(Australian Associated Press)
The Australian economy’s journey toward surplus could become increasingly turbulent over the next year as politicians at state and federal level jockey for votes, according to a prominent economist.
Deloitte Access Economics economist Chris Richardson says progress toward surplus could be unsettled as politicians pull out headline-hunting financial promises to woo voters in federal, NSW and Victorian elections between now and mid-2019.
“The political equation of the next year will be unfortunate, as both sides weigh up whether they’ll get more votes out of a dollar of budget repair (at the federal level) or infrastructure spending (at the State level), versus a dollar of pork-barrelling in marginal electorates,” Mr Richardson said in his latest quarterly business report, released on Tuesday.
“Unfortunately for the longer term national interest, it may well be the pork-barrelling that wins that contest.”
Mr Richardson says politicians at federal level are also to blame for a failure to invest in large-scale power generation projects.
“Canberra’s inability to craft policy compromises broadly acceptable to both sides of politics means future investments in electricity generation may be few and far between,” he said.
Nonetheless, the report forecast the economy will grow slightly above trend this year and next, keeping unemployment – which hit a six-year low in September – in a downtrend.
That is “despite the house price fall we had to have”, Mr Richardson said.
Throw in gradually rising inflation, and Mr Richardson is among those tipping a slow recovery in wages.
“But that will be a Faustian bargain: alongside a lift in wage growth there’ll be a matching lift in interest rates, with the latter acting as an anchor on consumer spending – and hence on the wider economy – in the next couple of years,” he said.
“So although Australian economic growth will be solid, it won’t be quite as good as global growth, with the current drought adding to the short term headwinds in play.”
The farming sector should bounce back somewhat from the drought, Mr Richardson said, but slowly due to reduced herd numbers.
Deloitte tips health care to be the fastest growing sector through to 2020 largely on the back of an ageing population and the roll out of the national disability insurance scheme, while tech and business services also look strong.
Even the heavyweight financial sector should still show above average growth despite the hits of the royal commission, compensating customers for past misdeeds and the possibility of increased regulation.