason is obvious enough, and has been noted by quite a few commenters already (but I will restate the case anyway). The MYEFO report undermines the government’s policy narrative in several crucial respects. Key elements of that narrative are:
* Debt and deficits are always bad, are now at catastrophic levels and are the product of Labor profligacy
* More labour market reform is needed to prevent a wages explosion resulting in higher unemployment
* The mining sector is the key to Australian prosperity and was unfairly burdened by the carbon and mineral resource rent taxes
MYEFO undermines all of these stories. It shows debt and deficits growing as a result of weaker revenue, exactly as happened under Labor. And, given that Treasury is sensibly advising against further tightening, the government now has to retreat from the claim that it will bring the budget back to surplus in its first term (again the comparison with Labor is obvious). It’s worth restating that the modest downgrade in the MYEFO estimates does nothing to change the fact that Australia does not have a public debt problem.
As regards wages, not only does MYEFO not that wage growth (low and stable for many years) has been weaker than ever, this is noted as one of the main factors leading to the decline in revenue growth
Finally, the end of the mining boom undercuts the idea that did so much to propel Abbott to power: that the mining sector is the basis of Australian prosperity and should be assisted at all costs. Despite the cosseting it has received from both federal and state LNP governments, the mining industry has never employed that many people and is now shedding jobs rapidly. The good side of this is that the overvaluation of the $A driven by the mining boom is finally fading, with the result that the net impact of the end of the boom is forecast to be quite small. We have much more to fear from a renewed global financial crisis than from a decline in mineral prices.