Enough leadership clamour, back to budgeting

Prime Minister Julia Gillard woke up this morning with the knowledge that Australia’s annual GDP growth is 3.1 per cent, inflation is 2.2 per cent, the unemployment rate is 5.4 per cent, mortgage interest rates are at 6.4 per cent and over 190,000 jobs have been created over the past year.

Gillard can check with the three major credit rating agencies and see that they all have Australia triple-A based on some of the best fiscal settings in the world. Government debt remains at trivial levels and the recent cuts to government spending is seeing a sharp improvement in the budget balance, as it should when the economy is growing.

The prime minister also knows that real wages have risen in each and every year of the past decade and that the stock market is up 25 per cent from the lows of 2012, both factors boosting wealth and making a mockery of most claims of cost of living pressures. Australians have never been richer.

These macroeconomic statistics are just about impossible to beat. It is not clear whether there is a country in the world that can boast these fundamentals. If anyone knows one, please add a comment. 

Whatever shortcomings there are in the Gillard government, economic management is not one of them.

Gillard and her team are now framing the 2013-14 budget which will be delivered by Deputy Prime Minister and Treasurer Wayne Swan on May 14. That budget will reveal an economic package that outlines the financial details behind the national disability insurance scheme and the additional investment in education, both hugely popular reforms. Both should be potential winners.

To pay for those reforms and pitch for a surplus in 2013-14, there will inevitably be a range of spending cuts, tightening in tax concessions and more means testing. Gillard and her team are searching in every nook and cranny for savings but undoubtedly, a number of big ticket items will need to be tightened. Gillard will be looking at these savings in the days and weeks ahead as Treasury provides updates on a regular basis on how the bottom line is looking.

The good news for Gillard is that the economic outlook is increasingly rosy. Consumer sentiment has jumped in recent months to be more than 10 per cent its long run average, pointing to a further lift in consumer spending. House prices and dwelling investment are also trending higher, buoyed no doubt by low interest rates and improved housing affordability. At the same time, global economic conditions are improving slowly but surely, with this pick up in global growth likely to pull the Australian economy with it.

The economic news between now and election day on September 14 is more likely than not to show strong economic growth which in normal times helps the incumbent.

For the sake of future long run policy deliberations, locking in good economic outcomes and making good decisions, it is to be hoped that the internal ructions in the Labor Party have been ended by the humiliation of Kevin Rudd and his dreadfully misguided assessment of his popularity and talent. Rudd’s ignominy has rarely been matched in Australia’s political history and any expectations of him contemplating yet another tilt at the leadership should be treated with contempt.

Assuming Rudd finally gets the message, which is that he has nothing to offer and is widely unpopular, and he announces his decision to leave politics at the September election, there will finally be some clear air for Gillard to focus on economic policy and delivering reforms.

Importantly, this should also bring into focus the economic policy differences between the government and Abbott’s Opposition. After all, the polls overwhelmingly suggest that Abbott and his team are likely to be in government within six months. This means that we should all be looking closely at the Coalition’s economic policy manifesto to see what they have in store if they win the election.

For the sake of the long run well being of the economy, it is to be hoped that the political debate in the months leading up to the election is on policy and not internal party noise. A policy debate on jobs, industrial relations, budget deficits or surpluses, reduction of government waste, tax reform, productivity issues, Commonwealth-state financial relations, the NBN, education and the environment, among many, all deserve detailed coverage before we decide which way we vote on September 14.