Wednesday, October 28, 2009

On the QT: Economic free zone edition

A funny thing happened today. All year the Liberal Party has been screaming about the Government's stimulus package putting pressure on inflation and thus causing interest rates to go up. Today the latest inflation figures came out. They showed that inflation had increased by 1.0% in the last quarter, for a 1.3% annual increase; figures which were slightly higher than expected, and which made it absolutely certain that the Reserve Bank will raise the cash rate from 3.25% to 3.5% on Melbourne Cup Day.

So how many questions do you think the opposition asked the Government about the reckless spending of the stimulus plan? How many questions do you think they asked about the economy? The answer is none. Out of the eight questions they asked seven were on asylum seekers, and one (a almost Dorothy Dixer from Fran Bailey) on the bushfire rebuilding efforts.

So why didn’t the opposition ask about inflation and interest rates? Because, while inflation went up, the figures Graph: Contribution to quarterly change, September Quarter 2009—September Quarter 2009show that next to bugger all of the rise was due to the stimulus. As the Bureau of Statistics put it: 

  • The most significant price rises this quarter were for electricity (+11.4%), automotive fuel (+4.0%), water and sewerage (+14.1%), deposit and loan facilities (+3.0%) and house purchase (+1.1%).

    Or as Bernard Keane in today’s Crikey email put it:

    Forget all the barking from the interest rate hounds in the finance commintariat about "rate rise looms, perhaps half a per cent" and focus on the fact that nearly all the 1% rise in the cost of living for the September quarter can be blamed on those higher utility charges, especially for electricity.

    You see the stimulus package does not affect electricity prices, petrol, sewerage or loans. Which meant that everything Turnbull and Hockey have been saying this year about the stimulus causing inflation to rise, and thus leading to higher interest rates was completely discredited by the data; because were what they said true, we would see this reflected in the figures. They aren’t so it’s not.

    And so Turnbull and co focussed on asylum seekers. But it was a poor showing. Their questions lacked bite; and Rudd for the first time this session seemed to find the right tone on the issue. He has put away the “tough but humane”  rhetoric (at least to an extent), and adopting a more measured line (no doubt seeing how well such a tone by Stephen Smith has gone down). Rudd is perhaps working out that what the public wants to see on this issue is a leader who is calm , in control, one who acknowledges it is a complex problem, and thus one not well served by hysteria. It is a good tactic and he should keep at it (because it is also the right tactic as well).

    The opposition helped Rudd no end with some utterly stupid questions. Susan Ley thought she had Rudd skewered when she asked about the fact that the Oceanic Viking had more people on board than it should have because it had picked up the 78 asylum seekers. Rudd fairly well laid into her, wondering if Opposition was suggesting they should have let the asylum seekers boat sink because there wasn’t enough room on the Oceanic Viking.

    Turnbull asked Rudd if he had considered the push factors of the end of the Sri Lankan civil war and the Iraq War when he changed the Immigration Act last October. This was rather bizarre given that, firstly the opposition agreed with the changes at the time, and secondly, the Sri Lankan Civil War only ended in May this year; so I don’t think Rudd was taking into account something that hadn’t happened. And given the changes to Australian law don’t affect the push factors the question had one or five holes in logic.

    And so there is one day to go before they all get a rest. The Liberals will hope for a better day tomorrow to get some oomph into the weekend and the Newspoll polling that will happen. Next Tuesday the poll will come out, and given the last Newspoll was 59-41, there will obviously be a drop in the numbers for the ALP, but unless the drop is considerable, it will be difficult not to argue that the last two weeks banging on about asylum seekers has been a complete waste of everyone’s time.


    Abe said...

    Um, isn't housing a big contributor? And isn't the government bidding up the cost of construction? Or do builders of school halls not also build houses?

    CaptainAsh_ said...

    No, builders of any form of government or commercial developments are 99% of the time either previously affiliated with the government, or individual and independent sub-contractors. The new infrastructures under the Rudd government would create new jobs, but usually completely separate to the housing industry.

    My father runs a private construction company. He has contemplated taking on commercial and governmental projects, but it can be hard to get out of, and they're essentially a bitch to work for.

    So I doubt the government really had a whole hell of alot of effect on the housing industry, and definately not housing construction. Only the increased pressure from interest rate rises (obviously), but that was inevitable.

    Keeping in mind this is just from personal experience from WA. It might be different on the East Coast, though I doubt it. Feel free to correct me if I'm wrong.


    Greg Jericho said...

    Hi Abe - the thing with the "housing" component (which you are right is a big contributor to the CPI increase) is that that figure is a complitation of such things as electricity, sewerage, water and rent costs - things not affected by the stimulus.

    The actual rise in house purchases of 1.1% is only a small part of the "housing companent" increase, and even that can only be very indirectly linked to the stimulus spending.