People are being asked to vote for the Coalition on the grounds that it is better at managing the economy. But the current evidence does not back up that claim.

For generations, the Liberal Party has asserted that it is better than Labor at managing the economy. This election, Peter Dutton has repeated this message more than ever.

But what is the evidence? A proper assessment of which party will be the better economic manager should be based on a consideration of their:

• recent economic management record;
• announced policies for the future; and
• decision-making processes.

Recent economic management records

Inflation and the cost of living have been the major economic problems over the last three years under the Labor Government.

However, inflation is now back within the Reserve Bank’s target range of 2% to 3%. Importantly, the reduction in inflation was achieved while keeping unemployment low and creating a record number of new jobs. A considerable achievement.

Further, the high inflation was mostly inherited from the policies of the Morrison Coalition Government which preceded Labor. When Labor took office in May 2022, the annual increase in consumer prices was running at 6.1% and rising. Six months later, price inflation peaked at an annual rate of 7.8%.

Most economists would agree, however, that because of the inevitable lags before economic policy impacts on its target, that peak inflation rate was not the fault of Labor, but of the previous Coalition Government. In particular, in its response to the expected rise in unemployment due to COVID, the Morrison Government provided excessive fiscal stimulus, with no provision to claw that back when it became clear that the support was excessive.

For his part, Dutton has been critical of Labor’s projected future budget deficits, and claims that under Labor Government, outlays have been excessive without providing any detail on where they have been excessive. Further, during the pre-COVID years of the Abbott, Turnbull and Morrison Governments from 2013-14 to 2018-19, those governments never ran a budget surplus, whereas Labor has had two surpluses since it took office in 2022.

And, over that five-year period, the Coalition’s average deficit represented 1.7% of GDP. This was significantly more than the average budget deficit of only 0.6% of GDP recorded for Labor since it came to power in 2022-23 and projected in its latest budget out to 2028-29.

In addition, within the bounds of fiscal responsibility, Labor has offered limited cost of living support through its budgets. Also, real wages have started to recover, although the speed of that recovery and consequent easing of cost-of-living pressures, will depend upon the rate of productivity growth – an equal problem for both sides of politics.

Future policies

Turning now to consider the policy announcements of the two major political parties, it is the policies announced by the Coalition that really raise questions about their competence as economic managers. Some of the most important examples of poor policies discussed below are in relation to:

• energy and climate change;
• defence;
• migration;
• possible savings to pay for the additional expenditures; and
• budget outlook.

Energy policy

Dutton has announced that in its eventual response to climate change and the need to reduce carbon emissions, the Coalition will rely on a mixture of renewable energy, nuclear energy, and gas.

But, frankly, the economics of this mix of energy sources does not add up. While Dutton asserts that nuclear energy is cheaper than renewables, that is contrary to all expert opinion. Indeed, if nuclear is economic how come no private investor is interested in investing in a nuclear power plant, and why does it instead have to be financed by the taxpayer?

Other dubious Coalition energy policies that do not make economic sense, and will add to carbon emissions and further damage the climate, are:

• halving the rate of petrol excise to support the tradies in their “utes”; and
• removing the subsidy for electric cars and the controls of car emissions which again favours large petrol-burning automobiles.

Petrol excise is already lower in Australia than in almost all other developed economies and motorists will not be paying anywhere near enough for their share of the cost of road use. Good economics insists that users should pay, so this too is bad economics.

In addition, to bring down gas prices, Dutton has announced that 10% to 20% of gas produced on the East Coast of Australia will be reserved for the domestic market. This will be achieved by introducing a charge on all gas exports not already the subject of long-term contracts, which is intended to make it advantageous to gas producers to favour the domestic market.

But taxing some customers in order to favour other domestic customers is not consistent with sound economic principles. For example, would the Coalition consider similarly taxing exports of Australian beef or wine so as to bring down their prices in Australia? I very much doubt it!

Defence

The Coalition has recently announced that it wants to increase defence spending over 10 years to 3% of GDP. However, to date, there has been no indication of why, or how, the money will be spent. This breaks all the rules of sound budgeting and good policy development.

Migration

Dutton wants to reduce migration in order to ease the pressure of demand in the housing market.

For months, he has chopped and changed about how big this reduction would be and how it would be achieved. But the latest announcement is that the Coalition wants to reduce net migration by 100,000 in one year.

