Federal treasurer Scott Morrison has been in the job four months now. As he hit the airwaves again this week for a range of interviews following the summer break, there are some clearer pointers on how he sees Australia’s economic challenges, as well as how he’s interpreting the abysmal start to the year on global markets.
Morrison has signalled an intention to try to redefine some aspects of economic debate this year. In an interview with the AFR in late December, he said he wanted to see the politics of fiscal management move beyond one of the dominant themes of recent years: that a government’s economic competence can only be demonstrated by the delivery of a budget surplus.
“Next year we will hopefully continue to move away from the binary way in which our economic challenges and responses are framed and understood,” Morrison said. “For too long, the only way seen to address a spending problem in the budget is by setting fire to it. If you don’t do this, then apparently you don’t think there is a spending problem.”
This was a trap that the Coalition found itself in after campaigning, under Tony Abbott, on a promise to end Labor’s “debt and deficit disaster”. Economic reality – chiefly China’s slowdown and the associated squeeze on the mining sector – made that impossible. Turnbull and Morrison are trying to forge a more pragmatic approach.
As immigration minister however, Morrison built a reputation as a stonewaller, famously refusing to discuss “on-water matters” and infuriating journalists with the consistency of this approach. That is not a luxury a treasurer can afford. Hockey learned the imperative for communication the hard way through his failure to adequately explain the severity of his intent in the 2014 budget, and through the political blowback that ensued.
Morrison has been asked about the economy, the budget, the election, tax reform, and markets this week, so here’s a look some of the key things we’ve learned.
The global market volatility has become a factor in the political cycle
Morrison argued on Bloomberg TV that the current chaos on financial markets created an environment in which people are seeking government stability.
The Prime Minister has said that the government will go full term and that is what we will be doing and the reason for that is right now certainly there is volatility, that is of course concerning in the wealth effects for independent retirees in the short term, but we are getting about the business of governing, putting forward our economic plans as we are going into the next election.
There’s no certainty on a date for returning to surplus
Part of the problem with managing expectations on budget (as opposed to economic) performance has been the result of Australia’s exposure to various global economic forces, especially China’s growth rate and commodity prices. Hockey ran into a big problem late in 2014 when the assumptions that underpinned the budget in May were completely wrong by the end of the year. Morrison is trying to do a better job of explaining that, well, the long-range forecasts are a bit useless. To Neil Mitchell:
There is a figure in the MYEFO of 2021 but that is not a forecast, that is just if everything stays the same and there is no change to all the parameters then that is what you would expect to happen but as we know, particularly in this global environment, things change a lot.
25 is the magic number
In almost all of his interviews Morrison stressed the need to reduce government spending to a particular level: 25% of GDP. Here he is to Kieran Gilbert on Sky:
The Budget issue will be addressed by ensuring that we get expenditure even further under control and we need to remember that the last 30 years the only time when you are getting Budget surpluses is when you are under around about 25 per cent of GDP on expenditure. Now even on the Budget and the forward estimates that gets us to 25.3 per cent but we need to go further over the medium term to achieve those sorts of goals.
He has some subtle criticism of previous growth outlook
Emphasis added here:
We are not earning enough as a country and that obviously has an impact on revenues. In the last MYEFO statement we had some major changes to our growth forecast and that did lead to a significant writing done what some of those revenues were. But the most significant part of those revenue changes in the MYEFO was actually by having a more conservative outlook on growth than had previously been put in the Budget. Now that was just about being I think upfront and having a very realistic set of numbers in that MYEFO statement and obviously they will be under constant review. But the numbers we put in that, particularly on growth forecasts and particularly around things like commodities and so on, seem to be holding out at this point but they will be under constant review as we lead up to the Budget in May.
Morrison thinks personal income taxes and company taxes are too high
Just this morning Morrison said on ABC Radio that he believes “personal income taxes are too high”. It’s something he’s been stressing any time he gets the opportunity, and it’s a signal that some kind of income tax relief is likely to be in his proposals for the election, if not in the Budget in May. To Sky:
… the thing we have to do is get the income tax monkey off peoples’ backs and that is what is going to hold them back this year. We don’t want them to be held back because we are in a more globally volatile environment; there are further pressures in the global economy – which are not things we can do anything about. But what we can do about things back here in Australia is ensure our tax system is up the task of the 21st century.
And on company tax, to Bloomberg:
We are looking also at strong changes in our tax system as we run into an election later this year and that is all about trying to reduce the burden of personal income taxes and to the extent it is possible company taxes to make us more competitive again. Structural reforms are critical to achieving the growth forecasts we are hoping to achieve.
‘Hairshirt economics’ are out
“Hairshirt economics” is the idea that you “wear something uncomfortable” for your own good, one of the major themes of the Abbott-Hockey era. Morrison appears to like this phrase. In one interview:
That is why we have to do the things that grow the economy more than we are doing now. Hairshirt economics won’t get you there. Good stable solid responsible common sense economic policy will get you there and a steady hand.
…this is why your policies have to focus on jobs and growth, not on hairshirt economics. You have got to focus on ensuring you are getting people into jobs and the economy moving and that’s what the innovation statement was about.
Australia is adjusting and there’s been some ‘forecasting the sunrise’ in the China slowdown
Here’s Morrison on Bloomberg, asked about the current problems with China’s slowing economy:
There has been a bit of ‘forecasting the sunrise’ I think in all of this. I mean of course we are seeing China go through a transitioning economy, Australia is also going through a transition from the mining boom phase, with the construction phase of that into its production phase, and we are seeing a very strong growth in our services sector not unlike what they are seeing in China. So there is somewhat of a synchronisation taking place between the Australian economy and the Chinese economy and where other parts of our economy may have benefitted strongly from the previous strong periods of growth in China, new parts of our economy are participating in the growth in the new areas of the Chinese economy as it moves into a more consumer based economy rather than a production one.
And then there’s what he doesn’t say…
It’s been reported that Morrison’s tax review is looking at two options, and only one of them involves increasing the GST, while the other looks at changes to superannuation concessions that would allow for changes to personal income tax rates. For now, for whatever reason, Morrison appears reluctant to even gently prosecute the case for raising the GST rate.
It’s just over three months to the federal budget.