Big falls will help the Abbott bounce

The more bad economic news between now and September, the better for Tony Abbott. His trick will be to lock in a post-election upturn, and a double dissolution may complicate his position.

Australia is entering a period of economic death and rebirth that would, even if there were not a change of government, change the lives of hundreds of thousands of families.

For the Coalition, still tipped to win government in a landslide September election, the smart politics will be focused on blaming all the death on Wayne Swan and all the life on Tony Abbott and Joe Hockey.

That would make every gloomy headline a joy right now at Liberal HQ. GDP growth undershot forecasts yesterday, and the mining boom is coming off dramatically in Western Australia, with that state’s economy seeing final demand tumble nearly 4 per cent in a quarter.

The continuing slide in the Australian dollar, while good news for so many sectors, will push up the prices of the things which our growing national sense of entitlement has made virtual staples of consumer spending – from imported cars to overseas holidays and luxury appliances.

House prices are still oscillating around the zero growth mark. This month they are down 1.2 per cent nationally and 1.9 per cent in Melbourne, next month possibly up – who knows. But there will be no sustained capital gain story in the housing market for some time.

Mining contractors are laying off staff and so are retailers, banks and the auto manufacturing supply chain.

And this is all great news for Tony Abbott. The trick will be to reverse some of these trends in 2014, especially now that Greg Combet has reaffirmed Labor’s commitment sticking to its guns on carbon pricing whether or not Labor is chucked out by voters. Abbott will, as a consequence, face a double dissolution election to repeal the carbon tax – a pledge he has made so often that it’s practically tattooed on his forehead. But he will lose ground in that election if there are no signs of economic joy.

So what could recover? Firstly, business and consumer confidence may rebound when the tension of the current ‘It’s Time!’ period of politics is over.

If Abbott sweeps to power as expected, that confidence is likely to unlock currently low business investment, creating a jobs bounce and (one would hope) a flurry of consumer spending to get failing retailers off the floor and perhaps breath life back into home lending and house prices.

That’s all quite achievable as long as there are not substantial economic shocks coming from abroad (far from certain in light of the growing trade war between China and the EU).

What won’t happen is any kind of economic boost from ending the mining tax or beginning to dismantle the carbon tax. Both are minor factors compared to the strength of the dollar and China’s softening demand for our commodities.

But an incoming Abbott government could easily push those factors to the background and start building political capital as other sectors of the economy see new growth.

As Beijing University professor Justin Lin points out in The Australian today, there will be growing trade opportunities with China in the areas of “food, education, tourism, and engineering and business services including superannuation management”.

From that list, the biggest problem will be education. In recent months university students and unions have organised large public rallies to complain about Labor’s “cuts” to the university sector – a little unfair given that Labor has so dramatically increased uni funding over the Rudd-Gillard years and that funding will still grow under Labor’s plans, albeit at a slower pace.

But to cash in on the potential for education ‘exports’ (that is, the importation of foreign students carrying bulging suitcases of money), an Abbott government would have to do what the Howard government did – cut funding for local students and force universities to sell student places, hand over fist, to the children of newly-rich elites in countries such as China, India, Malaysia, Indonesia and Thailand.

That worked well in the early Howard years but by 2006 stories emerged of students being ripped off with shoddy education delivery, or of institutions lowering entry standards (including English language requirements) to effectively create sham diplomas and degrees.

Julia Gillard, as education minister in the Rudd government, oversaw a clean-up of the biggest university and TAFE rorts but the risk remains that cash-strapped institutions and private colleges could be pushed into these strategies again.

With luck then, an Abbott government will make a lot of political hay from the growth sectors (while fighting fires on university campuses) and trying to blame the commodities downturn pain on Wayne Swan.

For that reason, there really can’t be enough bad economic news ahead of September to make Abbott and Hockey happy. And they will be praying for a bountiful spring. 

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