According to the shadow minister, Dan Tehan, this reduction will be achieved by lowering the humanitarian intake from 20,000 to 13,750 places, reducing foreign student commitments by at least 30,000 relative to Labor’s caps, reviewing the temporary graduate visa and tighter enforcement of visa rules.

Tehan has acknowledged that skilled visas will be cut by 45,000 from around 132,200 in 2024-25. As the Coalition wants to protect industries such as construction, hospitality, and health and aged care, this substantial cut in skilled migrants will inevitably damage other key Australian industries, such as those employing accountants, IT professionals, and engineers.

Also, foreign students are Australia’s fourth biggest export, and limiting their number reduces export income as well as damaging the financial position of higher education institutes.

In short, it is quite likely that Dutton’s lower migration target will not be fully met, given the opposition from key industry groups.

Possible savings

We are nearly at the end of the election campaign and so far the Coalition has announced very little in the way of savings to pay for their election promises.

The first and, almost the only, saving promised was to cut the number of public servants by 41,000. According to Dutton, this is the number of additional public servants employed since Labor took office three years ago.

Dutton has frequently claimed that all these 41,000 additional public servants work in Canberra and that he would realise a saving of $7 billion by sacking them in the first year. He has also maintained that people working in front-line service positions and defence would not lose their jobs. But Dutton cannot be believed.

Only a quarter of these 41,000 additional public servants are based in Canberra, and the rest are employed all over Australia. Further, as the total public service employment in Canberra is only 69,328, and if front line service positions and defence jobs are to be protected, then to sack 41,000 public servants in Canberra would require the destruction of all key policy departments, including the Treasury, Finance and PM&C.

But don’t worry. Dutton now says that no-one will be sacked. Instead, the numbers of public servants will only fall as they leave and are not replaced. But in that case, the savings will not be realised either.

Finally, the only other significant saving that the Coalition has identified is the subsidy for electric cars, but as noted already, that too doesn’t make economic sense if the government seriously wants to tackle climate change.

Budget outlook

The budget balance or bottom line is often used as an acid test of fiscal capability and responsibility. Unfortunately, neither of the major political parties has provided updated costings of their policies until the last week of the election campaign and at the time of writing we are guessing a bit about the Coalition’s budget outcome.

However, Labor has not announced many expensive new policies since their budget just a few days before the election campaign started, and in that budget provision was made for some spending on new polices not yet announced. It is not surprising therefore that Labor’s final budget figures are not significantly different from the small deficits of about 1% of GDP or a little more shown for the next four in that very recent budget.

I, therefore, believe Treasurer Jim Chalmers is right when he said that the final figures for the budget deficit under Labor will not be very different from those provided in that very recent budget.

On the other hand, the Coalition has had a host of new policy announcements since the election campaign began and some of them like Defence represent major expenditures. My assessment is that the Coalition will have a substantially bigger budget deficit than Labor unless they are able to make major savings after the election. But it might be questioned whether such savings are possible. If they were, why not announce them now?

In fact, large savings are only possible if there are significant policy changes that reduce the availability of some services or the eligibility for some services. However, the last time that was tried, by the Abbott Government back in 2014, that budget was rejected by the Parliament.

In short, the evidence is pretty compelling that the budget deficit will be bigger under the present Coalition, and that Labor will do a better job of managing the nation’s finances.

Dutton’s populist decision making

One of the perhaps surprising features of this election campaign has been how the Coalition has frequently chopped and changed its policies.

For example, initially it was thought that the Coalition opposed working from home everywhere. Then, it was just in the public service and now, after they found how unpopular their policy would have been, the Coalition has totally backed down and will not stop working from home.

Similarly, there has been enormous confusion over the staff cuts in the public service – where and how, and therefore what can be achieved. While one day Dutton said that the subsidy for electric vehicles was safe, two days later he announced it would be removed.

These frequent changes in policy suggest a lack of clear thinking by the Coalition in developing their policy positions. Again, that does not increase confidence in their capacity for economic management.

Unfortunately, the same is true of the Coalition’s embrace of economic populism with their proposals to use taxpayers’ money to build state-owned power plants, and their regulatory policies, such as those affecting the gas market and plans to intervene in the insurance and force divestment of supermarkets.

These populist decisions are the antithesis of traditional liberal values that favour free competitive markets determining the allocation of resources and activities.

In sum, it is the Coalition’s decision-making process and its populist economics that is so reminiscent of the way that Trump operates. But do most Australians want that?