Which of the following economic narratives accords with reality at the moment?
That an irresponsible Labor government recklessly encouraged inflation with its big-spending budget and fake anti-inflation measures?
Or that an irresponsible Labor government has allowed economic growth to fall into near-negative territory, and is wrongly blaming the Reserve Bank?
Or that greedy, lazy workers are demanding too many pay rises without matching productivity increases, risking a wage-price spiral? Or that wages growth has slumped as consumers retreat?
All of those narratives have been on offer from right-wing economists and the Financial Review recently, with the gloom-and-doom ones coming to the fore this week as the latest economic data from the Australian Bureau of Statistics — ahead of Wednesday’s June quarter national accounts — suggests the economy barely ticked over in the three months to June.
As we pointed out back at budget time, the government’s budget deficit this year looks reckless — until you realise how weak the economy might be as a result of repeated interest rate bludgeonings by the Reserve Bank. The AFR and the opposition have been trying to conjure up a narrative of Treasurer Jim Chalmers engaging in a “stoush” with the central bank over his remark that the RBA’s rate hikes were “smashing the economy”. In fact Chalmers’ description was a statement of the obvious — unless you’re engaged in a partisan act of trying to push two economic stories at once; that the government was somehow simultaneously being too stimulatory and not stimulatory enough in its fiscal settings.
And after years of Weekend At Bernie’s-style propping up of the wage-price spiral myth, even the AFR reluctantly conceded yesterday that wages growth in the private sector was weak and had fallen to a two-year low. It’s only a few days since we were being told increasing childcare salaries without productivity increases would drive inflation up (presumably we should ditch staff ratios and abandon qualifications and criminal checks for childcare workers?).
We’re at this particularly embarrassing (at least for the AFR) juncture in economic spin because the economy is at, and arguably past, a turning point at which repeated hammer blows with interest rate hikes have crippled growth and begun pushing even Australia’s super-strong, immigration-fueled labour market into higher unemployment — especially once you factor in our two-speed economy of booming health and caring services and comatose market sector.
The Reserve Bank, however, is a hapless bystander at this point. Governor Michele Bullock and the RBA board have painted themselves into a corner, having paraded before the business media and the markets’ screen jockeys as the John Wayne of inflation fighters, only to be left looking more like Gary Cooper in High Noon as, one by one, other central banks start cutting rates. The RBA can’t cut rates this year without performing another backflip — not exactly up there with Philip Lowe’s disastrous “no rate rises before 2024” call, but sizeable enough to make the exertion necessary too intimidating.
The June quarter results on Wednesday will be historical, of course — the current September quarter should be a very different beast with the tax cuts and increased Commonwealth rent and energy bill assistance. But they may — contra the silliness from the liquidate-them-all crowd — look like they arrived not a moment too soon given how badly the market sector of the economy was reeling from the RBA’s punishment.
