Regardless of which party forms government after the upcoming May election, the team assigned the task to manage Australia’s coffers will be faced with potentially catastrophic economic threats including inflation, the rising cost of living, possible future viral outbreaks, foreign military conflicts and strained supply chains.
These key risks and uncertainties are detailed in the Treasury’s public benchmarking document Pre-election Economic and Fiscal Outlook 2022 (PEFO), alongside thorough figures revealing an economy that’s been bludgeoned by the consequences of stringent COVID-Zero policies and deteriorating supply chains.
But despite acknowledging the economy’s potentially murky future, the PEFO focuses on the positives and almost attempts to sell the idea that Australia is a fortified diamond-in-the-rough on the global economic stage, particularly due to its falling unemployment rate and its adaptation to living with COVID-19.
According to the Treasury, Australia is on track to post-pandemic economic recovery, with the GDP expected to grow by 3.5 per cent in the 2022-23 fiscal year, and by 2.5 per cent in 2023-24 on the back of continued high labour force participation, low unemployment and strengthening wages growth.
“Australia’s economy has proved highly resilient throughout the pandemic. Output and employment are both back above pre-pandemic levels, with Australia avoiding the labour market scarring experienced in some other advanced economies,” the PEFO said. .
Regarding the labour market in particular, the Coalition sees “significant momentum”, reaffirming its budget forecast which put the unemployment rate at 3.75 per cent in the September quarter, where it is expected to remain until the end of 2024-25.
Wage growth too is finally expected to receive a boost from 2.75 per cent through the year to the June quarter of 2022 to 3.25 per cent through the year to the June quarters of 2023 and 2024.
Moreover, companies rebuilding inventories that have been depleted through the pandemic are predicted to contribute to growth.
Although many economists feel that policy differences between the major parties are superficial at best, the PEFO reveals the inevitable friction between Labor and the Coalition when it comes to the thorny issue of tax policy.
The Coalition’s self-imposed 23.9 per cent limit on the tax-to-GDP ratio is expected to remain at its present level in the PEFO’s forward estimates to 2031-32, indicating that the Coalition has firmly committed to its policy which caps the tax rate in the long run.
But AMP chief economist Dr Shane Oliver feels that if the Labor party scores an electoral win, it will allow the tax-to-GDP ratio to rise.
According to Dr Oliver, Labor could allow the tax to GDP ratio to rise above the Coalition’s self-imposed limit and rely on this to reduce the budget deficit, even though it’s committed not to increase taxes or introduce new taxes other than increased tax on multinationals.
By contrast, once the cap is reached the Coalition would have to focus more on spending cuts.
Overall, Labor is predicted to be more interventionist in the economy, but the thing that certainly sets the parties apart is their view of decarbonisation. While this term features in the PEFO exactly zero times, Labor has vowed to a faster reduction in emissions by 2030 – with a 43 per cent cut below 2005 levels compared to a 26 to 28 per cent cut under the Coalition.
‘Climate’ too is missing from the PEFO, while ‘natural disasters’ appears only in reference to the Disaster Recovery Funding Arrangements (DRFA) and a total of three times.
