The 42nd Parliament has sat for the first time, with MPs and Senators welcomed to country by an Indigenous ceremony. While the Sorry state of the opposition’s stance on the apology to the Stolen Generation has pre-occupied political observers, a lot more will be on the agenda this week. 24 bills are slated for introduction, including the first tranche of WorkChoices repeal, on which issue the Coalition have seized the chance to entrench further their unpopularity. But, while there’s been much comment on the importance of new Ministers getting off to a good start in Question Time, there’s been less attention paid to what’s likely to be the substance of these high profile clashes – the economy. It’s here the senior Libs have severe problems – the current evidence of rising inflation is drawn from the December quarter last year, a period indisputably the responsibility of the Howard government. So what have the Libs been saying? Here’s Dennis Atkins in the Courier Mail:
And on ABC 1’s Insiders Malcolm Turnbull’s claims came with built-in animal traps.He tried to demonstrate he was the smartest guy in the room by saying he knew more about the causes and statistical make-up of inflation, and that Rudd and Wayne Swan wouldn’t know an economic indicator if it came on a yum cha trolley in Fortitude Valley.
But in doing these things he might have hit two brick walls. First, his assertion that the Reserve Bank doesn’t give a toss about “underlying” inflation isn’t going to pass the pointy-headed test as just about every economic commentator has made this point in recent weeks.
Ditto for his claim that the 3.6 per cent annual figure doesn’t exist – at one point he was sounding like Swan during his “$600 family payments are not real” phase of 2004.
Also, anyone who can read the latest Economist magazine knows Australia’s inflation is higher than most OECD countries (this is presuming we continue to leave Argentina, China and Indonesia out of the OECD). The economic commentariat don’t like errors of detail.
At the same time, Turnbull actually argued that inflation is not as bad as Rudd and Swan – and, dare we suggest, the Reserve Bank – says it is. Now this just doesn’t pass that great John Howard test – the one which needed nodding agreement around the front bar.
Brendan Nelson’s leadership may be looking shaky, but his rival Turnbull is being too clever by half. He seems to want to simultaneously maintain that inflation is not serious (because blind Freddy would know where to pin the blame – on Howard and Costello) and that it’s worse than it could be because Wayne Swan has allegedly been “talking it up”. Let’s stop and pause.
There is no inflation problem (because the Howard government were “good economic managers”) but the terrible inflation problem is the fault of the Labor government (because Wayne Swan is inexperienced – unlike the silvertail MP of precisely one term and three months standing presumably).
It was clear as day that one of the many catastrophes of the Coalition campaign was a complete inability to come up with messages on the economy that were consistent and made sense. Now we see it again. Turnbull might have done better to have made some alternative policy suggestions – although, maybe not. He’s either suggested that aiming for a higher surplus of 1.5% is piddly and insignificant stuff and the Coalition would have done that anyway (unlikely), or that Labor should forget about fiscal policy as an anti-inflationary stabiliser and follow the Libs’ pattern of big tax cuts – something every economist will tell you fuels inflation.
It will be very difficult to string these soundbites together under the full fire of parliamentary debate – and I wouldn’t be at all surprised if there is an opportunity for a full blown debate on the economy. It may come on Lindsay Tanner’s appropriation bills – where the Libs and Nats will have the chance to defend masses of porkbarrelling if they so choose. One way or another, they’re going to be hoist on a petard of John Howard’s making. The contest in the first session of parliament is a high stakes one politically – it’s all about destroying the Coalition’s standing on economic management and entrenching Labor as the prudent fiscal party. Economic troubles don’t necessarily lead to election losses – and if the Coalition cooperate in immolating their own record on economic management, they will have gone a very long way towards ensuring their chances of a return to office in the short term are very slim indeed.
Cross-posted at PollieGraph.
Hmm, I thought Canberra was Ngunnawal country. Never mind.
