Easy solutions and complex realities
GREG JERICHO
Last week we saw a glimpse of the narratives we can expect to see from Julia Gillard and Tony Abbott in their election bids. While one acknowledged complexity, the other delivered only spin, says Greg Jericho.
Last week the Prime Minister and Leader of the Opposition both gave speeches at the National Press Club on similar issues, but from quite different perspectives: one saw a complex world; the other, easy solutions.
It's rare for a politician to acknowledge complexity in an argument because it often involves admitting the worth of the other side's point of view and sometimes your own policy's failures.
Thus it was rather stunning last Wednesday to see the Prime Minister begin her speech with, as she put it, "a warts-and-all look at who we are today and the opportunities and risks which confront us".
She noted for example that travel times for workers was increasing "by as much as an hour and a half in the past decade" and that "as many as 1 in 6 workers spend more than an hour every day getting to and from their job".
She also noted that the price of electricity and gas has "increased by 120 per cent in the last decade and 26 per cent in the last two years".
Given the ALP has been in power for half of the past decade and all of the past two years, this is a pretty stunning way to begin a speech in an election year.
Gillard then acknowledged the two competing realities that "despite low inflation and low interest rates, we still feel these pressures on living standards".
Tony Abbott's speech last Thursday also began by addressing the cost of living, but he saw no low inflation, nor any complexity. He merely noted that, "It's clear to us what you, our fellow Australians, want: you want less pressure on your cost of living." His solution was simple: "The carbon tax will be gone - so power prices will fall."
The reality of course is that electricity accounts for on average 2 per cent of households' annual expenditure; it's just that the bill comes in a big whack so people notice it.
It is an axiom of politics that you can never tell voters that they've never had it so good. But the cost of living figures released last week by the ABS showed that the increase in annual cost of living is currently running significantly below average.
For employee households, cost of living growth is lower than it has been for over 10 years (outside the GFC):
For all household types except pensioners, the growth in cost of living in the past year has actually been less than the inflation rate, with pensioners' cost of living increasing by 2.3 per cent compared to 2.2 per cent for the CPI.
The Prime Minister also discussed superannuation returns and wealth, and noted that there were some periods during the 2000s where household savings were actually negative as people massively invested in property and shares and borrowed on the equity of their homes to do so. She said of that period of 8 to 10 per cent housing price growth:
It was a phase that could not last - but unsurprisingly, many Australians miss those days when they could spend all of their income, see wealth increase through ever-rising house prices, and through easy credit, borrow against the house again to spend more.
In short, the party's over, folks. John Howard had no real issues with the housing bubble, saying in 2003 that in fact he welcomed it as a good thing. But the binge of cheap money and booming consumption has ended - and the GFC was the mother of all hangovers. In the five years prior to the GFC, the stock market grew at around 15 per cent each year. In the five years since, it has struggled to get back to even.
Is it any wonder company tax revenue has fallen, and people are saving more and investing in shares less?
When Tony Abbott turned to this sector of the economy he maintained a GFC-myopia, saying, "People are saving at levels not seen in 20 years because no one trusts this government to save and few believe its claims that the economy is in good shape."
You would hope with such a large lead in the polls that Mr Abbott might feel secure enough to acknowledge that historically the economy is actually in good shape. He might not think it his job to do so, but surely one can acknowledge reality and still argue your policies are best to serve the nation in the future?
Both leaders also referred to the terms of trade.
Once again it was the Prime Minister who acknowledged the complexity of the issue and Tony Abbott who delivered the spin.
The Prime Minister noted that although our terms of trade had fallen the value of our currency had not - in fact it has risen. "Consequently," she said, "we have to have a plan which can withstand the possibility of a persistently strong dollar into the future - not simply rely on the economic assumption that our dollar will fall."
Whenever discussing the terms of trade, you also need to be mindful of the value of our currency. A comparison of the price of commodities in US and Australian dollar terms shows that while the price of commodities in US dollars is now above where it was prior to the GFC, in Australian dollars, the prices are 30 per cent below that peak.
It's one of the chief reasons why despite strong terms of trade, we are not seeing a boom in company tax like in 2003-07.
