Prepare for Government Economic Rhetoric Change

Get set for a change in rhetoric from Prime Minister Tony Abbott and his government on the performance of the economy.

In the weeks and months after the Budget, Mr Abbott and his government are likely to flick the switch from ‘economic gloom, crisis and emergency’ to ‘sound, prudent economic management’. In doing so, it will be trying to sway public opinion towards giving his government the credit for what was already a strong economy with triple-A rated levels of government debt. In hard, macroeconomic terms, nothing much will have changed pre- and post-budget, it will just be the way Mr Abbott characterises the economic information that changes. It is important to recall that it has been at least a decade since Australia has had any significant or sustained problem with economic growth, the cost of living, the budget or government debt. Indeed, the economy is into its 23^rd year of continuous economic growth and Australians are amongst the richest people in the world with the unemployment rate one of the lowest. In the last couple of years, the Coalition Parties under Mr Abbott have trashed talked the economy with emotive and erroneous discussion about economic conditions. In doing so, Mr Abbott and his cronies have achieved the ultimate reward, an election win, by suggesting things are grim with the economy ‘flatlining’, being ‘wiped out’, ‘in ruin’ and ‘a wreck’ and that Australia is confronting a budget emergency. Now having been in power for eight months and with the Treasurer, Mr Hockey, delivering his first budget, Mr Abbott’s tactics have to change. Such is the imperative of the three-year election cycle that Mr Abbott wants to use the months after the budget and then the period into 2015 to use the on-going favourable economic news as a platform for his 2016 election campaign. Mr Abbott’s rhetoric is likely to be canvassed around the ‘tough’ decisions his government have taken up to and including the budget. Mr Abbott will claim that his government has made those decisions to ‘fix the budget mess’ left by Labor. This rhetoric will probably coincide with further news of strength in the economy as consumer spending, housing construction and exports overtake mining investment as the engine of economic growth. It is a sound political tactic that, given the unquestioning nature of much of the population or the media, is likely to work. What will also be a vital aspect of the change in rhetoric is the natural improvement in the budget balance as the stronger economy delivers extra revenue and the measures taken in the budget trim spending. Indeed, by the time the 2015 budget rolls around, there should be little doubt that the budget is returning to surplus which will be political gold for the Abbott government even though it will have had little to do with that achievement. While the government will cop some flack over some of the easy to critique decisions taken in recent months and in the budget and will suffer criticisms from some of its unworkable environmental and social policy settings, going into the 2016 election with its message about a strong economy and a return to budget surplus will be hard to beat. The curious thing about all of this is that the hard facts on the economy and the budget will be little changed from those prevailing over the recent years when Mr Abbott was lambasting the Labor Party for its economic and fiscal management. The facts will be remarkably similar to forecasts outlined by the previous government for the period 2014-15 and beyond. Over that time, GDP growth will be close to three percent, the unemployment rate will likely be five-point something, inflation will almost certainly be in the two to three percent range and the level of government debt and return to budget surplus will be, more or less, the same as outlined under the policies of the Labor Party when the Pre Election Fiscal Outlook was released during the election campaign in August 2013. All of which means that the Abbott government has, with the help of the Reserve Bank of Australia, a stronger global economy and a lower Australian dollar maintained the broad momentum for the rate of economic growth that was in place before it was elected. In terms of fiscal policy, it will have merely maintained the cautious progress towards budget surplus and a reduction in government debt that the previous government was planning. Stephen Koukoulas is Managing Director of Market Economics marketeconomics.com.au