I don’t think the punters give two hoots about parliamentary debates or economic lags. If the economy goes sour – as I think it will – they’ll blame the party actually in power at the time, totally unfair as that may be. Already I think the Rudd governemnt may be destined to be an unlucky one, and the stereotype of the tories as “good for the economy” will be reinforced.
Yet both Hawke and Keating won in the face of economic travails.
“and that Rudd and Wayne Swan wouldn’t know an economic indicator if it came on a yum cha trolley in Fortitude Valley”
No-one else would either. Certainly not what I’d be expecting on the yum cha trolley and I’d be closely questioning the waitress about what it was, where it came from, how it got there and what it was doing there.
Joker [3]:
Errr. Actually the Liberals would probably wonder if the yum-cha trolley was made in Tonley Park and how much they would have to pay the manufacturer to stay in Australia …. it does have funny little wheels, doesn’t it? Wonder why it hasn’t got registration plates – and where’s the steering wheel?
Parliament is in Ngunnawal country. Someone stuffed up and invited the wrong people. But by the time someone pointed that out, they didn’t want to withdraw the invitation and instead invited the correct people tommorow (I think). From the news reports the Ngunnawal elders aren’t particularly happy about the situation.
Just a note to say that I’ve amended the post so as not to compound any offence!
“Turnbull is being too clever by half”
This is Turnbull’s life-long affliction; it’s why he is not (yet) Opposition leader; and it’s why even if (when) Nelson becomes so ridiculous that the Liberal Party turns to Malcolm by default, that he will never become PM. The electorate doesn’t like smart arses, not one little bit.
Howard loves giving a wedg(i)e
I have a feeling that Turnbull is going to get very bored by being in Opposition and that he’ll end up leaving.
Queensland Parliament resumed today too. The member for Gatton,Ian Rickuss, made a nice old antiFlegg interjection during question time so it looks like the hostilities between Lib and Nat in Queensland have reach new heights.
Imagine how much they will despise each other by the end of the year.
I wonder if Turbull could end up being the Liberal’s Latham?
Chris @ 5: I’m not sure if that’s right. Here’s a biography of Matilda House Williams, who performed the Welcome to Country today: http://www.womenaustralia.info/biogs/AWE2101b.htm
“A Ngambri-Ngunnawal elder, Matilda House has a long-established connection to Canberra and its surrounding regions as one of the traditional custodians of the land.”
What news reports are you referring to?
I was reading the Latham diaries recently, and one of the interesting points in it was the damage that Latham perceived that Beazley did to the ALP by abandoning the Keating economic legacy. Beazley just abandoned the ’story’ that Keating had spent 13 years telling the electorate about the benefits of competition and microeconomic reform. In its place he had, well, not much. Instead of talking up the ALP’s legacy of opeinin up the economy, he wasted five years on ‘Rollback’.
If the Liberals fall for the same trap, they will suffer for a long time until they can come up with a coherent set of economic policies. The problem is that the Liberals’ economic management was genuinely awful for the last few years of their government. Maybe they are trying to deny that the last days of the Howard government never happened, and hoping to remind everyone of how good it was in 2004 when we had low interest rates, booming property prices, unemployment falling etc.
I reckon that the smartest hting for the Liberals to do would be to support big budget cuts (bigger than whatever the ALP proposes) in the name of fighting inflation. Make themselves look like the real hairy-chested cost-cutters. Probably a tough gig, as Tanner seems pretty determined to cut whatever fat he can find, but it would give them a bit of cred.
Industrial relations is also a possible issue they could exploit. Getting rid of AWAs will reduce labour market flexibility, which will lead to cost-push inflation. The Libs could have a bob each way by demanding a lengthy committee process to examine the macroeconomic imlications of re-regulating the labour market, and using any findings to accuse the ALP of undermining the fight against inflation ‘because the union bosses are forcing them to’. But then pass the amendments because of the ALP’s ‘mandate’.
