You wouldn’t call Myefo’s assumptions heroic – but they are decidedly optimistic
Let’s start with what’s obvious.
The Morrison government wants to fight the next election telling voters the economy is roaring back. To focus the national conversation on economic management, the Morrison government would like to deliver another budget next March before facing the voters at next year’s election.
But the latest Treasury forecasts tell us the Coalition is also making preparations for calling an election as soon as the end of January.
The forecasts, released on Thursday, confirm the government has already squirrelled away $16bn worth of decisions taken but not yet announced. Around half of this is expenditure. More than $5bn is booked to hit the budget in the current financial year. If you look more closely at the tables outlining various spending commitments since the May budget, you’ll see a government very focused on infrastructure in marginal seats in New South Wales.
In election seasons, we talk about election budgets. Thursday’s Mid-Year Economic and Fiscal Outlook is most decidedly an election Myefo.
As well as all the spending, and the clearly stated intention to keep on spending until the economic recovery is a certainty rather than an aspiration, the forecasts unspool a political narrative. The story is one of sunny uplands – growth up, unemployment down, inflation creeping back up, but manageably.
The triumphalist opening pitch of Myefo sets the scene: “Having performed more strongly than any major advanced economy throughout the pandemic, the Australian economy is poised for a strong expansion that is forecast to see the unemployment rate fall to 4.25% by the June quarter of
2023.”
Poised being the operative word. To borrow an athletics analogy, Australia is crouching at the starter’s block, ready to sprint. The economy is not at the finish line, heading for the medal ceremony.
Once we’ve cleared poised, we encounter the assumptions underpinning sunny uplands. You wouldn’t call them heroic, but you would call them optimistic.
Treasury assumes all remaining state border restrictions lift by early 2022. (Has anyone met Mark McGowan?) The boffins also assume lockdowns are “no longer required to manage Covid-19 transmission in the community”. Most upbeat of all: “The Omicron variant is not assumed to significantly alter current reopening plans, or require a reimposition of widespread health and activity restrictions.”
Well, ideally, yes. Hopefully we are shifting from pandemic to endemic – to living with Covid rather than restricting liberty to avoid dying from Covid.
But with experts still in an evidence-gathering phase about the characteristics of the Omicron variant, who can be certain?
Not the Treasury in any case, because by the time you hit page 29, you encounter two “alternative stylised scenarios”.
Alternative universe one is that a coronavirus variant requires “more significant public health responses to manage outbreaks than is currently expected”. In this (not particularly out there) scenario, the international border would stay closed for another six months and targeted lockdowns would be deployed to suppress the curve of new infections in the first half of 2022.
If this came to pass, economic activity would be $20bn lower (which translates to a 1% drop in growth) and unemployment would tick up.
For completeness, Treasury adds a sunnier uplands scenario where Australians run into freedom with their wallets wide open. Spending is up, savings down, international tourists and students add to the consumption boom. This results in a $30bn increase in economic activity over 2021-22 and 2022-23.
Oh, happy days.
Except for a government now very firmly on the electoral clock, this is the working definition of a non-core promise.
As treasurer Josh Frydenberg acknowledged on Thursday: “There’s a great deal of uncertainty right now. We’re living in the middle of a pandemic – the biggest economic shock since the Great Depression. The first pandemic in a century”.
The treasurer noted he didn’t have a crystal ball. “We’re still in the pandemic, but what I can give you is Treasury’s best analysis.”
Obviously the government will try to swim across its own uncertainty rip by warning Australia’s economic recovery is finely balanced, and now is not the time to risk a Labor government.
But the Treasury update reinforces the unavoidable problem associated with crafting an election turning on the Coalition’s heroic management of the sunny uplands: the preponderance of quicksand.