Josh Frydenberg and Scott Morrison are likely to focus on housing, energy and economic management in the lead up to next year’s election. (ABC News: Matthew Abbott)
The battlelines are drawn, the fight imminent. Even as the silly season approaches, with an election now little more than half a year away, the next few months promise a relentless round of campaigning.
Following a series of bruising defeats, Prime Minister Scott Morrison has unofficially marked out the territorial lines over which he will confront the Opposition.
While there is a grocery list of potential stoush subjects, the core issues Mr Morrison and Treasurer Josh Frydenberg are likely to hone in on are the hip-pocket issues of housing and energy, along with the perennial — economic management.
The message is that voters will be worse off, on each, under a change of government.
On each issue, however, forces far greater than government policy are driving events.
As the Prime Minister jetted off to Buenos Aires on Friday, hopes were dashed real estate may stabilise before Christmas. CoreLogic’s November numbers were shocking. After 14 months of uninterrupted falls, capital city housing price declines are accelerating.
Nationally, prices fell just shy of 1 per cent, an enormous drop for a single month. In Sydney, they were down almost 1.5 per cent, Melbourne shed 1 per cent with Perth off 0.73 per cent.
Not surprisingly, the forecasters are becoming ever more gloomy. A month ago, Morgan Stanley predicted national price falls of 10 to 15 per cent. Sydney already is at that lower level, while Perth is just shy of 15 per cent lower.
Given the ALP’s changes to negative gearing and capital gains tax are designed to remove the tax breaks for property investors, and hence take the wind out of the property market, it stands to reason the policy will put pressure on real estate.
But that is just one weight on the market. Tightened lending standards, initially forced by regulators, set the ball rolling before the alarming revelations in the royal commission added to the credit squeeze.
A clampdown on foreign investors also reduced demand just as the splurge by property investors was brought to heel with restrictions on interest-only loans.
But risks extend into the future, the main one being the vast supply of units currently under construction and yet to hit the market, just as demand is shrinking.
Many of these were bought off the plan when credit was much easier to obtain. And a significant number of buyers may have trouble raising the finance to complete the transaction, resulting in further downward pressure.
Add to that a cap on immigration, to which the Government has committed, and further property price falls seem certain regardless of who wins the next election.
There is, however, a flip side to all this.
For years, as housing prices boomed, our politicians were wringing their hands over what to do about housing affordability. With little room to push borrowing costs lower, the only way to truly make housing more affordable is to make it cheaper.
As prices fall, it’s likely to spur demand from first home buyers who have been locked out of the market for years. Ultimately, that will put a floor under the market.
Electricity bills have soared in recent years despite promises from Canberra to the contrary.
When then prime minister Tony Abbott removed the carbon tax, he claimed the move would cut power bills up to 9 per cent, saving the average household $200 a year.
Clearly, he was wrong. And that’s because a carbon price was only one amongst a myriad of factors that buffet energy markets.
The big problem has been a lack of investment from power companies following almost 20 years of political bickering and infighting over climate change that left Australia without a coherent energy policy and the power industry in limbo.
As the ageing coal-fired generators are switched off, the gap is being filled by investment in renewable energy; solar and wind. But they pose problems. Given the intermittent nature of renewable energy, it needs to be backed up, either with some other energy source or energy storage.
With battery technology in its infancy, and given our gas abundance, it should have been the stop-gap in the transition from coal to renewables. When renewables switch off, gas was supposed to fill the gap.
Unfortunately, gas prices across the east coast of Australia have more than tripled in the past few years because the new gas export industry locked us into global prices.
Former prime minister Malcolm Turnbull tried to fix the problem by threatening export controls. It worked, for a while. But since December last year prices again have soared, as this graph shows.
A comparison of quarterly gas prices in Adelaide, Brisbane and Sydney.
(Source: Australian Energy Regulator)
That’s had a huge impact on electricity prices. Because it is the swing factor in power price setting, gas now sets the cost of your electricity bills. Given the recent market movement, prepare for further price hikes.
Threats and tough talk about the power companies make for great headlines. But the only way to permanently fix the problem, which even competition regulator Rod Simms agrees, is to reserve enough gas for domestic use, as Western Australia does.
Until that happens, electricity prices will continue to climb, regardless of who is in power.
Most Australians feign ignorance when it comes to matters economic. But you don’t need to be a scholar to distinguish between good times and bad.
We’re about to clock up 27 years of uninterrupted growth, a remarkable performance. Right now, the economy is the Morrison Government’s trump card.
Wages growth may have been the slowest on record but unemployment is low, inflation is barely registering and the economy has been growing at an impressive clip. That’s not all.
Despite coming through the financial crisis in better shape than any other developed nation, we’ve been clocking up budget deficits ever since. That, however, is about to change.
When Mr Frydenberg presides over his first mid-year economic review in a fortnight, he is expected to announce an early Budget surplus, the first in a decade.
The timing couldn’t be better, although the Opposition no doubt will continue reminding everyone that former treasurer Joe Hockey promised a surplus in the first year of the Abbott government and one every year after.
Still, dangers lurk there too. On Wednesday, our third-quarter growth numbers could show a slowdown. Retail sales have been poor, construction numbers last week were well down on expectations and capital expenditure was disappointing.
Not only that, iron ore prices, which have played a big role in reducing the deficit, suddenly have reversed following a collapse in steel prices in China. And then there’s housing. If it continues falling, overly indebted Australians may just rein in the spending which could severely curtail future growth.
Whichever party wins next year, it faces an uphill battle.