Dollar Up, Dollar Down
July 2013
The most important near-term issue that Treasurer Chris Bowen will have to deal with in his new role is to change the perception in the electorate that the Labor Party are inferior economic managers to the Coalition. The recent gap between the parties on the question of which side of politics is the better economic manager is around 15 to 20 points in favour of the Coalition.
As a bright and punchy operator, Mr Bowen should be able to close that gap and in doing so bring the economy to front of centre of the upcoming election campaign. If he succeeds at recasting the economic debate, it will no doubt improve Labor’s standing in the polls and give it a rough hope of winning the election as people give credit to the government for some first class economic fundamentals.
From one perspective, Mr Bowen’s job will be easy. The hard facts on the economy remain positive with economic growth continuing; there is a decent pace of job creation, low unemployment, low interest rates, low inflation, rising wealth, ongoing increases in real wages, the tripe-A credit rating, international trade surpluses and a stunningly low level of government debt.
Any government in Australia’s past, or future for that matter, would be delighted to have these broad economic parameters occurring under their watch, a point Mr Bowen will need to emphasise at every opportunity.
From a different angle, Mr Bowen has a tough job and he will have to confront the effective but factually deficient spin that the Coalition invent with each bit of news on the economy.
The recent trends in the Australian dollar are a case in point.
Back in February, when the Australian dollar was trading over US$1.03, Shadow Treasurer Joe Hockey said, “The current high value of the dollar continues to be of concern to Australian businesses.” He went on, “there is no doubt that the high Australian dollar is impeding the competitiveness of Australian exporters and making life difficult for Australian producers who compete with imported products.”
Mr Hockey was correct – the high Australian dollar was a concern and a problem for the economy and was a factor behind the revenue shortfall for the government and was it was eating away at the pace of economic growth.
Move forward to July and the Australian dollar has depreciated towards US$0.90, which most economists, including at the Reserve Bank of Australia, are welcoming. But not Mr Hockey who now thinks the lower dollar is having an “immediate negative impact” on business confidence and will push up business costs as import prices rise.
According to analysis from Mr Hockey, the strong Australian dollar was bad news in February, while the weaker or lower Australian dollar is bad news in July.
The hypocrisy of this position is the sort of misinformation that Treasurer Bowen must confront head-on if he is to elevate the economic debate to a more considered level and with it, present the picture that the economy is doing well, it has been well managed and continues to run smoothly.
Mr Bowen could also quantify the savings to households and business from low interest rates. These amount to approximately $70 billion a year compared with the level of rates around 5 years ago. He could note that for more than a decade, wages growth has exceeded the rate of inflation which has boosted real wages and makes a mockery of concerns about cost of living pressures. Mr Bowen could point to the fact that Labor is one of the lowest taxing governments in history and as such, is leaving money in the accounts of the private sector.
It will be tough to change perceptions on economic management in such a short time before the election, but armed with the facts, Mr Bowen has a great opportunity to lift Labor’s standing on the question of who is the better economic manager.
Stephen Koukoulas is Managing Director of Market Economics. He writes a daily column for Business Spectator.
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