Friday, February 13, 2015

Unemployment hits 6.4 per cent. Hockey's Wayne Swan moment

Never at any point during Labor's reign or during the global financial crisis did Australia's unemployment rate hit 6 per cent.

It sailed past 6 per cent shortly after Joe Hockey's first budget in June and hasn't been back since. The January figure of 6.4 per cent is the worst for 13 years - the worst since 2002 when Tony Abbott was employment minister, Hockey was small business minister and John Howard was yet to be blessed by the mining boom.

Joe Hockey was small business minister in the Howard government in 2002, the last time the unemployment rate hit 6 per cent.

It's a reminder that nothing much has emerged to drive the economy since the mining construction boom ended; nothing much apart from home building. And that's the problem. Home loans are booming. Leaving aside refinancing, half of all new loans are now going to investors. Many of them are better described as speculators. The housing construction industry is working full bore in parts of the country and any further borrowing spurred by further interest rate cuts is likely to be diverted into pushing up house prices.

What's needed is an boost from the budget, not the Reserve Bank... Or from a series of measures announced before the budget. Abbott is pointing the way, holding out the prospect of a families package focused on childcare and a tax cut for small business within weeks.

It's a necessary corollary of such a budget that it will allow the deficit to climb - not because the government wants it to climb, but because it recognises that trying to stop it climbing right now could snuff out whatever prospects there are for new economic drivers to emerge.

The January unemployment figure provides Hockey with cover to move closer to Abbott and abandon his talk about cutting the deficit. He could consider it his "Wayne Swan moment".

In December 2012 Swan dramatically dumped his promise to return the budget to surplus, saying that changed circumstances meant his primary responsibility was to protect jobs. Hockey remembers it well. Bleeding and unwell, he had to drag himself out of hospital after gastric sleeve surgery to condemn the Treasurer.

Swan had to accept that revenue was collapsing and the economy was weak. Abbott and Hockey are going to have to accept it, too.

In The Age and Sydney Morning Herald

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