The government will catch a much-needed break on Tuesday when the Reserve Bank cuts the official cash rate, but a week later comes the slow-motion train wreck of the federal budget.
It is impossible for the budget to be anything other than another disaster for the Labor Party. If it didn’t budget for a surplus for 2012-13 it will be pilloried; if it cuts spending and increases taxes sufficiently to budget for a surplus, it will be pilloried.
Much of the commentary this morning is that Julia Gillard’s leadership is once again in question: obviously Labor MPs are panicking again and briefing journalists against her.
Appointing Peter Slipper Speaker of the House to offset the lost vote from reneging on the poker machine reform deal with Andrew Wilkie has turned out not to be the brilliant wheeze it must have seemed at the time. And defending the presumption of innocence with Craig Thomson, rather than asking him to sit out the allegations on the cross benches, was not a great idea either.
But if Tony Abbott, not Julia Gillard, had managed to sign up Oakeshott, Windsor and Wilkie during those mad 17 days after the 2010 election, Slippery Pete Slipper would have been his backbench problem, rather than Craig Thomson, and he’s the one who would be having to choose between losing a vote and antagonising the powerful pokie lobby.
More broadly, PM Tony Abbott would have spent 18 months battling to hold his numbers and dealing with a rampant Opposition constantly baying over the instability of the government. Abbott would now be knee-deep in the ordure of compromise, trying to defend his half-baked or incoherent policies on climate change, boat arrivals and broadband.
Who knows what would have happened, of course, but perhaps it would have been better for the long-term health of the Labor Party if Julia Gillard had not managed to sign deals with those independents in 2010, and the Coalition had become a one-seat government instead of the Labor Party. Gillard’s 2010 "victory” has turned into a disaster from which it will take years, if not decades, for the Labor Party to recover.
The deals with the Greens and Andrew Wilkie on carbon tax and poker machine reform have proved especially ruinous for Labor. Australia will have to deal with global warming, but we might have taken longer to go to an emissions trading scheme rather than a $23 per tonne carbon tax on July 1, 2012.
Tuesday’s expected rate cut will be a welcome relief and allow a smiling press conference, but won’t last. After all, the Reserve Bank will cut the cash rate because the economy is weaker than expected, which means it will be more difficult to budget for increased tax revenue.
Friday’s weaker than expected US GDP report was another kick in the ankle. True, the 2.9 per cent rise in real consumer spending was solid but it will be difficult for that pace to be maintained unless jobs growth picks up substantially.
That’s because household deleveraging in the US still has a long way to go. A report last week from Westpac economist Elliot Clarke points out that relative to nominal disposable income, the household debt burden in the US has declined by 18 percentage points over the past four years to 105 per cent. This is nearly 50 per cent above the historical average of 71 per cent.
Just to get back to the 1999 level of 86 per cent would take four years at the current rate of reduction; to get back to the historical average would take a decade.
Meanwhile the government has not even started deleveraging – in fact, since 2008, the stock US government debt has grown by $US5.3 trillion, or 64 per cent.
In other words, with China’s slowing, much of Europe mired in debt and recession and the United States facing years of slow growth and deleveraging, Australia cannot rely on external forces to even maintain economic growth, let alone increase it.
Follow @AlanKohler on Twitter
Slippery regrets for Julia
If Tony Abbott had signed the independents, he'd be the one now knee-deep in the ordure of compromise. Instead, not even lower rates and a budget surplus will offset Julia Gillard's pain.
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