SOMBRE ECONOMIC OUTLOOK AS GOVT TRIMS GROWTH AND BUDGET SURPLUS

After a rollercoaster political year, the Morrison Government has been brought back to earth ahead of the Christmas break with the Mid-Year Economic and Fiscal Outlook (MYEFO) confirming global and domestic economic headwinds are taking their toll.

An extra $4.2 billion will be pumped into national infrastructure projects, including roads, rail and ports, as Treasurer Josh Frydenberg tries to stimulate an economy forecast to slow to just 2.25 per cent for 2019/20. Both Labor and the business sector have been calling for greater intervention for some time.

MYEFO also confirms the Government will provide 10,000 new aged care places and deliver $1.3 billion in additional drought assistance, as it brings the political year to a close – measures the Government is keen to promote amidst the lacklustre outlook.

But the positive spin from the Government that Australia remains relatively resilient could not mask some disappointing numbers, including revenue write-downs of $21.6 billion over the next four years.

Retailers hoping for a bumper Christmas are likely to be disappointed with wages growth still sluggish, while unemployment is also forecast to rise only slightly over the next 12 months.

The economic numbers cap off a difficult few months at the end of 2019 for the Government. Having come off the high of the May election win, the Government has found the going difficult more recently, failing to pass its union-busting legislation and just scraping through to overturn the Medevac law with Senator Jackie Lambie’s support.

The Government has also been criticised for being slow to intervene in the bushfire crisis sweeping the east coast of Australia, as the discussion has shifted to the effects of drought and Australia’s positioning on climate change.

LABOR ATTACKS THE GOVT OVER BUDGET MANAGEMENT

Addressing reporters in Canberra, the Treasurer declared the Government had the “capacity and flexibility” to invest in areas that need it the most.

The Treasurer hailed what he called the Australian economy’s “remarkable resilience which has occurred in the face of strong global and domestic economic headwinds”.

But with bushfires and the drought forecast to worsen over the next several months, the Government will be bracing for further economic bad news as it fends off criticism from the Opposition over its budget management and responsiveness to events.

Shadow Treasurer Jim Chalmers led the Labor attack against the Government, declaring the Budget update could be summarised as: higher unemployment, slower growth, weaker wages growth, debt more than doubling since 2013, and no plans to turn things around.

Still, Labor remains mired in a post-election policy stupor with Opposition MPs still grappling with how to reconnect with disaffected voters in marginal seats, and the growing realisation of a shift away from inner-city left politics that were soundly rejected in both the Australian and UK elections.

GLOBAL ECONOMY IMPACTS LOCAL CONDITIONS

The Mid-Year statement reinforces how much Australia is reliant on strong global conditions with the ongoing US-China trade war and concerns over Brexit contributing to the sluggish outlook.

“This continued uncertainty has weighed on business confidence and investment intentions, particularly in manufacturing,” the MYEFO papers say.

The signals out of Washington, meanwhile, suggest the Trump administration is pushing hard towards a “phase one” trade deal with China as a precursor to a radical reshaping of the World Trade Organisation. With the UK election apparently sealing Brexit, Australia is likely to be heavily engaged in positioning itself to capture the benefits of any new trade regime, or the potential for a new round of global economic stimulus spending.

The Government will also be hoping that the sharp rise in housing prices in Sydney and Melbourne triggered by falling interest rates will create a wealth effect that will turn around a slump in retail spending.

It also regards keeping a budget surplus as a beacon of economic confidence.

LOOKING AHEAD

The release of MYEFO in Canberra marks the end of the formal political year with the Prime Minister and his senior ministerial team scheduled to take a break over the festive season.

The PM is expected to kick start the new political year with a national television address in late January, with the Government to then focus on bedding down the May Budget – to be brought down amidst a set of tricky and unpredictable economic numbers.