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Labor vs Coalition: 2021 will be huge economically and politically

Stephen Koukoulas
·4-min read
(Source: Getty)
The next federal election will likely be held later this year, writes independent economist Stephen Koukoulas. (Source: Getty)

The political tacticians in Canberra are reckoning the next Federal election will be held in the latter part of 2021, some time between August and November.

For Prime Minister Scott Morrison, the election campaign issues are already well established. He has been working on them in recent months as the recession and COVID-19 pandemic have upended voter thinking on a range of fundamental political issues.

Morrison will campaign on a theme that Australia tackled the coronavirus pandemic better than just about every other country – ‘sure we had a recession, but look at the bounce-back in jobs and growth since the dark days in the middle of 2020’.

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And the policy response the government delivered meant the budget surplus fear campaign that won the Coalition three elections morphed into a record $200 billion budget deficit with government debt on track to hit $1.2 trillion.

This, according to Morrison has been prudent and necessary.

It may yet be a winning strategy, but there is considerable risk with these issues. This is especially so if the Labor Party and Opposition Leader Anthony Albanese can elevate previous voter perceptions on the issues that have resonated with the electorate.

Recessions are damaging to governments

On the economy, there is the 2020 recession. This saw many businesses fail, hundreds of thousands of jobs lost and wages growth sank to record lows.

These dynamics should see voters question the economic management credentials of the Coalition.

The first recession on 30 years is a theme Labor can campaign on as it casts doubt on the strength and direction of the Morrison government approach to tackling the economic fall out from the COVID-19 pandemic.

After all, many of those closed business and lost jobs are unlikely to be coming back in the near term, especially before election day.

If Labor can tap the frustration and sense of loss of people impacted, it should translate to votes.

The debt and deficit ‘disaster’

Then there is the issue of the budget deficit and government debt.

For decades, the Coalition parties have campaigned on it being the party with budget surpluses and low government debt “in its DNA”.

While the claim was always false, they were able to hit Labor with what were actually tiny deficits and low levels of government debt.

The most recent budget numbers and forecasts show that under the Coalition management of the nation’s finances there will be at least 17 consecutive years of budget deficits under its management.

Government debt will hit $1.1 trillion in the next few years, up from what is an insignificant $273 billion it inherited from Labor in 2013.

While no one would argue that a deficit was entirely appropriate in response to the recession, having it persist for a decade into the 2030s is.

If interest rates trend up over the course of the next 5 to 10 years, which seems likely, it will leave a problem with the government having to allocate a large and growing proportion of taxpayer dollars to servicing that debt, let alone returning to lower levels.

The May 2021 Budget

If the election is held within the next nine months, Morrison will have the budget in May to frame other political issues.

It is unlikely to add to the income tax cuts that are already legislated. Company tax cuts are on no one agenda.

Issues to do with health, education and jobs will be the key.

This is where Morrison will have a tough choice and leave an opening for Labor to attack.

That is the trade-off between ramping up spending to ensure a stronger pace of economic growth and hopes for more jobs and lower unemployment. Such an approach would have considerable merit.

But it means the budget deficit will remain huge and the level of government debt will growth rapidly.

The speed of economic recovery

All of this depends on the pace of economic growth. The signs late in 2020 were good. Retail spending was expanding at a rapid pace; employment was bouncing back from the deep decline; housing was resilient and the various measures of business and consumer sentiment were buoyant.

If these trends continue, the Coalition will remain a firm favourite to win the election.

But in any event, there are a range of economic issues for the Labor Party to work on to try to win voter support.

Get set for an exciting year in politics as well as economics.

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