Ultimately I think everybody who thinks about these things must realise that when it comes to broad economic indicators (inflation, interest rates, unemployment) the new government can’t really be held responsible for anything much for 18-24 months. But hopefully the RBA will have broken the back of inflation by this time next year. In the interim, the new government should continue to remind everyone of Howard and Costello’s pork-barrelling and economic failures.
Much as I would take great entertainment from that Mindy, I rather doubt it.
Latham – for all his strengths and faults – was a career politician with little to no experience outside the well-trod halls of the Labor party, and with an aura of the heir about him from the beginning of his career.
Turnball – for all his strengths and faults – is anything but a career politician. If something takes him down, it will his be ignorance of the party room and dynamics therein. To get to Turnball’s level, whatever your background, you need more than a little self-discipline, an area that was sadly malnutritioned in Latham.
I’m not saying he’s the shit, mind you, just that he’s not Latham, and I think they’re more different than the same.
Not necessarily at all. AWAs did little to reduce labour costs in areas where labour was in high demand. They did a lot to reduce labour costs in areas where labour is largely casualised and unskilled – ie cleaning, hospitality and retail. As Gillard was saying on the 7 30 report last night, does anyone really believe that wages will spiral out of control if a hamburger shop is forced to pay a 16 year old kid eight bucks an hour?
Mindy – he’s not foul-mouthed enough. He might end up being the Liberal’s Andrew Peacock. Colt from Kooyong. The Peacock Throne. The Peacock Thrown (out), etc.
How can you get it wrong? There are signs all over Canberra saying Welcome to Ngunnawal country. In fact the signs start out as far as Yass.
Not all of us go to Canberra all the time, and many have never driven there, or been to Yass! The link quotes a Ngambri elder. How can you get it wrong? Go by the media reports if you don’t have personal experience. Hardly a hanging offence.
It’s one of those questions that will always be hard to answer in the absence of a counter-factual, but the likely effect of AWAs in sectors with high demand for skilled labour (compared with collective agreements) was to strengthen the linkage between productivity and pay. Basically, you can pay the best workers more when you negotiate individually.
As for the effect at the low end, I agree that AWAs did lead to lower wages for some low-skilled people. But I disagree with Gillard in that I think that ANY increase in the pay of people on low wages will lead to higher inflation. It may or may not be a big effect, but you can guarantee that it will be an increase in inflation. People on low wages spend most of what they earn (not able to save much). That leads to higher aggregate demand, which in turn leads to higher inflation.
There is no question that getting rid of AWAs will lead to higher inflation. How much higher? Hard to say. Just like the income tax cuts will lead to higher inflation. It’s hard to know the magnitude, but the sign is clear.
The other effect of getting rid of AWAs will come if we have an economic downturn. It will be easier to fire people on AWAs. That will shorten the downturn. But when the recovery comes, employers will be slightly less keen to hire people on collective agreements than they would have been to hire them on AWAs.
But over-award payments and common law contracts have always been used for workers who can command a premium for their skills. Collective bargaining can provide wage increases paid for by productivity improvements without fueling inflation for those not in that happy position.
You’re overstating the spread of AWAs throughout the workforce.
Kim,
I am not ‘overstating the spread of AWAs throughout the workforce’. I realise that they the great majority of people aren’t on AWAs. The point I am making is that getting rid of AWAs (along with other re-regulation of the labour market) will lead to higher inflation. There is no way that reducing flexibility in the labour market can have any effect other than that.
My original point was that the Liberals may be well served to point out that for all the hoopla about the tax cuts, in the medium term, re-regulating the labour market will have a far greater effect on inflation than tax cuts. In fact, in the long run, lower taxes will lead to lower inflation (as they lead to higher workforce participation). A more rigid labour market can never do anything other than increase inflation.
Rudd’s ‘war on inflation’ is entirely inconsistent with re-regulating the labour market.
