If the polls are right, and there is no reason to suggest they aren’t, Tony Abbott will be Prime Minister on 15 September and Joe Hockey will be his treasurer.
While a lot of the argy-bargy in the economic debate in recent times surrounds the mining tax, the price on carbon, budget black holes, budget surpluses and government debt, these are not the end game when it comes to macroeconomic management. Rather they are micro policy ideas and judgments that support the big economic picture or indeed are set with an eye on equity, fairness and decency.
To be sure, they are important in their own right, of course, but there is no point cutting government debt if you knee cap the economy. For example, just as there is no point having a mining tax that raises pathetically low levels of revenue and as a result does nothing to distribute the wealth generated by Australia’s finite resources.
Macroeconomic management is, on the other hand, about having broader policies in place that are designed to sustain a decent rate of economic growth, maintain low inflation, support job creation at a pace that holds the unemployment rate low and puts in place a framework that sees real wages and living standards rise over time.
I don’t think anyone would dispute that broad assessment.
Within that goal, there is bipartisan agreement that the job of hitting the inflation target rests with the independent Reserve Bank of Australia and not the politicians, even though their decisions can and often do have implications for inflation.
In terms of the post-election issues, I will leave discussions on policies relating social issues, the environment, foreign affairs and the raft of other non-macroeconomic matters for others to analyse. But on the macroeconomy for the three years until the end of 2016, an Abbott government’s economic management success can, will and should be assessed on hard numbers.
Given the particularly good economic fundamentals Tony Abbott will inherit, that is, GDP growth near 3 per cent, underlying inflation around 2.25 per cent and the unemployment rate around 5.5 per cent, it is reasonable to expect he and Joe Hockey to deliver three years of more of the same in their first term in government.
In other words, if the three years to 2016 can see GDP growth hold at 3 per cent, plus or minus a few tenths of a percentage point, if inflation can stay well contained within the Reserve Bank target band, if job creation can be maintained near the current pace and the unemployment rate remains low (it would be great news to see it fall below 5 per cent, to be sure) then the Coalition should be satisfied with its economic management credentials.
If the Coalition can somehow conjure a scenario where GDP growth is nearer 3.5 per cent, with unemployment nearer 4.5 per cent, yet with inflation glued to the Reserve Bank target, all the better. Tony Abbott and his team will deserve a gold medal for economic management if it can raise the speed limit of growth and see the structural level of unemployment fall.
The issue here is that no government in the last 40 years has been able to simultaneously preside over an economy that is growing at or above 3.5 per cent, with the unemployment rate holding near 4.5 per cent and then maintain the inflation rate within the target band.
This circles back to the point about the robust economic fundamentals that Australia is enjoying at present and hopefully enjoys in the years after the election.
While the economy is going through an ever so slight soft patch at the moment based on what was an over-valued Australian dollar and some ongoing fiscal policy tightening, today’s GDP figures are likely to confirm annual growth in the 2.5 to 2.75 per cent area.
This is good news especially with the Reserve Bank and Treasury both expecting GDP growth to lift to 3 per cent or more into 2014 on current policy settings. It is likely that Australia will extend its current record run of 21 years without a recession.
And if the polls happen to be wrong and Prime Minister Julia Gillard is re-elected on 14 September, I would hold exactly the same standard to her government. If she and her team can deliver 3 per cent GDP growth, with 5.5 per cent unemployment (or lower) and inflation stays within the Reserve Bank target band, she will have done a great job too, just as she has done in the last three years.
Stephen Koukoulas is Managing Director of Market Economics and was former economics advisor to the Prime Minister Julia Gillard.