There are plenty of indicators to suggest the 2013 federal election will end up being one of the nation’s greatest ever expressions of blind faith – not in any one party, but in our ‘born to prosper’ good fortune.
Like spoilt children, we have seen impressive returns on unimpressive investments for many years. And like spoilt kids we’ll be incensed when the returns run out. Somebody will cop the blame – Mum Julia or Dad Tony will be likely targets.
Few will turn the attention on themselves to realise they made themselves sick by eating all the lamingtons and Tim Tams, only then to face an indeterminate period of pain living on fairy bread and party pies. Count your blessings – in Europe it’s cold spaghetti.
Bank stocks and property were the lamingtons. Mining stocks the Tim Tams.
The latter have already been disgorged onto the rug by many – Rio Tinto and BHP Billiton shares are down by about a third of their value in a year.
And news today is that the former, banks, could sell off soon. With P/E ratios close to 15, and credit growth weak, it’s hard to see much upside into 2014 if the Reserve Bank finishes with the current easing cycle and begins to bring in measured interest rate rises.
If one accepts that residential property prices are determined not by simple supply and demand, but also by the key third determinant of available credit, then the current appetite of investors piling into the housing market might also look a little greedy. “Eyes bigger than you stomach!” as my year-four teacher put it as I vomited blancmange onto the grass outside the classroom where our end-of-year party was in full swing.
Okay, enough flippancy. The waning of resources and property boom returns will hurt everyday Australians. Not everyone can exit such assets all at once, and there will likely be setbacks in private wealth for all working/retired Australians – from the factory worker with minimum-wage-funded super right up to high-income self-managed super account owners.
That, in itself, doesn’t feel good, and we’ll want to blame somebody. However, before we do, we’ll have to vote for somebody.
And the two package deals on offer – an Abbott government or another Gillard government – are beginning to look more speculative than dashing out this morning to buy banks shares, before signing a record-breaking loan with your mortgage broker. At least those two assets have performed in the past.
In Canberra, by contrast, we have two sides of politics offering their own revisionist views of recent history – Labor is painting the Howard/Costello years as an era of high taxing and cash-splash spending, while the Coalition depicts it as an era of dogged, unpopular reforms that put us on the path to prosperity (GST and IR reform being the two biggest).
It was, of course, both.
There is also a battle underway to write an interim history of the Rudd/Gillard years. Labor’s view is that it was ‘the GFC wot rooned everything’, and the Coalition’s is that it was Labor profligacy which did that, made worse by the pricing of something we can’t see and which clearly, therefore, isn’t a problem (carbon).
Take your pick, dear reader – and most already have.
But the next stage in this process is to have blind faith in one vision of the future.
Labor is asking voters to believe, as the federal budget slides deeper into the red, that good investments will save Australia, whether or not we can afford to make them. The DisabilityCare and Gonski reforms, as described yesterday, bring economic upside in the long term. So too will the NBN. So too with Labor’s commitment of public funds to infrastructure. However, all come with the proviso “if we don’t go bankrupt first!”
Well we won’t go bankrupt. Even a downgrade to the government’s AAA rating is a way off. Allowing net debt to blow out to 15 per cent of GDP to fund cost-benefit-tested investments, as Saul Eslake recently suggested, won’t be enough to make Australia a bad bet. As the mining and credit/property booms wind back, and as the Australian dollar falls, newly productive sectors can start making money (and paying taxes) again in the next couple of years, especially if we have the infrastructure, physical and human, to get to work.
That’s a pretty credible picture, and it’s what Julia Gillard is selling in that slow drawl that some media-trainer has convinced her suits the mainstream news audiences. ‘Trust us,’ she says. ‘We’ll invest wisely on your behalf, and I promise it’ll get things moving again so we can pay for it!’
It’s not all blind faith, but it helps to have some.
The Coalition is asking for your faith in other ways. Despite holding off until August to tell us most of its fiscal strategy (after the pre-election fiscal outlook, or PEFO, is published by Treasury), it has outlined a string of big spending commitments (detailed in The Australian today). These include upping defence spending, bringing in a generous paid-parental leave scheme, building plenty of roads and dams and abolishing means testing of health insurance rebates. It will hack into public service ‘waste’ to help pay for this, but it will also cut taxes too. So its pledge to bring the budget back to surplus sooner than Labor would requires a bit of faith.
The other side of the Coalition promise is that it will stimulate the private sector – SMEs in particular – to generate the investment, jobs, profits and tax revenues it needs to turn Australia around. So far this involves removing the carbon tax and mining taxes, cutting red tape and possibly (if agitation from within the parliamentary party is successful) making IR a little less onerous on bosses trying to turn a profit.
Again, this is a pretty credible picture and, again, it is one that Abbott sells to punters in that slow, deliberate – ahh – manner he uses to avoid gaffes and stick to pre-approved slogans.
Australian voters have had a lot of faith, since the market shocks of 2008/09 that we’re returning to a ‘normal’ economy, dominated by ‘houses and holes’. That picture is now unravelling. Choosing which political vision will best manage the shift to a more diversified economy from next year is going to be a historic decision – based on historic levels of blind faith.