No quick fix from Coalition

Tony Abbott picked a good election to win. There are signs the economy will be on the mend by Christmas, perfect timing for the Coalition to claim the credit.
By · 11 Sep 2013
Share this article
By ·
11 Sep 2013
Share this article
comments Comments
Tony Abbott picked a good election to win. There are signs the economy will be on the mend by Christmas, perfect timing for the Coalition to claim the credit.

But the real heroes will be the Reserve Bank, for lowering interest rates; and, bless them, international money speculators for pulling down the dollar.

That's not all. As the economy picks up, the $30 billion budget deficit will contract of its own accord, in which case meeting its rather modest target of a $6 billion reduction over four years should be a walk in the park for the Coalition.

Heck, it can achieve that in a year without doing anything.

After all, Labor had already forecast next year's deficit to shrink $6 billion, due more to economic growth - or, to be more exact, the bigger tax take - than anything it was proposing not to do.

So the challenge for Joe Hockey will be to restrain his colleagues from doing anything. Good luck there.

The pity is the Coalition could have won the election without promising anything at all. Besides, won't business be more confident about investing, what with a lower company tax rate and all?

I'm not so sure. If Treasury, with all its economists, has had no success forecasting how much households are going to spend, it's hard to see why business would feel any more confident.

The problem is that national income is growing by only 2.5 per cent, the weakest since the recession in the early 1990s. That has weakened demand and is why the economy grew at an insipid annualised rate of just 2.2 per cent in the first half of the year, nowhere near enough to create new jobs overall.

You can also see it in the latest company reporting season. Profits were mostly down on last year, a fact obscured by higher dividend payouts.

It's not as if a change in Canberra will make things any clearer.

The business lobby groups are happy, but that doesn't mean their members are going to put their money where they vote. Committing to a large capital outlay is quite another matter. In fact, expect more uncertainty over the next few months because the new government is going to send forth committees to review almost everything that moves, from tax, industrial relations and the financial system to government spending.

And did I mention the Senate? No, better not. Still, with time, low interest rates will do their thing.

Because the election result had been obvious for weeks, don't expect too much excitement from the sharemarket, either. It has bigger fish to fry, beginning with the likely US strike against Syria escalating into a Middle East confrontation with Russia or Iran. Or Wall Street's fascination with every daily statistic about the US recovery. Then there are commodity prices and the dollar.

True, though the market usually does better under the Coalition than Labor, it's no sure thing. The Coalition was re-elected in 2004 but three months later the market was lower, even though it controlled both Houses. After the 2007 and 2010 elections when Labor won, it moved up.

Oh, I forgot. That was when we had a mining boom.

Read David Potts in Weekend Money, with

The Sunday Age.

Twitter @moneypotts
Share this article
Keep on reading more articles from InvestSMART. See more articles
Join the conversation...
There are comments posted so far. Join the conversation, please login or Sign up.
Related Articles