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Albanese’s economics team will need to tackle rising global inflation, surging energy prices

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Neale PriorThe West Australian
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Australian Prime Minister Anthony Albanese’s economics team have a tough task ahead.
Camera IconAustralian Prime Minister Anthony Albanese’s economics team have a tough task ahead. Credit: David Gray/Getty Images

Amid all the anxiety this week about rising interest rates and inflation confronting the newly-elected Labor Federal Government, veteran economist Chris Richardson put some happy light on Australia’s situation right now.

“Don’t underestimate the rare beauty of having an unemployment rate below 4 per cent,” said Richardson, the long-time boss of Deloitte Access Economics who recently set-up his own shop Richinsights.

But like all economists, Mr Richardson has many hands, and he recalls that jobless levels were last this low in 1974 when oil price shocks and rising global inflation were causing widespread economic jitters.

And he threw in the stagflation — that dreaded economic phenomena where prices and wages kept spiralling upwards while unemployment rates rose and economies shrivel.

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Stagflation became a chronic problem after the Federal election on May, 18, 1974, and it helped bring undone the socially progressive, economically-clumsy Labor government of Gough Whitlam.

Former Australian Prime Minister Gough Whitlam.
Camera IconFormer Australian Prime Minister Gough Whitlam. Credit: The West Australian/The West Australian

A somewhat less socially-progressive Labor team led by Anthony Albanese won the latest Federal election on May 21, 2022.

And they’re facing facing rising global inflation, surging energy prices and fears about shortages in the poorly-regulated eastern states gas market.

Oh, and lest we forget, the war in the Ukraine food bowl and COVID-19.

The high quality of economic leadership has proven over the past 40 years has helped Australia emerge stronger after a series of economic upheavals.

The big question this time around is whether Mr Albanese’s economics team of Treasurer Jim Chalmers, Finance Minister Katy Gallagher and Resources Minister Madeleine King are up for the tough task ahead.

Will they be up there with more recent greats like treasurer Peter Costello and his leader John Howard, or treasurer Paul Keating and his WA finance hard man Peter Walsh?

Or should we worry that this new Labor team will be more like Whitlam’s flawed economic lieutentants, left-wing icon turned flawed treasurer Jim Cairns and resources minister Rex Connor.

Any reflection on the failings of the Whitlam team have to look at the socially backward Australia they inherited after 23 years of conservative government and what they say was a rush to drag Australia into the second half of the 20th century.

Troy Bramston, editor of a collection of essays called The Whitlam Legacy, said in a 2017 report that the Labor era from December 1972 to the December 1975 ousting was one of remarkable achievement.

This included long overdue advances in school education, healthcare law reform, urban policy and — in something very relevant today — the opening of relationship with communist-controlled China. “But the Whitlam government is also one marked by great failures, not least in economic management and in political judgment,” Bramston wrote.

They were indeed crazy times in the final year of the Whitlam Government. The country was not only facing a severe recession and rising unemployment, but inflation soaring above 17 per cent and wage growth hitting 32.9 per cent. That wage growth led to massive tax bracket creep, which had funded Whitlam’s big-spending agenda.

University of WA economics professor Peter Robertson said the events of the 1970s had put paid to the conventional wisdom that inflation only occurred when an economy was over-heating and the remedy was slowing the economy.

The front page of the West Australian on 21 October 1987.
Camera IconThe front page of the West Australian on 21 October 1987. Credit: The West Australian/The West Australian

Professor Robertson said energy price rises had triggered an inflationary spiral of increasing wages and prices and falling demand, making it difficult to employ the conventional tool of cutting government spending to bring inflation under control.

Successive Coalition governments headed by Malcolm Fraser, and with Howard as treasurer from 1977, were not focused on major economic reform but instead dabbled in controlling inflation and tax growth and trimming the Federal bureaucracy.

Mr Fraser’s team did not even seriously ponder major market-based economic reforms until 1979 with the Campbell financial systems inquiry, whose final recommendations in 1981 included deregulation of banking in Australia and the allowing the entry of foreign banks.

And it was not until Labor won power under former ACTU leader Bob Hawke in 1983 that the dust was blown off the Campbell report Australia embarked on a major economic reform agenda that banking deregulation and the floating of the Australian dollar.

Veteran political commentator Paul Kelly told a Reserve Bank conference in 2000 that the team led by Hawke and Keating was “free from both party dogma which had ruined the Whitlam Government and the old-fashioned economic orthodoxy which had destroyed the Fraser Government,” “Hawke and Keating were not just interested in finding a new approach; they believed that a new approach was essential,” Kelly said.

Labor struck accords with its union allies in a bid to bring the destructive inflationary spiral.

Labor led Australia through an unprecedented period of economic reform and changes. Sure, there was a share boom that ended in a spectacular crash in October 1987 and a credit-fuelled property investment bubble that burst in Keating’s recession we had to have.

The 1990 recession was needed to stop a boom after seven-years of rapid economic changes turning, ending in an even bigger bust. It also stopped inflation regularly surging into double figures.

The Reserve Bank was given a clear mandate to control inflation in 1993, a job that has been sorely tested in recent months thanks to the global outbreak of inflation.

The Prime Minister Mr Gough Whitlam and the President of the ACTU and ALP’s Bob Hawke.
Camera IconThe Prime Minister Mr Gough Whitlam and the President of the ACTU and ALP’s Bob Hawke. Credit: The West Australian/The West Australian

The work of Mr Keating laid much groundwork for the reforms and golden years of Howard as Coalition prime minister and Costello as treasurer from 1996 to 2007. They left an economy on that treasurer Wayne Swan and prime minister Kevin Rudd could help shield from the full ravages of the global financial crisis in 2008.

Mr Richardson said the new Labor team should understand that in government they had limited capacity to deal with problems such an increasing unemployment and inflation driven by global factors.

“In government, you have to confess that you don’t have the silver bullet,” he said.

Professor Robertson said he was encouraged by the new teams measured approach to the east coast gas crisis. After campaigning heavily on decreasing Australia’s reliance on fossil fuels to address climate change, Labor in power was not resorting to old-school mechanisms like regulating usage or providing subsidies to users.

“They’ve done that without blinking and shown they’re serious about economic management,” he said. “They see the energy transition as long-term it — it is not something they are going to do overnight.”

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