In the Canberra Times – unfortunately I don’t have any online links and it was from a week or so ago. Although organisers claimed she identified as Ngambri-Ngunnawal, the Ngunnawal elders deny this and when asked explicitly by the paper she only claimed to be an Ngambri elder.
“re-regulating the labour market.”
Before you start using that technology, you might care to look at how complex WorkChoices is.
Inflation was a lot lower in the early 90s before even enterprise bargaining was really up and running. I’m not convinced that wage-push inflation is that much of a threat except when pattern bargaining can spread pressures beyond industries where both labour supply issues and capacity to pay exist. It might also be worth remarking that there are two sides to every bargain, and employers should find more creative ways of recruiting and retaining valued employees than throwing large amount of dollars at them. Getting rid of individual contracts at the top level (which I am not advocating) would actually be a very good anti-inflationary measure.
Required: that’s assuming that employers put a lot of effort into differentiating between low-paid workers. Do you have any evidence that cleaners or petrol station attendants were paid according to their productivity?
Furthermore, aren’t you ignoring the possibility that one effect of workplace regulation might be to increase the wages share of the economy and reduce the profit share? That’s not inherently inflationary.
Imagine I’m the owner of a petrol station. I put my workers on AWAs and make a saving; although I’m (generously) slightly raising the hourly rate, I’m no longer paying shift loadings etc so overall I gain.
Petrol stays the same price (well, that’d be a miracle, but we’re talking scenarios here) as does everything else, so I’m still taking the same amount of money but I’m spending less on wages. So there’s more in my pocket.
By what miracle of the free market economy is me having more to spend less inflationary than my workers having more to spend?
Presumably I’m going to spend my extra dosh on improving my house, buying a better car, maybe a new sound system, etc etc.
The same amount of dollars ends up being spent, but by one person instead of several.
Mckenzie: remember, it’s not inflationary when rich people by Mercedes-Benzes
…in fact, surely if my several workers can each afford to buy a car because I’m paying them properly, doesn’t that increase the demand for cars, thereby decreasing their price and thus lowering inflation?
Whereas my hideously over priced Mercedes Benz (thanks, Robert, very generous of you) goes up further in price AND is imported, adding to our trade deficit.
So paying my workers more is good for the economy, as it is anti inflationary and (of course) they all drive Fords and Holdens (they did want to buy Mitsubishis, but that’s another story).
mckenzie, I think I’ve worked it out.
(1) Your examples sound dangerously realistic, and thus have no pertinence whatever to economic theory;
(2) Everyone knows that it’s one of the sacred rights of property for small business owners to screw their workers, and that’s the sort of thing the terrsts want to take away from us.
Interesting thing in Crikey yesterday:
So there’s some discussion that in order to keep inflation within the obligatory RANGE, the Reserve Bank wants business to suffer and start laying off workers. Read all about it in the Fin Review today. Unemployment, economists say, must be forced up to over 5% BECAUSE WE ALL KNOW HOW DANGEROUS INFLATION IS.
Do we?
Shit! People who already have assets don’t make such a killing. Banks don’t make such a killing. People with loans get to see the real value of their indebtedness diminish.
No doubt there’s something I’m missing because I’m not an economist. Obviously, raving and ranting like this, I’m probably a commie!
Someone care to explain why?
Kim: as I understand it, the conventional wisdom amongst economists is that inflation tends to hurt the less well-off more than the wealthy.
The wealthy have a whole range of tools and information to manage their money in an inflationary environment that aren’t generally available to the less well-off.
I don’t understand that at all, Robert. Presumably these tools are investing their cash in something that brings a high rate of return because of high interest rates.
Now, no doubt those worse off may not have the spare cash, but if wages are keeping pace, and the real amount of their debts are diminishing, I don’t see how they’re worse off. In fact they’re better off.
What chaos would result if, as the Crikey correspondent suggested, we had 4% inflation and 4% unemployment? In particular, how would it make low income earners worse off? That’s my question, and I’d like realistic answers!
