The Prime Minister may try to win a tight election this year while there is still some afterglow from a pale recovery.
When you were a child, do you remember getting ill and then recovering? During the recovery you can feel better than before you got struck down. And so it is with economic recoveries. People, relieved that the worst is over, can feel better than before a recession first hit. That’s what the Morrison government will be banking on in deciding when to call an election.
Ahead of the first week of parliament this year, it’s timely to assess the economy’s trajectory and how it will shape the timing and possible outcome of the next federal election.
Having recorded its first recession in almost three decades, the economy has bounced back – but not to where it was before the recession. A full recovery will take some time, possibly a great deal of time.
The termination of JobKeeper at the end of March and the foreshadowed reversion of JobSeeker to not much higher than its pre-pandemic rate as Newstart will act as a drag on recovery. So too will the unavailability of foreign students for our universities as international travel bans remain in place for at least the next year or two.
Thereafter, the economy is likely to get worse not better. Why? The answer is a lack of population growth arising from low levels of immigration and ongoing poor productivity growth.
Between 2012 and when the pandemic struck, the economy grew at an average of only 2.4 per cent per annum. Of this, 1.8 percentage points – or two-thirds – was due to population growth. Most of that population growth was from immigration of younger people, which is likely to be negligible for the next couple of years.
In the absence of strong population growth, the living standards of Australians could nevertheless rise if we achieved strong productivity growth. But the portents are bad.
Productivity growth requires large amounts of private investment embodying the latest technologies. Yet non-mining business investment actually fell by almost 5 per cent in 2019-20 and the government’s economic and fiscal update released late last year forecasts a further fall of 11 per cent in 2020-21 before recovering a bit in 2021-22 to still be a full 14 per cent below its pre-recession level.
When the economy began recovering after the recession of the early 1990s but soon began to slow again, Liberal leader John Howard described it, based on focus group research, as “five minutes of economic sunshine” – to telling political effect.
The Morrison government faces the possibility that it will deliver “five minutes of economic sunshine” with the economy growing weakly, if not sliding back into recession, after a short-lived recovery. In these circumstances, unemployment would remain well above its pre-pandemic levels and real wages would not be growing, continuing the trend since 2013.
In these economic circumstances, Labor would take a leaf out of British Labour’s history book, campaigning on the basis that while Winston Churchill had won the war, the Attlee-led Labour Party would win the peace by guiding the economy to reconstruction and recovery. Labour won the 1945 general election in a landslide.
The earliest practical date for a general election is October this year, after several redistributions are completed. That might still be in the afterglow of a partial economic recovery.
Yet during the pandemic, when state and territory incumbent parties have enjoyed massive polling leads over their rivals and several resounding election victories, the Coalition government in Canberra has led the Labor opposition by only 52-48 per cent or 51-49 per cent.
Some commentators have declared the next election run and won by the Coalition. Many were equally confident that Labor was over the line in the 2019 election months before it was held.
In the modern era, some election outcomes were predictable, including Whitlam in 1972, Hawke in 1983, Rudd in 2007 and Abbott in 2013. Most others were slugfests, seat-by-seat contests.
The Albanese-led Labor Party is doing what the election review recommended: avoiding numerous, expensive spending commitments in favour of a few signature policies. The childcare policy and rewiring the nation to connect renewables to the grid announced by Albanese in his budget reply were two such signature polices.
Whenever the next election is held, it is shaping to be a close contest affected heavily by voter perceptions about whether they are feeling good about the recovery through good, secure jobs and solid wage growth or that the economic sunshine was pale and short lived.
Craig Emerson is a distinguished fellow at the ANU, director of the APEC Study Centre at RMIT and an adjunct professor at Victoria University’s College of Business.