Inside Story

Turning point? It depends on how good we feel

A Coalition win is widely seen as inevitable, writes Tim Colebatch. So how to explain the niggling doubts?

Tim Colebatch 17 June 2016 2036 words

Like most booms, the apartment boom will give way to a bust. Mick Tsikas/AAP Image

It’s now conventional wisdom that last week marked the turning point of the campaign. The debate turned to fiscal policy, and by flagging bigger deficits over the next four years, Labor scored an own goal. Given that no goals were scored at all in the first half of the campaign, the Coalition gained a lead that is likely to prove decisive.

That’s the theory anyway, and it’s one I half-subscribe to. It’s the worst mistake Labor has made in a campaign in which, while focusing on more spending for government services, it had tried to present itself as more fiscally responsible than its rival.

But while that was a disappointment for those of us who care about both sides’ refusal to make Australia live within its means – in 2015–16, the Coalition has spent $1.10 for every $1 it has collected in revenue – is it really the issue that will decide how we vote on 2 July? Or are voters more influenced by other things?

First, a detour to an important battleground. Last week also saw Victorian premier Daniel Andrews lose Victoria for Labor. Andrews somehow convinced himself that allowing the United Firefighters Union to dictate how the Country Fire Authority is run would be the best solution to the long-running firefighters dispute. Unfortunately for Labor, he failed to convince anyone else, including his responsible minister, the highly regarded Jane Garrett, who resigned on principle in protest against the union takeover.

In more than forty years of covering politics, I’ve never seen a leader burn up his own political capital like that. You can’t win a fight with the Country Fire Authority and its volunteers, particularly if you are fighting for a bullying left-wing union. In a week, Andrews destroyed the trust he had built up in his first eighteen months in office. With no obvious alternative leader, the long-term repercussions for Labor in Victoria could be heavy.

Rob Mitchell, the MP in Labor’s most federal marginal seat, the semi-rural seat of McEwen on Melbourne’s northern fringe, has made no secret of his unease. The state’s biggest bushfire of recent decades swept through his electorate in 2009. Two big bushfires in thirty years have devastated the coastal areas of Corangamite, one of the seats Labor has to win to form government. In both seats, bushfire-prone areas like St Andrews and Aireys Inlet voted strongly for Labor in 2013. That loyalty will be challenged now.

A week ago, Sportsbet had Labor in the contest for Corangamite, but now its odds have blown out from $2.50 to $5. Labor is still expected to hold McEwen, where Labor-voting suburbs are mushrooming, but the bookies now expect Labor to make no gains at all in Victoria. They likewise expect it to make no gains in South Australia or Tasmania.

With all the betting going on the Coalition, Sportsbet is now so desperate to balance its book that it is offering a payout of $6.25 per $1 bet should Labor actually win the election and form a government. Apart from the NSW seats that became Labor with the redistribution (Paterson, Barton and Dobell), the company’s seat-by-seat odds imply that it expects Labor to pick up just eight to ten seats at this election: Eden-Monaro, Macquarie and possibly Page in New South Wales; Capricornia and Petrie in Queensland; Burt, Cowan, Hasluck and possibly Swan in Western Australia; and Solomon in the Northern Territory.

If we split the two seats judged as lineball, that would see the Coalition returned with eighty seats in the new 150-member House, against sixty-six for Labor and a cross bench of four (Bob Katter, Andrew Wilkie, Adam Bandt and Cathy McGowan). While hardly a thumping endorsement, it would mean Malcolm Turnbull had led the Coalition to the second term that seemed unlikely until he took charge. This could increase his authority in the party room – and with his foot-dragging Coalition partner.

As the election draws closer, the gap between the punters and the polls appears to be closing. Respected election analysts and opinion poll trackers Kevin Bonham of the University of Tasmania and William Bowe of Poll Bludger fame both estimate that the Coalition has a narrow lead in two-party terms. That implies an overall swing to Labor of about 3 per cent, which matches perfectly with the betting odds. On the simple assumption of a uniform swing, Labor would need a swing of at least 4 per cent (that is, a two-party vote of at least 50.5 per cent) to win the seventy-six seats it needs to form a majority. It may need even more.

Last week we saw polls come up with amazing results for individual seats. ReachTEL reported that the Nick Xenophon Team is on track to win the safe outback South Australian seat of Grey from the Coalition by a 54–46 vote. Grey does include Whyalla, where Xenophon has led the campaign for a rescue package for Arrium, but you have to wonder whether the pollsters gave the same coverage to the rest of this vast electorate.

Then there was the Lonergan poll that told us the Greens are within 3 per cent of winning Higgins from assistant treasurer Kelly O’Dwyer. Uh-huh. Given that Higgins includes the safest Liberal areas in Melbourne, and has never been lost, it reminds one of the 2013 Lonergan poll that predicted a nationwide vote for the Greens of 14 per cent. They actually won 8.65 per cent. As Kevin Bonham and Murray Goot have demonstrated, all pollsters are not equal.

