Australia’s Prime Minister Tony Abbott shakes hands with China’s President Xi Jinping during a welcoming ceremony at the Asia Pacific Economic Cooperation (APEC) forum.At the beginning of this year, Tony Abbott was preaching hairy-chested government austerity at the World Economic Forum in Davos. Thanks to a Senate which, by majority, didn’t seem to share his view about the “debt and deficit disaster” left to him by Labor, and to declining iron ore prices, Abbott is operating on a budget with a bigger deficit, and greater debt, than projected by Labor, but he probably has a government doing better than it might have been.
His Treasurer, Joe Hockey, is talking about being “very focused on maintaining economic momentum in the Christmas period and beyond” and is making something of a virtue of having no plans to raise further revenue or to impose further cuts on government spending. For the moment at least, this is a government that is pump priming – which is to say spending – just to maintain the level of economic activity, with talk of the need for severe cuts to government expenditure, so as to liberate the potential of the private sector, put aside.
It’s not as if the economy is in deep trouble by international standards. Annual growth seems to be about on target, and, perhaps in part because of the government’s frustrations in the Senate, the money being pumped into the economy has unemployment and interest rates at more or less satisfactory levels.
But there is a good deal of economic gloom not so evident at the beginning of the year. World economic conditions, which seemed on the improve, are now faltering, and unpredictable. The recovery that seemed evident in the United States seems to have stalled, and before delivering much of an improvement to employment, even the low-wage employment that is becoming more and more the norm there. Almost all of the economies of Europe, and all of the economies of our Asian trading partners, including China and Japan, have slowed or are going backwards.
The weakness around the world is reducing demand and prices for our raw materials, including iron ore. But it also bodes ill for business confidence and investment, as well as for the government’s bottom lines.
All governments have less for investing in infrastructure, jobs, education and vocational training, and better health care. That’s quite apart from the reduced public spending imposed on particularly weak economies in austerity regimes that were conditions of rescuing governments from debt default.
The experience of the past six years has not yet justified the confidence of the cut-debt, deficit- and-public-spending school, that very tough doses of medicine kills the disease more quickly, and makes recovery quicker. And, alas for those who hope that it will be proper recovery in the US that becomes the engine room of a fresh bout of growth – the American people have recently elected a congress devoted to reduced expenditure, and also in chronic opposition to whatever the President proposes.
Abbott and his ministers have invested considerable energy on bilateral negotiations designed to get more open markets with some of our trading partners, including China, Japan and Korea, but the benefits of such arrangements to us are unlikely to be obvious during the medium-term economic and political cycle, because trade volumes are likely to decline, even with greater access to markets. The most we can hope for in the short term, and even this is by no means certain, is that our total export volumes, though lower, will be a higher proportion of the net imports of the countries with which we have made such deals.
By no means does this undermine the general desirability of seeking and achieving somewhat freer markets, but it does suggest that the government is not likely to see any immediate political or economic dividend. Joe Hockey, on Adelaide radio on Tuesday, remarked that “I don’t think, from what I have been briefed, the free trade agreement with China, if it is going to be signed, is going to provide Australian businesses with massive opportunities in the second biggest economy in the world that we do not get today”.
He said that by way of partial distraction from the commonsense remark by Bill Heffernan that all of the benefits from a free trade agreement could be undermined by movements in the Chinese-Australian exchange rate: the more probable given that China does not float its currency.
At this stage of the week, the government’s domestic propaganda focus is on constant repletion of the idea that Australia and the other OPEC economies are the most dynamic in the world, and with the most economic potential. America and China are anxious to maintain growth of APEC, and to reduce barriers to trade, and movements of labour, not only by bilateral agreements but with Trans-Pacific Partnership agreements. By week’s end, the action will have shifted to Brisbane, with Abbott hosting G20, again with a focus on kickstarting economies and getting serious growth in local economies and in world trade. Around the table will be world leaders responsible, as Abbott said on Tuesday, for 85 per cent of world GDP, 75 per cent of world trade, and 60 per cent of the world’s population.
Abbott has high hopes. “There’ll be no hiding behind lofty words and motherhood statements in Brisbane,” he said on Tuesday. “Each nation’s domestic growth strategy will have been peer-reviewed and then the strategies will be published for the world to see.
“These, together with the Brisbane Action Plan, will ensure that people back in each of the G20 nations will know, straight after the summit, exactly how their leaders propose to drive new economic growth and deliver new jobs. So there will be a domestic expectation upon leaders to deliver at home, and an expectation from fellow G20 leaders who have resolved to hold each other accountable.”
So there it is. Not a talkfest, but an opportunity for the top economies to show they can deliver. The trouble is, of course, that each and every one of the 20 nations involved, including Australia, have been publishing peer-reviewed plans for getting their economies in order, and back into good growth, since forever. But there is no sign that good intentions, or serious resolve, have made much difference. Even powerful authoritarian nations seem to have declining capacity to command their economies. And others have experimented with every known nostrum without much to show for it. Ask Japan, whose economy has been in the doldrums for more than a decade. Or China, which has little idea of which levers to pull at the moment, and no sure feel for when, where and how the landing will occur. Or the US, which has pumped billions into the nation’s arteries, yet can hardly detect a heartbeat.
It does not seem likely that Australia will be showing its leadership merely by telling the other nations to get the fundamentals right. One can, of course, continue to mouth slogans, for they are little more than that, about the key to recovery being the stimulation of sustainable private-sector led growth and employment, or respect for markets. Even China was saying this at APEC. It’s hard to imagine that the joint conference resolution, as likely as ever to be mostly pabulum, will be reciting from the Abbott mantra that “you can’t spend what you haven’t got; no country has ever taxed or subsidised its way to prosperity; and, you don’t address debt and deficit with yet more debt and deficit”.
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