No peace-time Prime Minister in Australia’s history has faced the challenge now facing Tony Abbott.
I do not think the Australian nation, treasury or the cabinet understands the magnitude of what is going to happen. The share and currency markets are just starting to get a whiff of what is ahead.
Until now, Australia has seen developments in China and the US as the key to our future, and while that remains partly true, we are about to undergo a domestic upheaval of unprecedented proportions.
Four enormous tidal waves are coming towards us not so much in calendar 2014 but in 2015 and especially in 2016 (the election year).
The biggest wave is the decline in the mining investment boom. Leaving aside maintenance and normal capital expenditure mining investment rose from around 2 to 3 per cent of GDP to around 7 per cent. It looks like falling back to its traditional levels as the election approaches. We are looking at 70 per cent size reductions in a countless number of contractors. Many will disappear. Remember this will not be apparent in the 2014 economic figures because there is still a lot of mining investment work to do.
At the same time as the mining investment collapse – 2015 and 2016 – we are going to see a second wave. Higher gas and power costs. The price of gas will double in eastern states – if it is available. Because the raw material is only part of the cost in the retail sector, the rise to consumers will be much less. But in industry, where the gas raw material is a bigger slice of the cost, the effect will be to shut many plants.
And it looks like there are more power price rises in the pipeline.
The abolition of the carbon tax, assuming it can get through the Senate, will help and is a clear positive and sensible reaction to these energy developments in our second tidal wave.
But given the total magnitude of what is taking place, carbon tax abolition will not have the stimulus that would have normally followed.
Our third tidal wave is the rise in retail shift allowances and penalty rates, which will slash employment in our second largest employment industry (Australia faces a humiliating retail calamity, November 12).
Our fourth wave is the proposed public service reductions.
These are enormous developments in any economy, and they will all happen in the same two years. Abbott has developed two clear plans to respond to them.
The first plan is to boost infrastructure and lower government regulation – both of which will boost employment and are good moves.
But the second plan has no precedent in any country facing the power of these four tidal waves.
Festering within the Coalition for decades is the deep belief that the motor industry should be shut, given that the only way in can be competitive when the Australian dollar is above 80 to 85 US cents is government subsidies.
That was certainly a correct policy as we headed into the mining investment boom. And once we have adjusted the economy for the end of the mining investment boom and the four other tidal waves it also represents correct policy.
But in 2013 it becomes a fifth tidal wave equal in power to both mining investment and retail. And the motor industry tidal wave hits Australia at the same time as the other four.
But we have a majority in cabinet that believe, with a passion, that 2016 is just the time to hit the economy, that Australia needs to be taught a lesson and the labour force requires a good cleansing. So as a deliberate policy they are determined to abandon the previous government’s deal to save the motor industry at least until 2022.
So in 2015 and 2016 we will see at least 350,000 jobs lost in mining investment, motor, retail and the public service. My guess it that job losses will go close to 500,000.
In fairness, there is no doubt that the minister for industry, Ian Macfarlane, fully understands the implications of the five tidal waves and is working feverishly to stop cabinet’s motor carnage coming at the same time as the other blows (Macfarlane’s plan to save the car industry, November 28).
But clearly the more cavalier cabinet members can see the chance to shut down the industry and do not care about the timing or any other consequences.
Because most of the myriad of companies involved in the motor industry will not be able to pay retrenchment, the decision to shut down motor will cost the government more than $1 billion. Then add that to that the economic costs of the other four tidal waves.
I think Tony Abbott could have been a really great Australian prime minister but Australia has never before seen a prime minister act this way towards employment. It is good to see Bill Shorten will mix with world leaders at the Nelson Mandela memorial service.