‘The engine’s going to blow’: Stark warnings of Labor’s economic mismanagement

[00:00:00]The highly respected former ACTU boss, Bill Kelty, has unleashed on the poor handling of our our economy.

[00:00:07]In a submission to a federal inquiry, Kelty said that our taxes are increasing, government expenditure is rising faster than prices. It does say something is wrong with this place.

[00:00:20]Now, Kelty was very close to Bob Hawke, as you know, and he was his partner in economic reform, which is what makes these comments so significant. And joining me to discuss now is economist Warren Hogan. Warren, thanks for your time. Look, given his background, shouldn't the Albanese government heed his urgent advice?

[00:00:43]>> Well, they certainly should. Um but I don't think they've been thinking in the terms of the Hawke-Keating era, which Bill Kelty was very much at the center of for uh really at all in this term of government.

[00:00:57]Uh Kelty's acknowledging there's some history out there about the functioning of our economy. I think it's related to the demographic shift.

[00:01:05]But he's pointing to the right issue, and at the heart of this is a government that is spending at a rate that is faster than our economy can take, and that is creating inflation.

[00:01:17]And of course, most importantly, it is squeezing out the private sector. We now have factual evidence. There's no mystery to this that our economy can only grow at 2%, which is a lot less than the past. And of course, governments of Australia, federal, state, are all planning to spend over 3% this year. And that leaves less than 1% for the rest of us if we don't want inflation. And of course, they've changed the RBA's mandate to make it hard for them to fight that inflation. So, that's why we are where we are, and it's great that he's pointing it out.

[00:01:47]>> Mhm. Well, and as if to prove his point, um Australia is now heading for its weakest decade of living standards growth in more than a century.

[00:01:56]So, you know, this is the long-term impact and it doesn't look like our economy, at the moment anyway, unless something dramatically changes, it is going to improve.

[00:02:08]>> Well, that's right. And, you know, economists can often predict bad things ahead and some dire prognosis, but it's happening now.

[00:02:17]This is what is happening now. We don't have to have a crisis. We can see it as a crisis of living standards, but it's the slow boiling frog gradual deterioration. But, more importantly, is it will end up in a crisis cuz it's unsustainable. We can't keep going like this. Of course, you can't contrast two characters more than Philip Lowe and Bill Kelty, but both men have a great affection for our economy.

[00:02:43]>> Well, and Philip Lowe, I mean, you mentioned him. Well, he just a few days ago warned that rates, interest rates, will stay high for a long time to come.

[00:02:51]I mean, he he's coming out quite at quite a frequent rate now and and sounding urgent warnings about the economy. But, do you agree with him on that point about the interest rates?

[00:03:03]>> Yeah, well, I think the point is is that this is actually the new normal. So, everyone seems to think that interest rates are going to fall from here and they may fall a bit at some stage, but this is your average level of interest rates and that means they're probably going to go above five at some stage.

[00:03:19]They may only go down to about three >> Mhm.

[00:03:21]>> at best. And, of course, if they keep running the economy like this with government running this economy on its red line, the engine's going to blow and the interest rates might have to go up to six or seven, which is going to be the equivalent in in the 2020s of what happened in the 1980s. It'll be a disaster.

[00:03:37]>> Mhm.