What the Labor victory means for Australia
For only the fourth time since World War II, Australia has voted for the Labor Party to take power. However, Australians are not expecting much from the young administration of Prime Minister Anthony Albanese. It is by design.
Albanese and Labor followed a standard playbook for an opposition party win. They basically said they wouldn’t make any sweeping changes to the outgoing Liberals, but promised to govern with more skill than former Prime Minister Scott Morrison’s administration. In previous elections, Labor learned the hard way not to stand for radical change.
A narrow victory for labor
Yet the 2022 election was an extremely narrow victory for Labour. The sum of its number one votes was around 32.5%, the lowest for a winning party in more than 100 years. It is clear from this election that the Australian public has turned away from the two main traditional parties to a greater extent than at any time in the country’s experience as a democracy.
Labor has barely reached a majority, which requires at least 76 seats in the 151-member House of Representatives. They won 77.
The other highlight of this election was the sharp increase in the size of interbank. Four green deputies and 12 other minor or independent deputies will be in the new Parliament. The government will not need their votes to pass legislation through the House of Representatives, but it is nonetheless likely to want to establish cooperative relationships with most of them.
Labor will likely need the support of the Greens and other minor parties or independent senators to push legislation through the Upper House. The Greens will have 12 senators, one less than the number that would have given them a ‘balance of power’ in the Senate in their own right, but they will still have a major influence on the fate of legislation whenever the coalition decides to s oppose this.
Despite low expectations for Labor’s first term, he has limited terms to work on policy changes. The new government will pursue more ambitious carbon reduction targets and investment in transmission infrastructure.
Labor will also push for increased spending on pay rises for aged care workers. It will set up an off-budget social housing fund that will build around 20,000 new social housing units and 10,000 so-called affordable housing units for low-income people in expensive neighborhoods.
Its mandate is to increase spending to increase the availability and reduce the cost of child care services for a greater proportion of the population.
Australians should also expect more spending on broadband from Labor and the creation of additional Technical and Further Education (TAFE) programs and free university places.
The only tax measure he has a mandate for is cracking down on multinational corporations for their interest deductions and intellectual property royalty payments, which many multinationals use to shift profits made in Australia to low tax jurisdictions. taxation in other parts of the world.
It is fair to say that Labor will support bigger minimum wage increases at the Fair Work Commission hearings. Ultimately, this is the business of the Fair Work Commission and not the government, but Fair Work considers submissions made to it by governments.
The lack of labor mandates
Labor has no mandate for anything to improve Australia’s dismal labor productivity growth record. Over the past 10 years, things haven’t looked good in this department, and Labor’s contributions to the fringe – things like their childcare policy – can have a small positive impact on productivity. Still, it’s not going to make any significant progress in the problem.
Nor does the government have a substantive mandate to sweep away the “fiscal fix”. In fact, Labor’s pre-election costs indicated that its policies would increase the budget deficit by some $7 billion over four years. Fiscal repair is not an urgent issue if interest rates remain low, but it will become more pressing as interest rates continue to rise.
If Australia is ever to be in a position where it can use fiscal policy as forcefully in response to the next shock, as it did in response to the global financial crisis from 2007 to 2009, and more recently to the COVID, then the budget must be in better shape than it is or probably is based on the current forecast.
Labor will also have to come to terms with the consequences of the ongoing long-term or structural downturn in the Chinese economy, which is Australia’s largest trading partner. China enjoyed annual growth rates of more than 10% per year for three decades until the start of the global financial crisis, but its growth rate has slowed to around 5% over the past decade. It will probably drop further to 3% to 4% per year over the next few years. Not to mention that the relationship between the two countries is currently icy. India and Indonesia, two massive regional players, also deserve special attention.
Legacy of a relatively strong economy
That said, the new government inherits an economy with quite considerable steam despite inflation fears. The Australian central bank’s most recent monetary policy statement predicts that household spending will increase by 5% or more in real terms this year.
This is a large increase by historical standards and inconsistent with the idea that most households are “struggling” with rising grocery and gas costs (although those on lower incomes are definitely struggling). no doubt). In total, households have accumulated an additional $275 billion in bank deposits since February 2020. These deposits are not evenly distributed among all Australian households, but it suggests that many households have considerable resources on which to draw. to maintain their spending despite having to pay out. learn more about fuel and groceries.
To be sure, Labor faces enormous political challenges, but the headwinds for its first term are favourable. It is almost guaranteed that he will win a second term. History is on its side: no first-term government at the federal level has failed to win a second term since 1931.
But voters will expect action in a second term, and Labor could now lay the groundwork for a more ambitious second term by commissioning inquiries into the most contentious challenges facing the nation in the medium term. Given a well-designed mandate led by competent people, the government could use their findings and recommendations to shape a broader and deeper program for the elections scheduled for 2025.
Read Saul Eslake’s previous article on GLG, Australia Economic Outlook 2022.
About Saul Eslake
Saul Eslake is one of Australia’s most eminent and experienced business economists with over 30 years’ experience in Australian financial markets. He currently runs his own independent economic consulting and advisory business in Tasmania (Corinna Economic Advisory Pty Ltd). Since April 2016, Saul has also had a ‘split appointment’ as a member of the Vice-Chancellor at the University of Tasmania. Saul was previously chief economist at ANZ Banking Group and also at Bank of America Merrill Lynch, one of the world’s largest investment banks.
This article is adapted from an April 3, 2022 GLG panel discussion, “Australia’s 2022 Federal Election: Post-Election Economic & Policy Outlook”. If you would like to access this conference call or would like to speak with Saul Eslake or one of our more than 700,000 experts, contact us.