My sister was doing Economics (as a mature aged student) at Uni and kept flunking.
She told me that she was using her fifteen years experience in small business and in running a household to answer the questions.
I told her to forget about common sense and real life and answer the questions according to the theories in the textbook.
She never looked back from that point on and topped her year.
Kim – FWIW, wikipedia has a summary of what are considered to be some of the downsides of higher inflation
http://en.wikipedia.org/wiki/Inflation
That’s the rub, Kim.
Inflation “hurts people on fixed incomes (e.g. pensioners, students, the unemployed, casual non-unionised workers) by reducing their purchasing power”, to grab and extend a quote from Different Chris’s wikipedia link.
Thanks, Chris, I’m a bit too tired to get my head around it all now but will have a look in the morning. Do appreciate your help.
wbb, why can’t social security payments be linked to CPI? And a decent safety net (I’m assuming the text is American) would take care of low paid workers?
Kim – yes, all benefits should be indexed. But they aren’t.
Kim – would also need to index the tax rates, because even if wages keep up, you end up with less money in the pocket because of bracket creep. And I’d guess there’s a bit of a feedback loop here – pay rises to compensate for inflation end up causing the inflation rate to rise even further.
mckenzie @ 31 – did you hear the old story about an Economics student reading through her exam, disconcerted, puts her hand up, Professor strolls over….”The questions this year are exactly the same as on last year’s exam!” “Don’t be concerned, Miss. This year the ANSWERS are different.”
Required,
The AWA’s appeal mainly to people such as the guy who (allegedly) bought in 183 tonnes of ineffective white powder to sell as OMO, people whose have only method of succeeding is by ripping off others, people who might be said to be bordering on the criminal end of town. Proportionally there aren’t that many of these rednecks, and that is why Howard’s fettish for serving their interests was so offensive to the majority of Australians, as confirmed in the polls. Disposing of the AWA structure will have a negligble effect on inflation. It will, however, have an effect on the profit line of solicitors who, it seems, did very well from the work agreements that they did get to draught.
A few things to deal with here (I haven’t checked this thread since about 5pm yesterday). I’ll split my responses into separate posts.
McKenzie @25 gives the example of a petrol station owner paying his employees less, and thus taking more profit for himself. McKenzie asks why having one person get all that money instead of spreading it among a number of employees is any less inflationary. A fair question.
The answer is that, as economists say, ‘a dollar isn’t a dollar’. A dollar to a poor person is not the same as a dollar to a rich person. Rich people are able to satisfy their basic demands AND have luxuries AND save a bit. Poor people save a lower proportion of their income. So giving a dollar to a rich person is likely to have a less inflationary impace than giving that dollar to a poor person, because they will spend less of that dollar than the poor person.
McKenzie @27 then asked:
This is completely incorrect. (Leaving aside the normative issue of ‘paying them properly’.) In the short run (and we live in the short run) there is a limited number of cars to be had. The more people who want them, the more their price will be bid up. Just like the housing market – prices are going up because more and more people want to buy houses. So paying higher wages will actually increase inflation – in the short run. In the longer run, increased demand may prompt companies to invest in bigger factories and new technology. That will push down the price of cars. But that’s years away, we are facing inflation now. Wage restraint is vital to that.
Kim @ 28 asked about the 2%-3% band that the Reserve Bank uses as its target for inflation. I saw the Crikey editorial and wondered about that myself, so I snooped around the RBA site a bit.
The reason for using inflation targeting througu interest rates (as opposed to trying to manage the size of the money supply as the RBA did in the 70s and 80s) is complex. The idea came out of economic theory during the 1980s. Now I know that a lot of LP readers roll their eyes at economic theory, mainly I think due to an overly simplistic characterisation, but the theory behind inflation targeting makes a deal of intuitive sense.
