It’s the economy, Joe.

Here’s why the federal government will change in 2016.

wages growth

Today, data was released showing negative wages growth for the first time in six years.

The last negative quarter was September 2009. The March quarter of 2015 takes us back to those bad days.

In an environment of negative wages growth, people feel stressed and unhapppy. Jobs are being lost.  Negative feelings about the economy inevitably hurt governments.

It’s the economy, stupid! 

… is a classic of modern political communication for a reason. Governments get thrown out when times are bad.

What Joe Hockey and Tony Abbott need to do is buttress the economy during the time when mining investment is falling. They ought not be stressing about surpluses – there are far less abstract and more concrete things in the economy that need their attention.

If the government spends more (in the right ways) it can keep people in work. This is important not just for their current well-being but their long-term prospects. People who spend time unemployed lose human capital. This permanently reduces their potential and the potential of the national economy.

The most recent Budget is probably not succeeding in pushing the economy forward and keeping people in work. The next Budget will be a pre-election Budget, so it will likely spend up big and reverse the mistakes this government has made. But will it be too late? The mid-year economic and fiscal outlook is also an opportunity to change course.

Another opportunity to change course will present itself if the Treasurer and Prime Minister are changed. It’s not impossible – a poll today is showing that the coalition’s recent recovery is ebbing, with the balance back to 47-53.

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thomasthethinkengine

Thomas the Think Engine is the blog of a trained economist. It comes to you from Melbourne Australia.

3 thoughts on “It’s the economy, Joe.”

  1. Last week, it struck me that the objectives of the government, and the objectives of many Australian businesses at this point in history, are exact opposites.

    While the government prioritises measures aimed at stimulating the economy, attempting to maintain and create jobs, many businesses are in spend reduction and cost elimination mode. Amongst my professional peers, we are almost universally involved in the active pursuit of ‘operational efficiency’. That is, our professional lives are presently dedicated to finding ways to spend less, while maintaining or improving service. And like it or not, one of the biggest, most obvious, and most easily eliminated sources of cost in Australian business, is people. That means jobs will be lost.

    To me, it appears that the active pursuit of job reduction by Australian businesses is at an all-time high. The cost savings found, and the jobs cut, by big businesses – where very large numbers of Australians are employed – will be huge. They will far outweigh the handful of small business jobs created by the popularity incentives recently offered by the government.

    If we are not in a very deep, sustained recession within 12 months, I will be very surprised.

    Like

    1. Crikey. That must be one of the most ominous comments ever received on this blog! I really hope we don’t get a full-on recession.

      Like

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