The World is Getting Better
There are good reasons to be optimistic about 2018.
The global economy is returning to trend growth and, more importantly for Australia, the Chinese economy is producing a robust set of economic indicators.
The Australian economy is starting on a transition to a new paradigm.
This will probably take the best part of a decade and there will be a lot of ‘creative destruction’ along the way but the end result will be a more competitive Australia with higher productivity and, as a consequence, higher per capita incomes.
The Australian economy looks headed for a benign year notwithstanding the shock that beset the global stock markets at the start of this week.
This was a natural corollary of the return to higher growth in the United States where inflation is on the move and the Federal Reserve is increasing interest rates.
This, together with the size of the US debt, has led to a surge in US bond rates so that America is now paying more to its lenders than Greece which, two years ago, was thought to be a basket case.
The government is optimistic that the Australian economy will improve over this year and is bolstered in this view by the International Monetary Fund which is forecasting a return to a 3% growth rate this year.
This has been supported by the Reserve Bank which, in its statement on interest rates on Tuesday,
presented a buoyant view of the economy.
There is a residual concern about the fact that real incomes are 0.7% lower than they were in 2011.
It’s likely that wages will grow in the medium term but before that can happen the labour market will have to soak up the 14% underemployment that prevails at the present time.
Opposition Leader Bill Shorten has chosen to make the discontent of workers, who have not had a real pay raise for six years, the centrepiece of his economic policy.
In his recent Press Club address he constantly referred to “the left behind,” people who were struggling to make ends meet because of cost of living increases led by the surge in power prices and private health insurance.
“The left behind” is also code for the poor white low and lower middle class white workers who feel disenfranchised and formed the core of support for Donald Trump.
There is also an appeal to the discontented millennials who find themselves surrounded by an imperfect society.
In the event that the economy has turned the corner and employment and wages continue to increase as new business investment, particularly by businesses with turnovers of less than $50 million which have received tax cuts, takes a concrete form then the appeal of the Shorten manifesto will probably decline.
There are three issues that could cause the Turnbull government grief over the next year: energy, water and the NBN. Unless the government can settle these issues they will haunt it to the election.
The opposition has to do nothing more than snipe from the side-lines at the government’s incompetence.
Two of these issues, energy and water, require the government to achieve an accord with the states and this will be difficult with state elections in Tasmania, South Australia and Victoria coming up.
South Australia and Victoria have turned energy into a political issue by giving priority to renewable energy within their state grids.
This places them at odds with the Commonwealth’s National Energy Guarantee which is the only proposal on the table to fix the reliability, price and emissions issues, although there are doubts that it can achieve these outcomes in a way that meets public expectations.
It’s clear that the Murray Darling Agreement is under pressure as a consequence of the developing markets for Australian exports to Asia.
The growth in exports is likely to continue if free trade agreements are signed with India and Indonesia in addition to the recently completed Trans Pacific Partnership Eleven.
This will increase the demand for irrigation.
The report by eleven economists and scientists was right when it said that water saving infrastructure had not made a contribution to improving the environment but they were wrong to claim it was a waste of money since the investments will significantly increase rural productivity which, in turn, will lead to a boost in the rural economy.
However, if the government wants to hold seats in South Australia and perhaps in other jurisdictions, it will have to come up with an environmental fix.
Both these issues fall within the mandate of Josh Frydenberg.
If he manages to solve both of them then he’s a certainty to be the next leader of the Liberal Party when Malcolm Turnbull surrenders the Prime Ministership or after the next election if the government loses.
The National Broadband Network is a festering sore for the government.
The whole raison d’être for the NBN is that it would be considerably better than the system it replaces.
In fact for many users the NBN has proved to be more expensive and less efficient than the system it superseded.
At the same time the demand for data transmission has increased exponentially with the attendant capital costs that have to be passed on to consumers.
The problem is that Kevin Rudd, when he was Prime Minister, sold the public on the idea of a government funded network that would be state of the art but would cost next to nothing.
Instead of establishing a public corporation to own and operate the NBN, Malcolm Turnbull, when he was Communications Minister, decided to establish a hybrid private public corporation that would make independent commercial decisions but with all the risk being absorbed by the government.
This risk is extensive: there is a strong chance that the NBN will be overwhelmed by commercial competitors offering superior products.
None of this is of any interest to voters who are increasingly taking the view that the NBN is a dud that’s being foisted onto them by the government.
This is particularly true of rural and regional areas where prices are high and bandwidth is at a premium.
The government needs to move quickly to assuage these concerns.
The international situation is more benign than it was in 2017.
Islamic State has been more or less defeated and the threats from North Korea have receded, if only temporarily.
There are grounds for believing that China does not pose a strategic threat to Australia even though we are yet to reach a satisfactory accommodation with the Middle Kingdom.
This gives Australia time to refine its strategic and defence policies.
So, for most of Australia, 2018 is likely to be a pretty good year.