Hapless Joe Hockey

10 December 2014

One of the fascinating aspects of Australia’s political pantomime is the manner in which the Federal Treasurer is forced to metamorphose into a used car salesman who is spruiking the Australian economy. 'Jaw jaw', rather than actually doing something, seems to be the core skill of economic regulators, these days.

One reason for the relative impotence of the Treasurer is that the Federal government only has control over fiscal policy. Monetary policy, the interest rate, is set by the Reserve Bank, not the government.

Another reason is Australia’s heavy dependence on volatile commodity prices. The nation heavily depends on its resources base for its income, so the fiscal situation can change dramatically and unexpectedly. This is not something that politicians can control or influence.

The effect of the impotence can be seen in Joe Hockey’s increasingly fraught demeanour. In a recent radio interview, he squabbled with the interviewer about the meaning of consumer confidence surveys, sounding a bit like a used car salesman waxing lyrical about a flash chrome fender.

Yet trying to talk up consumer confidence is really the only option available. The sharp drop in commodity prices has created what some are dubbing an 'income recession' as profits and wages fall sharply. That creates pressure on the Federal Budget and fiscal policy.

It is only part of the story, however. Australia’s economy, like most developed economies, is heavily dependent on consumer spending. According to the World Bank, household final consumption expenditure accounts for 55 per cent of Australia’s GDP. This is lower than America’s 69 per cent and Britain’s 66 per cent (China is only 35 per cent) but it still means that the main game is getting consumers to spend. Little wonder that Hockey is exhorting people to get out there and buy. His government has rejected the idea of anything resembling an industry policy, which might have softened some of the effects of the commodities boom and bust, on the grounds that it would lead to ‘market distortions’ and ‘rent seeking’. Australia’s manufacturing base has been sacrificed to the soaring Australian dollar and it is unlikely to be reconstructed.

Saddled with his party’s anti-government, neo-liberal ideology, Hockey is caught between a Scylla and Charybdis. On the one hand, because government is inherently bad and an unacceptable drag on the markets, it is essential to get the Budget 'under control'. On the other hand, those same markets are delivering lower revenues, making it

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Hapless Joe Hockey

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