Basically the theory was based on the assumption that inflation is driven partly by people’s expectations about inflation. If you think inflation is going to be 10% next year, you demand a 10% pay rise to cover it. You get your money, spend it and the inflation becomes a self-fulfilling prophecy. Australia from 1970 to 1990 had long periods when inflation was over 9%, and the expectation that inflation would be high became entrenched.
Economists (using economic theory) concluded that if the central bank was committed to fighting inflation and that commitment was credible (i.e. ‘we’ll do whatever it takes to keep inflation in the band’), people would adjust their expectations. This would have a ‘virtuous circle’ effect that would reduce inflation over time.
So in the early 1990s the RBA adopted inflation targeting (it did so without any fanfare, I think the first formal announcement was in 1994, several years after the bank had adopted th policy). They were casting about for a suitable target, and chose 2-3 per cent because that was the target used by the German Bundesbank, which to that point had been judged the central bank that had been the most successful in fighting inflation.
So the 2-3 per cent target was partly happenstance. It was based on the observation that it works. If you move the top of the band up, it becomes harder to constrain (i.e. a 3-4 per cent band is harder to achieve over time, and will probably be exceeded more regularly). It is a target that has served Australia well. Right now we are going to have a period of pain as the RBA beats inflation back down to within the band. But in the longer term, it is the right band for our economy.
BilB @ 38 makes the ridiculous claim that AWAs appeal mainly to:
It’s hardly worth a response, but what the hell.
AWAs are used by all kinds of businesses. They are common in the mining industry, where rates of pay are high and have risen fast over the last decade. They are common in some big companies (Telstra is a big user). They are also used by small businesses who want flexibility (and low rates of pay). They are legal, and legitimate.
To equate paying low wages with being a criminal is just offensive nonsense. The simple fact is that some people’s labour is just not worth that much. You can regulate all you want, but you can’t change the fact that some people just can’t contribute all that much to the economy through their work. Forcing employers to pay more than their employees are worth is like passing a law that says everybody gets a supermodel as a girlfriend – some just don’t deserve it.
The bottom line: if you don’t have skills, your life is going to be tough. get the skills, or deal with the toughness.
Oh I don’t know about that.
So one swallow (e.g. Telstra) means a spring? In other words, because some people are making good money at one big telco that means every other business is doing the same? So because there’s a mining boom and a shortage of workers in the West that this extrapolates everywhere else in the country?
Sounds sort of like a form of pattern bargaining which usually makes the business sector shriek with horror…oh I forgot. If business does it, it is OK.
In other words businesses and business peak bodies (i.e. business trade unions) can use this sole example of what happens with the big WA mining companies to imply that everything would be hunky-dory if only the whole country followed suit.
Just about every “company” being pursued by the Office of Workplace Relations, ASIC and the ATO is using AWAs.
And there are literally thousands of cases being pursued for such wonderfully ethical activities as non-payment of salaries and wages, non-payment of entitlements such as Superannuation Guarantees, “phoenix” trading and deliberate underpayment. And most of the AWAs used by these companies are unregistered. Ask yourself why.
Corporate cowboys do not discriminate in their criminality. Skilled or unskilled, you still get ripped off.
Required,
Having just been through the process of needing to find the method of employing a person in the new order I can tell you that you are talking through your hat. To employ someone at $25 dollars per hour we obtained a quote to draught and AWA from a solicitor based on their $300 per hour $2000 to $3000). Most of the controversy with the AWA’s came from employers trying to ripoff people being paid $10 per hour. Crapping on about peoples worth ignores the reality that we all have to live together with dignity. If we cannot then you had better buy a gun because Australia would quickly become like Africa with many desperate people for whom life held no meaning, including yours.
End result. We employed our person under a common law work agreement based on the applicable award. Establishment cost, Nil. Employee happy, company happy, tax office happy.
“…people whose have only method of succeeding is by ripping off others, people who might be said to be bordering on the criminal end of town…”
Gee, sounds like Telstra to me.