Punters can be wrong, too; last time they got twelve seats wrong, mostly by underestimating the Labor vote. And the more reliable polls can be wrong as well, but in Australia the mainstream has mostly been very reliable. At this election, they are backed up by private polling for both sides, which shows the Coalition losing some battles but winning the war.

If the polls and the parties and the punters and the pundits all agree that the Coalition now has this election in the bag, why am I yet to be convinced?

One simple fact: at nine of the last twelve elections – state and federal – held in Australia, the people have voted to throw out the government. That is quite a record.

The exceptions were indeed exceptions: the Australian Capital Territory re-electing its Labor–Greens coalition in 2012, Colin Barnett riding the WA mining boom to be re-elected in 2013, and the honest face of Mike Baird winning re-election in New South Wales in 2015. (In South Australia in 2014, the opposition won 53 per cent of the two-party vote, but the Weatherill government hung on with the support of independents. That option is not open to Malcolm Turnbull.)

As a rule, we re-elect governments we like, and dump governments we don’t. Governments can sometimes tar and feather the opposition so badly that their own faults are overlooked – Jeff Kennett’s “guilty party” campaign against Labor in Victoria in 1996 comes to mind – but the voters don’t generally carry out due diligence checks before electing oppositions to power. They vote on how well governments have met their personal concerns.

There’s a lot of conflicting evidence about how well the Australian economy is performing. Some of the best-known measures look good, so naturally treasurer Scott Morrison squeezes them into every interview. GDP grew by a handsome 3.1 per cent in the year to March. Unemployment is 5.7 per cent, and in two years we’ve added almost 400,000 jobs. Last year we started work on a record 220,875 new homes, and interest rates have never been lower. What’s not to like?

All that is true. Yet at ground level, that impression of good times does not convey what many Australians are experiencing. For two years now, more than a million Australian workers have been classed by the Bureau of Statistics as underemployed – most of them want full-time work but can find only part-time jobs – while another 725,000 have no job at all. That’s one-in-seven workers officially classified as “under-utilised” – and, as a result, underpaid compared to what they expect. That affects a lot of households.

Second, wage growth has shrunk to the lowest levels on record. Sure, so has inflation. But the gap between them has shrunk. On the Bureau’s preferred measure of Australians’ welfare, real net national disposable income per head, Australians today are poorer than they were before the global financial crisis, and 6 per cent poorer than they were when mining investment peaked four years ago.

Bear in mind that household debt has soared in the three years since the Reserve Bank decided to stimulate a boom in housing construction – and house prices – to offset the bust in mining investment. Households on average now owe almost twice as much as they earn in a year. Interest rates are at record low levels, but they can’t stay there forever. We have a lot of pain ahead.

Moreover, as Morrison freely concedes, the economy is fragile. In the past year, its growth has come mostly from four sources: a surge in mineral exports to meet an unsustainable surge in Chinese demand; the phenomenal boom in high-rise apartment towers, which seems to have run well ahead of demand; the life-saving stimulus to manufacturing, farming and tourism thanks to the dollar’s fall from an average of US$1.04 in 2012 to 75 cents in 2015; and of course, a population growing faster than in almost any other developed country.

Of those four drivers of growth, only the population is sure to keep growing at its current pace. The dollar has stabilised, and was rising until the Reserve Bank cut interest rates last month; indeed, the most sensible explanation for that interest rate cut is that the Reserve’s real aim was to push the dollar down.

The boom in apartment construction must be ending. Work began on 105,797 apartments and units last year, which is almost double the number reached in any previous boom. Like most booms, it will give way to a bust. And just as the boom lifted activity in all kinds of industries – particularly in Melbourne, where it is most intense – the bust will depress economic activity over the next three years, at the same time as the car industry shuts its doors and turns off the lights.

Above all, with each month, it becomes clearer that China has gone through the grandmother of all debt-driven booms ever seen on earth. In Australia, that wouldn’t matter so much, because our banks are good at judging whom to lend to. In China, banks lend to firms and individuals not because they are good credit risks but because they have political clout. That’s why its combined business, government and household debt of 250 per cent of GDP is so scary.

China’s future is the biggest risk facing the world economy, but there are others, and a combination of them could potentially send financial markets into a tailspin. Brexit, the prospect of President Trump, the failure of Europe and Japan to escape from their economic malaise: you can see why investors are now willing to pay the German government to just take their money and return the same amount in ten years’ time.

No one would pretend that the average Australian voter is spending much time worrying about issues like these. But the good-looking pieces of data spun before us are blinding some to a more fundamental truth that I suspect many voters have grasped: the world has changed, and we have now moved into a future that is much tougher than the past.

Just as we look back on the long boom of the 1950s and 60s as a halcyon era, so the boom from 1992 to 2008 now looks like a period of prosperity that has slipped away from us, never to be recovered.

How we feel about the present and the future affects how we vote. That is the biggest risk to what we now assume to be a Coalition victory on 2 July. •