But when it comes to wages growth there is a gap through which you could drive Bill Shorten’s bus. The RBA reckons wages will grow by about 2.6 per cent in 2020-21 compared with the 3.25 per cent pencilled in by Treasury.
And on household consumption, which accounts for more than half of all economic activity, the Bill bus would similarly have room to spare between what is underpinning the budget and what is underpinning the RBA’s own best guesses.
More important was the commentary in the Reserve’s latest monetary policy statement. “[The board] concluded that the ongoing subdued rate of inflation suggests that a lower rate of unemployment is achievable while also having inflation consistent with the target,” it noted.
In other words, for inflation to get anywhere close to the Reserve Bank’s stated target of 2-3 per cent the unemployment rate has to drop appreciably. Yet neither the RBA nor the Treasury believes this is on the cards.
The Reserve, which keeps close tabs on wages via its liaison program with businesses, noted that three-quarters of firms expect wages growth to be stable over the next 12 months. “This may in part reflect the low and stable price inflation recorded in recent years,” it said.
If inflation remains low, demands from workers for wage rises get less support from business owners who can rightly point at the CPI and argue people don’t need too much more in their weekly pay packet.
And underpinning all of the RBA’s forecasts is a technical assumption that prices in two more interest rate cuts. That points to inflation running at 2 per cent by the middle of next year with a cash rate never seen before in this country.
Instead of engaging with what the Reserve Bank has to say, all parties – not just the major ones – march on in ignorance and supreme faith in their own rhetoric. The Coalition says Labor will smash the economy with taxes, ignoring what has gone on under its watch.
At the 2013-14 budget, federal tax accounted for 21.3 per cent of GDP. This year, the Coalition hopes the tax-to-GDP ratio will reach 23.3 per cent. That 2 percentage point increase in the tax-to-GDP ratio is the largest of any government since the 3.4 percentage point lift under the Whitlam government.
It has also, quietly, made about $1.3 billion worth of promises (before its first home buyers scheme and the $4 billion East-West Link plan) that it has yet to announce how it will fund.
The Labor Party is promising bigger surpluses while assuming away any economic impact from its efforts to target the tax treatment of trusts, multinationals, capital gains and franking credits.
It is also hoping that it will net all that extra revenue. But to paraphrase a former Treasurer, never get between an accountant-assisted taxpayer and a valuable tax loophole.
And both parties should remember the 2007 election and the 2014 budget. In the case of the election, economic reality ran over the grand plans of Kevin Rudd and Wayne Swan. In the case of the 2014 budget, political reality ran over Tony Abbott and Joe Hockey.
Both Scott Morrison and Bill Shorten are behaving as if only half of Newton’s first law – that an object will remain still – applies to them. They ignore the second critical part which notes that external forces will shift that same object from its trajectory.
The external forces could include but are not limited to the Senate, Donald Trump’s trade war with China, a hung Parliament, continued low wages growth, the reopening of iron ore mines in Brazil, further fall in housing prices and the ongoing drought.
That’s the universe most voters are inhabiting right now.
Shane Wright is a senior economics correspondent.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.