Abbott's pain will be no gain

Two unpleasant realities loom as Australia heads towards the polling booths on Saturday. 

The first is that election day may not decide anything at all. The future of a likely Abbott government hinges on the outcome of the Senate vote, which will not be counted for days – possibly weeks. 

At this stage, the complex web of preference deals worked out by minor parties make predicting that outcome impossible. However, if the final result is not decisively in Abbott’s favour, the September 7 election may have been a waste of time. 

That’s because with the Greens and Labor relishing the challenge of blocking Abbott’s carbon repeal legislation in the upper house, the real election is likely to be later in 2014 when a double dissolution election would be held – assuming that Abbott doesn’t junk his core promise of ‘scrapping the carbon tax’. 

So election parties should be muted – not at all like the whoops that rang around the west Melbourne suburb I was in the night Kevin Rudd clinched the election in 2007. If punters celebrate the rise of an Abbott government, they should also know that until the carbon tax issue is resolved, his ability to govern will be severely restricted.

The second reality, is that despite all the warnings and promises, the economy is likely to be boringly similar after Abbott takes power. 

Yesterday’s national accounts show few signs of growth, except, alarmingly, in the finance sector. The current cohort of first home buyers are taking on record debt to buy homes, which some hail as a ‘boom’. But it is a boom in indebtedness just when the Australian economy looks to be heading into a period of structural weakness that even the ‘Abbott bounce’ in business confidence won’t fix.

Prime Minister Rudd is trying to use the weak GDP growth figures released yesterday to suggest Abbott’s ‘austerity’ plans would tip the nation into recession. 

Conversely, Abbott has talked up the confidence boost that would follow a scrapping of the carbon tax and mining tax, the cutting of red tape particularly for small business, and the very absence of the “worst government ever” – a magnificent piece of hyperbole that simply is not supportable in fact. 

Both men are talking cobblers. Abbott cannot tip the nation into recession with his savings and spending plans. What Labor tried to paint as ‘cutting to the bone’, with $70 billion ripped out of health, education and frontline services, was also just hot air. 

Joe Hockey revealed that his assault on ‘Labor waste’ is nothing of the kind – a reprioritisation of spending (and many see paid parental leave itself as wasteful), but not a substantial reduction in spending. The effect on the budget is to improve the budget bottom line to the tune of $2.25 billion* per year over the forward estimates – in the context of a $380 billion budget, it’s just not significant to the economy overall. 

So what of Abbott’s claim, that a surge in confidence will correct the record drop in company profits seen in the last earnings season? Abbott is relying on that turnaround to increase tax revenue and stop him sliding into a Wayne-Swan-style series of deficits. 

The Coalition has tried to talk this up, saying that its pro-business policies will attract $150 billion more in resources investments, re-start the mining boom and get things going again. 

If only. The halcyon days of the Howard government will not return for Abbott, or Rudd for that matter. 

Between 1996 and 2007, Howard enjoyed giant windfalls in tax revenue due to ‘mining boom mark I’ and also reaped tens of billion of dollars from privatising public assets – the biggest being Telstra.

Howard had massive amounts of money to spend, and he gave it back to the people through unsustainable income tax cuts, ‘middle-class welfare’ family benefits, and even vote-buyer baby bonuses. (I got the cheques too – thanks John!)

Moreover, between 2000 and 2007, the nation got drunk on foreign investors’ hard-earned savings. Banks and non-banks gorged themselves on wholesale funding from abroad, and punters bid up the housing market accordingly. 

This week the Australian Finance Group revealed its average home loan is now $505,000 in New South Wales. ABS data puts the average first-home buyer loan at $341,000 in that state. And these figures are interpreted by some to be the beginning of a ‘boom’. 

Really? As Tim Colebatch pointed out in the Fairfax papers yesterday, Western Australia is now in recession. Tasmania has been in recession for seven quarters. Consumer spending is flatlining in Victoria and South Australia and only Queensland  and New South Wales are showing private spending growth – at 1.6 per centand 2.5 per cent annualised growth respectively, that’s hopeful, but still weak. 

The point is that Howard-like economic conditions would turn Australia's economic decline around very quickly. But Abbott will not preside over a country intoxicated by a housing market that turns each dwelling into a giant teller machine through equity withdrawals. Nor will company profits surge or mining tax revenue fill the coffers.

While Labor’s profligate ways would probably sink the ship further, what Abbott’s really promising is to keep things as they are. Given current economic headwinds, that would be a truly remarkable achievement. 

And so it is with heavy hearts that we should trudge down to the local primary school to vote. 

A ‘stunning win’ for Abbott on Saturday will most probably be no such thing. And the Abbott bounce, when it comes, will likely be just a reassuring period of flatness in the economy. 

Nonetheless, at this moment in time, that seems to be about the best outcome available.

*This figure, initially reported as $1.5 billion, has been amended after Joe Hockey's address on the Coalition's election costings this afternoon.