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When as Treasurer Scott Morrison handed down the budget in May 2016, he was projecting GDP growth to be 3 per cent in 2018-19, having risen 3 per cent in 2017-18; inflation was expected to lift to 2.5 per cent in 2018-19 from 2.25 per cent the year before and wages growth was set to reach a healthy 3.25 per cent having picked up from a reasonable 2.75 per cent the year before.
In 2016, Mr Morrison was also of the view that the budget in 2019-20 would be in deficit to the tune of $6 billion, from $15.4 billion in 2018-19.
Fast forward to today and you can see how wrong Mr Morrison has been, how misguided his policy settings are and how it is absurd it is he keeps pretending the economy is doing well.
With his policies, the budget balance has been fast tracked towards lower deficits and then surplus at the expense of the economy sliding into the doldrums.
Last week saw the 2018-19 GDP growth rate come in at 1.9 per cent, equal to the lowest growth rate since the early 1990s recession. Mr Morrison’s earlier GDP projection was too optimistic by over a percentage point.
At the same time, inflation has fallen to 1.6 per cent over the year to the June quarter 2019, to be about a percentage point below Mr Morrison’s earlier projection. And it was a similar miss with wages, which rose by just 2.3 per cent in the year to the June quarter 2019 to fall well short of Mr Morrison’s budget prognostications.
Sluggish economy isn’t an accident
What’s worrying and scandalous is that the weak economy was not caused by some global shock – it has been deliberately engineered.
The failure of the Morrison forecasts is NOT due to any problems with the global economy. Indeed, commodity prices and the terms of trade have delivered huge trade surpluses and a surplus in the current account. The tail-winds to the Australian economy from overseas are roaring and are a critical factor why the economy has avoided recession.
Even though the Reserve Bank clearly should have been more proactive in its policy settings, it has, to its credit, moved interest rates to record lows as it tries to do some of the heavy lifting to get the economy out of the slow lane.
The economic problem also lies with the misguided tea-party economics of Mr Morrison and his Treasurer Josh Frydenberg as they work to lock in a budget surplus at the expense of economic growth, jobs and wages.
Recall that in the 2016 budget, the forecasts were for budget deficits of $15 billion in 2018-19 and $6 billion in 2019-20.
Significant policy error
When Mr Frydenberg releases the final budget outcome for 2018-19 in the next few weeks, it is likely to show a budget close to balance, some $15 billion tighter than the 2016 estimate.
For 2019-20, it is a similar degree of tightness with a budget surplus close to $7 billion still on the cards. This is again some $13 billion different from the estimate in Mr Morrison’s 2016 budget.
This has been brought about by a significant policy error.
The government is pulling tens of billions of dollars out of the economy in its quest for a budget surplus, money that would otherwise be used by tax payers to spend in the economy, adding to jobs, growth and even inflation.
The return to surplus is crimping economic growth.
Morrison and Frydenberg like to talk of the $100 billion in infrastructure spending over the next decade as evidence of its pro-growth policies.
That $100 billion is proverbial chicken feed with the economy set to produce $25 trillion in economic output over that time.
In less than two years, Australian’s will spend more on cafes, restaurants and take-away food than the government will spend on infrastructure in a decade.
‘Dumb’: Morrison would have us believe in signs of good policy management
The $13 to $15 billion per annum tightening in the budget is just under 1 per cent of GDP meaning that just about all of the slowdown seen in the last year can be attributed to the fiscal policy tightening implemented by Mr Morrison, a tightening that is squeezing private sector demand and forcing unemployment higher.
Perhaps this helps to explain the exasperation of RBA Governor Lowe who in an unusual step, is pleading with the government to spend more, tax less and pay public servants more to ensure the economy picks up some much needed momentum.