Monday, December 10, 2018

Today by Paddy Manning

Hard landing looms
A political reckoning may accompany an economic one


A buoyant economy has been the Morrison government’s best source of political strength, but mild headwinds have turned blustery lately. Last week’s softer-than-expected growth figures for the September quarter, and the Reserve Bank’s flagging of possible rate cuts, have today been followed up by a sharp warning from the OECD that Australia should prepare for a possible “hard landing” in housing markets, including the potential failure of a big bank. Amid an escalating trade war between China and the United States, and share market volatility here and overseas, an end to Australia’s record 27-year run of uninterrupted economic growth is on the cards.

Treasurer Josh Frydenberg took the opportunity today to warn against Labor’s policy of removing negative gearing on existing homes, which would “damage Australia’s housing market and destroy the equity that people hold in their homes, increasing the risk of financial instability and lower economic growth”. The reform “couldn’t come at a worse time”, Frydenberg told the ABC’s Insiders program yesterday. Last week, indeed, the AFR flagged [$] that a May election (reconfirmed by the PM yesterday) would leave Labor little time to draft legislation and get it through the Senate, and could mean that the policy is not implemented until 2020–21.

Shadow treasurer Chris Bowen reacted [$] cautiously to the OECD warning today, arguing that Australia needed bigger budget surpluses to prepare for an economic downturn. “We need to build the buffers now,” Bowen said. “Labor’s made the case repeatedly that we need bigger budget surpluses to provide a buffer for uncertain international times.” Labor’s revenue-raising measures – including winding back overly generous tax concessions that favour the wealthy, such as negative gearing, capital gains tax and franking credit cash refunds – will help deliver bigger budget surpluses.

Would a faltering economy favour the Coalition or Labor? Given today’s dire Newspoll, with the Coalition trailing Labor 45–55, it is tempting to dismiss the question; even supporters are writing [$] the government off. The Guardian reports that today’s result is the first time a government has trailed by 10 points for three consecutive polls since Julia Gillard’s last three Newspolls before she was replaced by Kevin Rudd in 2013.

In MYEFO next week, Frydenberg is expected to forecast that he will hand down a surplus budget for 2019–20 in April. If a house price crash did trigger a new financial crisis, however, Australia would go into it in a worse position than it did in 2007–08, when the Commonwealth had no net debt. The Rudd and Gillard governments borrowed heavily to stimulate the economy, but debt has also spiralled under the Abbott and Turnbull governments, including to fund the biggest peacetime defence splurge in our history, such as the F-35s, which arrived today [$]. Net debt has doubled in the five years since the 2013 election from $175 billion to $341 billion.

The OECD is not predicting a house price crash, much less a recession, but it simply notes that Australian house prices are somewhat overvalued and there are high levels of household debt. There is no doubt that falling house prices have got consumers rattled – the ABC today published a data-driven series accompanied by a three-part story starting tonight on 7.30. Consumers are wise to be cautious. As the ABC’s business editor Ian Verrender writes this morning, Australia is not alone in this regard, volatility is not confined to real estate markets, and the root problem is the same as it was in the financial crisis: “No matter where you look, there’s another mountain of debt.”

None of this bodes well for that 13 per cent of Australians – well over three million people – that the OECD notes are now living below the poverty line, even though absolute and relative poverty has declined. Predictably, there was much less focus on that aspect of the OECD survey today.

since this morning

Crikey reports [$] that local human rights lawyers have launched two class action lawsuits alleging that Australia’s offshore detention regimes demonstrate negligence amounting to crimes against humanity and torture.

Nine chief Hugh Marks has addressed staff of the former Fairfax Media today, saying it’s “business as usual” at the newspapers.

Australia’s competition watchdog has unveiled [$] recommendations to clamp down on Google’s and Facebook’s market dominance.

in case you missed it

The Age reports that the Victorian government has given its strongest indication yet that it will not sign up to the federal government’s Gonski 2.0 school funding deal.

A group of 414 institutional investors with $31 trillion under management has called on governments for more action to meet the Paris emissions reduction targets, according to The Guardian.

Opposition business manager Tony Burke has shut down a push for radical changes to Labor’s asylum-seeker policy, saying the party’s national conference will not adopt any position “that would start the drownings again”.

Analysis by The New Daily’s Michael Pascoe shows that protection visa applications have blown out to record numbers on Peter Dutton’s watch.

Legal advice indicates that the medical evacuation of sick adults from Nauru would allow criminals into Australia, Home Affairs Minister Peter Dutton has told [$] Sky News.

by Tim Winton
Saving Ningaloo again
Western Australia’s World Heritage site isn’t as protected as you’d expect

by Mungo MacCallum
Protecting Craig Kelly
Saving the MP from a preselection battle was another fine display of muppetry

Paddy Manning

Paddy Manning is contributing editor (politics) at The Monthly and has worked for the ABC, Fairfax, Crikey and The Australian. He is also the author of three books, including a recently updated unauthorised biography of Malcolm Turnbull, Born To Rule?

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