The Election Fallout - The Unwinnable Election

On the 18th of May 2019 something extraordinary happened. Labor lost what was being described as ‘the unlosable election.’ The view from commentators and political analyzers leading up to the election was a Labor victory. They sliced it up. Some were suggesting up to a 20-seat majority; more conservative analysis led to a small Labor victory. Even the published polls were wrong. (For the record, I was among the '20 seat majority' crew).

The people had spoken, and they wanted more of the same. And, who could blame them? On the surface, we have had 28 years of consecutive economic growth. The last recession occurred under Keating's Labor in the early 1990's. In a stroke of political timing disaster for Labor, the Rudd/Gillard timeline was struck with a global recession the like of which the world had not seen since the Great Depression. While lauded by experts all over the world, (then treasurer) Wayne Swan failed to gain any political capital for avoiding a recession. Daniel Kahneman (winner of the 2002 Nobel Memorial Prize in Economic Sciences) writes about this in the best selling 'Thinking, Fast and Slow.' He essentially explains the notion that people place a greater emphasis on potential losses rather than gains. The fact we avoided a recession was not something to celebrate.

This also goes to the explanation of why the LNP scare campaign was so effective and by the same token, why a 'big policy' agenda taken to any election is fraught with peril. My opinion was, the agenda Labor presented was hardly revolutionary. They were playing with the edges; reducing the 'excesses of negative gearing' (as Scott Morrison dutifully noted while Treasurer) and other policy areas. My view of Shorten being right-faction, harboring essentially 'business as usual' centre-left policies didn't matter though. The electorate felt differently. Kahneman (2011: 147) points to research that shows the power of this effect. 'The answer to an easy question (How do I feel about it?) serves as an answer to a much harder question (What do I think about it?).'

The scare campaign was brutal. It included policies that were simply never on the agenda ('death taxes') and re-framed other policy items to sound much scarier than they actually were. Franking credit reforms turned into 'retiree tax'. Climate change action turned into a fight for jobs for Queenslanders (Adani), although evidence would suggest far more people are employed in areas that benefit from mitigating the effects of climate change - tourism and renewable energy industries to name two. Scare campaigns aren't unique however, and they come from both sides of the political fence. Keating and Labor were discussing the benefits of GST reform long before the 1993 election in which they continued to wage a scare campaign, delaying that for close to a decade. If 2019 is Labor's version of Hewson's 1993 'unlosable election', we might actually get some decent economic reform soon! Arguably however, both elections were not 'unlosable', but actually unwinnable.

If we look at the last 20 years, the sheer quantity of political capital required for economic reform has been extraordinary. Look at Howard and the GST for instance. The 1998 federal election was dominated with the topic. Howard's LNP ended up winning, but they actually lost the popular vote. What saved them was where the votes were distributed. The Newspoll published the night before the election had Labor at 53/47. They ended up receiving just short of 51% two party preferred. While he might have been able to explain how to add GST to a birthday cake, it was more luck that kept Howard in long enough to deliver it.

Of course, policies do have consequences for countries and their citizens. No amount of scare campaigns can stop the unavoidable truth. The 'potential losses' of Labor policies were discussed widely. Labor however, found out how hard it was to fight against policies that don't exist. Beyond income tax cuts which were essentially designed to attend to bracket creep (where incomes increase steadily over time but tax rates tend to remain the same), there was nothing in the drawer. Arguably the bigger issue Australia faces post the election actually began with rhetoric during the Howard years. The 'surplus is better than deficit' fallacy.

Recently Josh Frydenberg proclaimed his first priority was to deliver a budget surplus, despite the increasing evidence pointing to a weakening economy. Even the RBA itself has pushed for more fiscal intervention in the form of stimulus. Whether or not Frydenberg stays true to his words remains to be seen, however it would be wise if he didn't.

March quarter inflation was 0.0%. Unemployment has recently edged up to 5.2%. Currently we are experiencing some of the highest rates of underemployment in our history. House prices in Sydney have fallen 15% since their peak (although evidence suggests these falls have been slowing recently). The retail sector has just experienced 3 consecutive quarters of negative economic growth. The entire sector is now effectively in a recession. Private debt levels remain at unprecedented highs.

Despite all of these facts, we have had NSW LNP, Victoria Labor, and now Queensland Labor issue budget surpluses for their respective states. Federally, the LNP is clinging on to the surplus 'they delivered next year' (Scott Morrison went Back to the Future in an election debate). At the very worst time, governments of all persuasions are contracting the economy when they should be expanding it.

Thanks for reading