Downgrades and dithering: the dismal economic narrative of 2016

Tis the season to give generously, or so the tired old cliché goes. Bah humbug! Tis the season for rigorous evaluation! December means school reports, the one time of the year Mrs Teacher can tell Johnny’s parents that their precious snowflake is an incorrigible dolt. And December means a budget update, where the Treasurer begs us to spend up big or he’ll join Tony Abbot in Malcolm’s detention room. Again.

So with the true spirit of Christmas in mind, has our economic performance has been naughty or nice? To mix metaphors – who gets lumps of coal and who gets a passing grade?

The first lump of coal goes into the stocking of anyone who talks about the position of the budget and the performance of the economy as if they are the same. Bringing the budget back to balance is not the best thing the government can do to kick start the economy, especially if they do it with tax increases. The budget and the economy are connected; but they are not the same.

Treasurer Scott Morrison at least gets a pass mark for not making things worse with more wasteful spending to try and prop up growth, and a second tick for keeping the AAA credit rating for one more year.

However, the budget is a mess and business investment is an ongoing disaster. Moreover, if Santa had to adjust his list as much as Morrison downgraded budget revenue projections this year, he would be on the same scrapheap as archaic traditions like Black Peter and the Belsnickel — so it’s not all good news.

Speaking of not good news, when the third quarter growth figures showed the economy contracted by 0.5%, the Reserve Bank must have been looking for Rudolph to guide us through the dark and foggy night. Despite having cut rates twice this year, monetary policy has had little effect in boosting growth.

The former Governor of the Reserve Bank, Glenn Stevens, may have retired in Santa’s good books but judgement is still reserved on his successor.

No such reticence should be felt over one of the most insipid re-election campaigns in many years. Of course, having almost failed, the Prime Minister might have welcomed the chance to repeat a grade this year and see if he can’t do better. Even in today’s environment where every child gets a prize, Turnbull would only get a certificate of encouragement for his company tax cut.

For the rest of us, the phrase ‘jobs and growth’ is just as empty a platitude as ‘happy holidays’… though nothing is quite as empty as the gaping void of common sense that was the backpacker tax debate. This year Britain voted on the direction of Europe and the common market, America voted on the future of free trade and internationalism, while in Australia we spent weeks debating whether itinerant fruit pickers should pay 32.5% tax, or 10.5%, or 19% or 15%.

The dithering over the backpacker tax was nothing compared to the glacial pace of the decade-long decision on the future submarine project. In the end, the government decided to play Santa and hand $50 billion to South Australia, presumably in recompense for the unforgivable ‘sin’ of only throwing $30 billion at the failing car industry over the past two decades.

But protectionism is back in vogue these days. The Trans Pacific free trade deal seems dead. And before visiting Trump’s America, Santa better make sure his sleigh is made from good ole’ American steel or he might be stopped at the border. At least here in Australia, he will just need the right permits for the reindeer, lest he be forced to make an apology video for Barnaby Joyce.

If the environmentalists don’t shut down Santa’s coal mine first, young home buyers might be only too happy to see a few lumps in their stockings. Then, if they can just turn that coal into diamonds, they might be able to afford a house and finally stop eating avocado morning, noon and night.

Once the tinsel has been swept up and the wrapping paper thrown away, it will be time to think about what’s next for Australia’s economy. The world’s major economies are cutting business taxes and we will face significant pressure to attract investment. With economic growth slow and wages stagnant, there may be turbulent times ahead. The Triple A rating remains under serious threat.

So when the Prime Minister writes his Christmas wish list, he should scratch off ‘make Australia a republic’ and put ‘convince the Senate, the public and the backbench that our economic problems are serious’ up the top. Now that would be a real Christmas miracle.

Simon Cowan is Research Manager (and chief Grinch) at the Centre for Independent Studies.