The Opposition Leader however was having none of that, instead suggesting:
In 2004-5, with unemployment at about five per cent, the Howard government delivered a surplus of one and half per cent of GDP despite terms of trade almost 40 per cent lower - yes, lower - than last year when the Gillard government delivered a deficit - a deficit - of three per cent of GDP.
But "terms of trade" is not taxation revenue, and it would have again been nice for Mr Abbott to acknowledge that in 2004-05 the Howard government's revenue was 25.6 per cent of GDP. Indeed, had the current government had such revenue at its disposal it would have run surpluses every year except 2009-10.
Moreover, the expected Government outlay for 2012-13 is less than all but two of the years of the Howard government. The reason a surplus is unlikely to occur this financial year is not because of a blowout in spending, but because revenue again will remain at historic lows - unlikely to reach 24 per cent of GDP. The only year the Howard Government ever collected less than that amount was in 1997-98.
To adjust to this reality, the Prime Minister foreshadowed cuts in the budget that would lead to "substantial new structural savings". This government has made a habit of talking big on cutting hard in the budget and generally falling short, so it remains to see what will occur - especially within the context of an election year.
On this aspect Tony Abbott did achieve a type of complexity - that of logic - when he announced the Liberal Party would cut the school kids bonus, which is only for parents receiving Family Tax Benefit A, while at the same time attacking the ALP for suggesting cuts to middle-class welfare, were "attacks on the middle class.... because the family tax benefit and the private health insurance rebate are tax justice for families, not handouts."
Both speeches of course were lost in the burble of politics - the Prime Mister smothered her own speech by using it to announce the election date; Tony Abbott's speech was old news before he finished as word broke of Craig Thomson's arrest. Both they each gave a strong indication of the narratives the leaders will attempt to tell from here till September 14.
Prior to the Prime Minister's speech the Opposition's education spokesman Christopher Pyne declared, "Rhetoric [and] platitudes: people are sick of them." On the basis of these two speeches, one leader clearly is not sick of them just yet.
**********
Not being the most understanding and knowledgeable person when it comes to politics and the shape of our economy I found this article quite interesting and informative.
GREG JERICHO
Last week we saw a glimpse of the narratives we can expect to see from Julia Gillard and Tony Abbott in their election bids. While one acknowledged complexity, the other delivered only spin, says Greg Jericho.
Last week the Prime Minister and Leader of the Opposition both gave speeches at the National Press Club on similar issues, but from quite different perspectives: one saw a complex world; the other, easy solutions.
It's rare for a politician to acknowledge complexity in an argument because it often involves admitting the worth of the other side's point of view and sometimes your own policy's failures.
Thus it was rather stunning last Wednesday to see the Prime Minister begin her speech with, as she put it, "a warts-and-all look at who we are today and the opportunities and risks which confront us".
She noted for example that travel times for workers was increasing "by as much as an hour and a half in the past decade" and that "as many as 1 in 6 workers spend more than an hour every day getting to and from their job".
She also noted that the price of electricity and gas has "increased by 120 per cent in the last decade and 26 per cent in the last two years".
Given the ALP has been in power for half of the past decade and all of the past two years, this is a pretty stunning way to begin a speech in an election year.
Gillard then acknowledged the two competing realities that "despite low inflation and low interest rates, we still feel these pressures on living standards".
Tony Abbott's speech last Thursday also began by addressing the cost of living, but he saw no low inflation, nor any complexity. He merely noted that, "It's clear to us what you, our fellow Australians, want: you want less pressure on your cost of living." His solution was simple: "The carbon tax will be gone - so power prices will fall."
The reality of course is that electricity accounts for on average 2 per cent of households' annual expenditure; it's just that the bill comes in a big whack so people notice it.
It is an axiom of politics that you can never tell voters that they've never had it so good. But the cost of living figures released last week by the ABS showed that the increase in annual cost of living is currently running significantly below average.
For employee households, cost of living growth is lower than it has been for over 10 years (outside the GFC):
For all household types except pensioners, the growth in cost of living in the past year has actually been less than the inflation rate, with pensioners' cost of living increasing by 2.3 per cent compared to 2.2 per cent for the CPI.
