With the economy continuing to falter and the Reserve Bank becoming ever more vocal in its calls for action from the federal government, when parliament resumes on 2 July, the first thing the government should do is deliver a mini-budget.
When Josh Frydenberg handed down his first budget in April, it was pretty clear to all that it was a budget he never actually expected to have to deliver. It was a budget of a government believing it was going to lose an election, and so the primary purpose was to deliver the promise of surplus complete with absurd projections about GDP, employment and wages growth which would need to be embarrassingly revised down by some future ALP government.
It was not a budget delivered to respond to the economic situation – a situation that has only deteriorated in the two and half month since.
When the budget was handed down the most recent GDP figures showed the previous six months had the slowest growth for 10 years. Since then the most recent figures show the last three months of 2018 and the first three of this year were the slowest six months of growth for 19 years.
At the time of the budget the latest job figures had the unemployment rate at 4.9% – the lowest for eight years – and the trend level of unemployment had been steady at 5% for three months. Now the seasonally adjusted rate is up to 5.2% and the trend rate has risen for four consecutive months.
Back in April the market was predicting an outside chance of the Reserve Bank cutting the cash rate to 1% some time late next year. Now the market has almost fully priced in a cut to 1% to occur by August this year and an outside chance of a cut to 0.5% by late next year.
The labour force figures released on Thursday saw the market abruptly increase its expectations for a rate cut and shifted the timing of a cut to 0.75% from April next year to November this year. The reason was an increase in underutilisation. In January this year 9.7% of adults aged 35-54 were either unemployed or underemployed; now it is 10.5%.
And when underutilisation rises, wages growth slows.
In short: things have changed and changed for the worse.
But the treasurer continues with the mantra of the election campaign, seemingly unaware it is convincing no one, and that now that the election is over he no longer needs to bother with it.
There he was on ABC with Fran Kelly repeating that “the fundamentals of the Australian economy are sound”.
Kelly then rather nicely took him through the reality of the situation, and yet all we got in return was “I think there are some challenges faced by the Australian economy. We’d all like to see wages be higher, but at 2.3% they have been growing and that has been growing above inflation. But the key to higher wages is not higher taxes, it’s lower taxes.”
And so tax cuts is all they have – plus some notions about infrastructure which, were it actually of the kind that might stimulate the economy, no one would be worried, but it is mostly all off in the distance.
What is behind all this reticence to admit to reality is that it will of course leave them open to charges that they basically lied during the campaign. I was of that view throughout the campaign, but at this point it doesn’t really matter – all they would need to do is talk of stronger than expected headwinds from overseas (mention Trump and his insane trade battles) and you have a ready excuse.
The other issue is the concern that embarking on a stimulus package now would mean having to admit that the economy under their watch has headed south but also that there is a danger to their most beloved promised budget surplus, which the prime minister was so confident of he took to referring to in the past tense.
But here the government has some cover.
The budget estimated an iron ore price around US$55 a tonne. Since April iron ore prices have gone on a tear and are now at five-year highs – around US$106 a tonne. That means there should be a nice boost in company tax revenue. So great is the boost that some suggest it might be enough to put the budget in surplus in this current financial year.
That extra money could be used for stimulus – and still allow the government the hope of delivering a surplus in 2019-20.
The old line is that you need to build up your budget balance for rough times ahead. But the rough times are here, so what are we waiting for? There is no need to use the boost in tax revenue to deliver a larger budget surplus at a time when the Reserve Bank is practically screaming for help to get the economy going.
The treasurer really has yet to make any real mark on the landscape – the economy and the budget are still largely Scott Morrison’s. It is time for Frydenberg to show us he is in charge. Dump the budget and give us a reboot – and soon.
• Greg Jericho is a Guardian Australia columnist
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