Both the government and the RBA are talking the economy down, and painting a picture that’s much worse than reality. Trouble is, it’s working. If they’re not careful a temporary blip in confidence could become a more permanent depression.
Poor little Aussie economy. No one’s giving you a go.
If you believed everything you read, you get the sense the Australian economy is about to go into some sort of B-grade celebrity meltdown.
And who’s leading the cheerleaders of doom? The government itself – both the mob in Canberra, and lately the RBA itself!
You know you’ve got it tough when the very people who are supposed to be looking after you are the ones doing the trash talking.
So how did Canberra and the RBA become those horrible parents on the junior soccer sidelines?
Well Hockey and Abbott have found a line that’s selling well and they’re running with it for all it’s worth. That is, the previous government has lumped them with a budget disaster, and now we all need to chip in to a tough budget in order to clean up ‘Labor’s mess’.
See how neat this narrative is? Abbott and Hockey are the long suffering mum and dad who do their best to keep the place neat and tidy, but as soon as the kids come home (Labor) the place is a mess again. The poor coalition’s got to do the hard work to clean it up, because who else is going to do it? Labor? Ha!
It’s a story every parent can relate to.
Never mind that the Charter of Budget Honesty means that everyone gets a look at the books before the election, and never mind that the real bug bears in the budget are generational factors – like population ageing – or cash handouts (like the Family Tax Benefit) that you yourself brought in.
“Labor’s mess” is a narrative that sells well and we’re running with it. Even to the point of using it to justify a whole lot of broken promises.
But the public will only swallow these broken promises if they’re completely sold on the idea that there’s an impending crisis – that we’re only weeks away from a total economic meltdown.
And on that front, the spin machine has done too good a job. The economy’s a mess and Dad’s on a rampage.
Nobody’s safe.
And as a result, consumer confidence has tanked. The ANZ Roy Morgan poll showed sentiment was down 4% last week, following a similar sized fall the week before. Consumers are panicking.
According to ANZ:
The policies of most concern to the consumer spending outlook at this stage are the mooted temporary deficit reduction levy and the proposed changes to the eligibilities for welfare and pension payments… These policies, if introduced, would impact consumption both directly and indirectly.
Well, maybe. I’m always sceptical about studies that rely on people being able to correctly interpret the impact complex legislation is going to have on an impossible-to-predict economy. I spend most of my days thinking about it and I’ve got no idea what’s going on. How well does the ‘average consumer’ understand these things?
These surveys seem totally driven by the news cycle, which as I’ve argued before, only has a tenuous connection to real events.
But perceptions matter, and that’s why we do these surveys. If consumers start feeling skittish, they can cut back on spending and grind the economy to a halt. It doesn’t matter where they get these ideas from. Only perception counts.
And we’re seeing the same thing play out with property investors.
Digital Finance Analytics’ recent investor survey found a significant fall in how likely investors were to purchase now. A few months ago, investors were 68% likely to purchase a property in the next 12 months. Now that’s down to 38% – a significant move.
But when you break it down, guess what’s the biggest barrier to purchase? Yep. The Budget.
Now a massive 45% of investors say that they’re being put off by budget uncertainty – up from practically nothing a year ago, and completely dominating any other factor.
When DFA drilled into it, they found that the high income levy was cited by nearly 45% of investors who have decided not to transact at the moment. Potential changes to negative gearing accounted for 31%, and changes to superannuation rules 12%.10% blamed potential changes to other benefits.
Again, I’m pretty sceptical. There’s a lot of uncertainty around all of these policies. But in a way, it doesn’t really matter how well the policies are understood. What matters is people’s perceptions about how secure their finances are. If the tax burden looks like it might change, people will naturally become a bit more conservative with their choices.
And temporary blips in consumer and investor confidence can become self-fulfilling prophesies. If fear persists for long enough, actual spending decisions can be impacted, and we can get market-wide down turns.
So Canberra is playing with fire.
The fear campaign around ‘Labor’s mess’, along with a budget response that seems to be modelled more on Rambo than James Bond, has given people the willies. It might be a politically expedient way to push through the things you want to push through, but if it’s not careful, the government could end up with a genuine mess on its hands.
The RBA is also out there pushing a very sombre outlook – more downcast than the data justify – but they’re playing a very different game.
More on that next time.
Rudolf Ruyter says
Hi Jon.
And how could “fixing the economy” be worse than Keating’s “J” curve.
I remember well the ultra high interest we all had to pay for any finance back then.
Current government scare tactics will probably be followed by “we fixed the economy” claims which will boost confidence, so any negativity you claim is being caused will be only short term.
And if they were right, and the problems are not fixed, the maybe financial caution is the right thing.
Regards
Rudolf
Vanessa says
Spot on Jon.
They look tough now. So when election time comes around ; the finances will look better and they can give everybody desert.
It may hurt, but the Liberal’s know what they are doing. Timing in this case is everything and it will be positive in the long run.
I would have liked salary cuts from these pollies though and salary ceilings placed on all CEOs. Fairer wages for everyone working in Large corporations I say.
Cheers Ness
Don says
Think we need to be wide open to all possibilities here. Any successful property investor has had to push hard with no looking back & mostly ignore risks like the economy, else he falters. We hold three investment properties with a million in debt, so we probably are in the group mentioned.