The Prime Minister also discussed superannuation returns and wealth, and noted that there were some periods during the 2000s where household savings were actually negative as people massively invested in property and shares and borrowed on the equity of their homes to do so. She said of that period of 8 to 10 per cent housing price growth:
It was a phase that could not last - but unsurprisingly, many Australians miss those days when they could spend all of their income, see wealth increase through ever-rising house prices, and through easy credit, borrow against the house again to spend more.
In short, the party's over, folks. John Howard had no real issues with the housing bubble, saying in 2003 that in fact he welcomed it as a good thing. But the binge of cheap money and booming consumption has ended - and the GFC was the mother of all hangovers. In the five years prior to the GFC, the stock market grew at around 15 per cent each year. In the five years since, it has struggled to get back to even.
Is it any wonder company tax revenue has fallen, and people are saving more and investing in shares less?
When Tony Abbott turned to this sector of the economy he maintained a GFC-myopia, saying, "People are saving at levels not seen in 20 years because no one trusts this government to save and few believe its claims that the economy is in good shape."
You would hope with such a large lead in the polls that Mr Abbott might feel secure enough to acknowledge that historically the economy is actually in good shape. He might not think it his job to do so, but surely one can acknowledge reality and still argue your policies are best to serve the nation in the future?
Both leaders also referred to the terms of trade.
Once again it was the Prime Minister who acknowledged the complexity of the issue and Tony Abbott who delivered the spin.
The Prime Minister noted that although our terms of trade had fallen the value of our currency had not - in fact it has risen. "Consequently," she said, "we have to have a plan which can withstand the possibility of a persistently strong dollar into the future - not simply rely on the economic assumption that our dollar will fall."
Whenever discussing the terms of trade, you also need to be mindful of the value of our currency. A comparison of the price of commodities in US and Australian dollar terms shows that while the price of commodities in US dollars is now above where it was prior to the GFC, in Australian dollars, the prices are 30 per cent below that peak.
It's one of the chief reasons why despite strong terms of trade, we are not seeing a boom in company tax like in 2003-07.
The Opposition Leader however was having none of that, instead suggesting:
In 2004-5, with unemployment at about five per cent, the Howard government delivered a surplus of one and half per cent of GDP despite terms of trade almost 40 per cent lower - yes, lower - than last year when the Gillard government delivered a deficit - a deficit - of three per cent of GDP.
But "terms of trade" is not taxation revenue, and it would have again been nice for Mr Abbott to acknowledge that in 2004-05 the Howard government's revenue was 25.6 per cent of GDP. Indeed, had the current government had such revenue at its disposal it would have run surpluses every year except 2009-10.
Moreover, the expected Government outlay for 2012-13 is less than all but two of the years of the Howard government. The reason a surplus is unlikely to occur this financial year is not because of a blowout in spending, but because revenue again will remain at historic lows - unlikely to reach 24 per cent of GDP. The only year the Howard Government ever collected less than that amount was in 1997-98.
To adjust to this reality, the Prime Minister foreshadowed cuts in the budget that would lead to "substantial new structural savings". This government has made a habit of talking big on cutting hard in the budget and generally falling short, so it remains to see what will occur - especially within the context of an election year.
On this aspect Tony Abbott did achieve a type of complexity - that of logic - when he announced the Liberal Party would cut the school kids bonus, which is only for parents receiving Family Tax Benefit A, while at the same time attacking the ALP for suggesting cuts to middle-class welfare, were "attacks on the middle class.... because the family tax benefit and the private health insurance rebate are tax justice for families, not handouts."
Both speeches of course were lost in the burble of politics - the Prime Mister smothered her own speech by using it to announce the election date; Tony Abbott's speech was old news before he finished as word broke of Craig Thomson's arrest. Both they each gave a strong indication of the narratives the leaders will attempt to tell from here till September 14.
Prior to the Prime Minister's speech the Opposition's education spokesman Christopher Pyne declared, "Rhetoric [and] platitudes: people are sick of them." On the basis of these two speeches, one leader clearly is not sick of them just yet.
**********
Not being the most understanding and knowledgeable person when it comes to politics and the shape of our economy I found this article quite interesting and informative.
