Rates won’t go too high too soon, for a very bad reason


I haven’t read all of the stories written about this week’s interest rate hike, but I’ve scoured an awful lot to discover that they share a common flaw: ignoring the lackluster outlook for the Australian economy l ‘next year.

As the sugar-stricken COVID stimulus craze wears off, the Reserve Bank and Treasury both predict that 2023 will be the worst non-COVID calendar year for growth since 2009 and, at 2%, only a fraction of better than the 1.9% recorded that year and in 2001.

In his last Monetary Policy Statement released on Friday, the RBA said the economy was gaining momentum after the Omicron wave but would soon run out of steam.

“Growth is then expected to moderate in 2023 as extraordinary policy support withdraws, rising prices weigh on real income and consumption growth slows to more typical rates. GDP is expected to grow by 4.25% in 2022 and 2% in 2023,” he said.

GDP growth of 2% is significantly below the average of 2 years below the norm we had on average for the 20 years before COVID. The kind of growth that prompted the RBA to cut rates in an (unsuccessful) attempt to revive the underperforming economy, to counter the federal government’s poor fiscal performance.

And the best the RBA can hope for in the next fiscal year (2023-2024) is another 2% subpar.

Moreover, the growth projected for next year will take place in a climate of high inflation, higher interest rates, falling house prices and real wages, and a world that will still have to coping with the fallout of a changing virus, Russian expansionism and the United States. competition.

It’s not a happy mix. You might almost think that this election wouldn’t be bad to lose.

Three years is an eternity

Less hopelessly, the overlooked question on the campaign trail is whether the continuation of the policies and ideology that delivered our lackluster pre-COVID performance has any hope in hell of sustaining the nation’s aspirations for years to come.

Right now, every day is a long day in politics, let alone a week. For the national memory, three years is an eternity.

It is important, however, to try to keep a little perspective on where we came from and what the unchanged ideology of the Coalition offered before the total disruption of COVID.

As interest rates dominate the headlines, remember that the RBA halved its cash rate in 2019 – from 1.5% to 0.75 – months before anyone sneezed in Wuhan.

GDP growth in calendar year 2018-2019 had fallen to 1.6%. Most of our economic growth did indeed come from population growth – and most of that came from importing people.

This was OK for businesses, having greater demand for goods, but it did little for individual living standards as real net wages fell.

Despite the RBA’s cheap money, business investment remained weak and the coalition government had no desire to compensate for this weakness.

Liberal treasurer after Liberal treasurer, they played peas to hide their lack of ambition to increase the federal government’s stagnant real estate investment in infrastructure.

The big investment in our future – in our people – continues to be reduced. This was made clear in the Frydenberg budgets – real spending on higher education is falling.

“Expenditure for the higher education sub-function is projected to decrease by 5.4% in real terms from 2021-22 to 2022-23 and by 3.6% in real terms from 2022-23 to 2025-26”, said the Treasury. shown on the back of this year’s budget documents. More of the same.

Premier Morrison proudly proclaims that he does not want to “build back better”. More of the same indeed.

Direct Election Tricks

For nine years, billions of dollars in government programs, grants and direct election stunts have been aimed at achieving political results rather than the best return for the Commonwealth and for the taxpayers who will foot the interest bill for decades on everything which was borrowed. money splurges on political bribes.

The new daily has been chronicling government grant corruption for two years. Researcher (and Labor Party member) Vince O’Grady still seems to come up with another ploy that has been abused by political lines.

The Morrison government’s drive to spend millions on campaign stunts has reached the point where a satirical site has delivered a report as solid as any of the latest doozy’s – the $4.5 million giveaway to a Tasmanian liquor.

“The Prime Minister has promised vital relief to whiskey connoisseurs at $250 a bottle, confirming a $4.5 million grant for a boutique distillery in Tasmania,” reports The thrustI.

“In announcing funding for the Lark Distillery in Pontville, Morrison said he understood the needs of ordinary Australians who are doing it hard,” The shovel joked.

Viewpoint: Lark Distilling is a profitable company that had no trouble bidding $40m last year to buy another Tasmanian whiskey maker – but the Prime Minister offered $4.5m dollars to Lark shareholders. Yes, the distillery is in a Tasmanian siege that will be in play on May 21.

That’s even better than the $700,000 offered to the world’s largest beer company, AB InBev, for the cost of a new packaging plant for its 4 Pines Brewery operation in Sydney.

Note that these donations and many others like them are gifts, not cheap loans or co-investments, but totally free money. In terms of “capable capitalism,” I don’t recall Adam Smith writing about it.

So the RBA and Treasury prediction is that more of the same, more of what has been tried and tested and failed, will have the same outcome after COVID as it did before COVID.

Only the environment – ​​both ecological and financial – will be worse.

This is why the RBA is not going to raise interest rates too much anytime soon.

The nature of the largely non-discretionary inflation we face, the reversal of the “wealth effect” with falling house prices, the level of household debt, the number of fixed rate loans which expire next year and the Government’s lack of real investment in Australia’s future will combine to temper Governor Lowe’s wielding of his blunt instrument.


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