However I don’t believe we should bury our head in the sand, there are too many bad projected figures from too many sources. No Jon, it won’t fall over in a couple of weeks, it is too big a ship for that, but if it does fall, it will not come back in a couple of weeks either.
So I believe there is a degree of sincerity in what the government is saying, but I also believe a degree of BS. How much of either I am not sure of but I would guess a fair bit of alarm being shown is genuine & that a change in the bottom line is definitely needed, the sooner the better.
How that is achieved is another story.
Ken says
We will always have morons who will not accept that the Tories can do no wrong, and if they do, they can always blame it on, Labor’s or the previous Gov.’s fault or mess. It won’t matter that the Labor Gov. left the Country with a AAA credit rating and the lowest int. rates in 60 years. The fascists will always make anything look the opposite, just like a good Lawyer can make wrong look right and right look wrong.
Julie says
And on top of that the Chinese buying up the property “by the truckloads” that our citizens will not…
I know….. we have a business in the building industry
Jack says
Smokin’Joey really knows how to say FU Jack I’m alright, first it was looking like a dope smokin’ a stogie with I’ll be BARK and looking like a pair of dropkicks and then to top it off Dancing in his office with his wife to the tune The Best Day of His life, he is a dead set TOSSER! He’s a deadset Dope as is Tony Abbott and they are OUR LEADERS, SHEEESH!!! I think Homer Simpson would do a better job.
The Libs are going to lose the next election, I thought that would be impossible with Shorty Shorten leading Labor, I’m sure there is no way Libs will go to a double dissolution, impossible to win.
WHO IS ADVISING THIS BUNCH OF KNUCKLEHEADS!!!
Oscar says
I think we have all been witnessing a political caper movie here in Australia. It’s got elements of “Oceans 11” and a twist in the tail reminiscent of the “The Sting”. It’s billed as “the biggest, most deceitful political con job in the history of this country”.
Here’s the storyline:
For the whole of the last government’s tenure, Tony “The Mad Monk” and his henchmen do everything possible to disrupt effective governance by the party in power, and subvert the democratic will that puts Labor / Greens in power. And at every opportunity they talk down an economy that is the envy of the world at the time.
When they get into government they maintain the same behaviour. Who are they trying to sting? Us, the Australian population. And what’s the endgame? So we never vote Labor again. And just accept that our betters know better than us.
So, they’ve recently added a twist to the script by “the discovery” of a Budget Emergency. This has nearly doubled our debt ceiling (and the trick is to hide the fact the Liberals did it, and convince everyone Labor caused it). All the while they continue to talk down their own economy. In the midst of all this, extras dressed as Chicken Little are running around everywhere screaming, “The sky is falling, the sky is falling!”
Now, Tony and his mob hit a snag when overseas financial commentators don’t play ball, and continue to rate Australia as one of the best performing economies in the world. And then local commentators, like Chief Economist of BT Financial Group Chris Caton on last night’s ABC “The Business: Budget Special” says,” We have no short-term budget emergency or crisis. That’s just political spin.” But Tony replies, “We’ll show you, Ticky Fullerton, when your show is cancelled because there’s no funding any more! Who’s got the last laugh now?” )
But the feigned panic is starting to spread into reality – and to bite. And that’s when Tony wheels out his right hand man, Big Joe, who tells us, “This is goin’ ta hoit you more than it hoits me!”
And suddenly, it’s as if all Tony’s guys have been hypnotised, and they’re all repeating the same mantra over and over again: “repairing the budget mess that we’ve inherited from our predecessors” in everything they say.
And the leader of the opposing gang, Shorty Bill, can’t do a thing about it. He’s completely distracted because Tony called Shorty’s mother-in-law “a dame”. If he has a clue what’s actually going on, he seems powerless to stop it.
Meanwhile the mantras have been having their effect. Whenever ordinary people hear them, they start going glassy-eyed and repeat them too: “Stop the Boats! No Great Big New Tax! Labor – never again!”
And then two mad scientists, Alan and Andrew, start broadcasting these mantras across the nation. It’s starting to turn into a zombie movie! And some of the public actually start eating others!
Finally, the villain behind it all, an American called Dr Rupert Evil, giving a suitably evil laugh, arranges for Tony to be knocked off by someone in his own gang, and makes someone called Gina the Boss of Australia, paying everyone in the country $2 a day while she digs up the whole place looking for her “Precious”.
And that’s how it all ends.
Steven says
Well said. Well said. I hope the whole Australia wake up to what is going on in thier country and what this government is doing to them. They are a bunch of right wing, Tea party lunatics with no new agenda other than the usual conservative money to the rich policy.
Tom Jeffries says
Very amusing comments Oscar, I retired from being employed, on Monday, grew up in housing com place, no books, or stuff, remember a first day at school, coming with nothing, and feeling so embarrassed, today or two days ago I have retired earlier than most get the opp, I am not rich, but my my two kids have uni degrees, one now doing a masters, while working, as well, that day sticks in my head as clear as day 31 years later!!
Ken says
Did they go to Whitlam Uni. Lucky you had a good enough job to send your kids to Uni, eh?