Australia’s new Labor Government is Labor is caught in a web of contradictions

Australia’s new Labor Government is Labor is caught in a web of contradictions. By Paul Kelly.

Australia now confronts its decisive transition — the battle against inflation and its expectations — with the Albanese government yet to decide how it presents this challenge to a public soaked on cheap money and fiscal entitlement in a world where both have to be cancelled.

The dilemma facing the government and our economic institutions was on graphic display this week. Reserve Bank of Australia governor Philip Lowe, now a converted hawk, predicted the cash rate will triple to 2.5 per cent while the Fair Work Commission under president Iain Ross lifted the minimum wage by 5.2 per cent to protect the low paid and deliver an increase in line with inflation.

The RBA pledges to defeat inflation while the FWC seeks to maintain real wages where feasible. Both institutions are doing their heroic job. Yet the contradiction between beating inflation and retaining real wages will be untenable as the future unfolds. …

The monetary and fiscal policies that enshrined the compassion politics on which Anthony Albanese was elected are slated for elimination while the fight against inflation will involve shock and hardship for a community unprepared in financial and cultural terms.

Australia has forgotten too much about the reality of inflation. Being realistic, we face hefty increases in interest rates, higher prices for most sensitive household items, sharp increases in power bills, falling property prices, falling home valuations, a lower sharemarket – and future falls in real wages. …

High inflation imposes ugly choices on governments. Much of the economic success of the 1980s was because Bob Hawke and Paul Keating used the Accord to deliver real wages cuts. If the hard decisions are not imposed then the consequences of rising inflation are even worse. …

The country is going to be poorer and feel poorer. …

Labor faces a collision with the law of economics – higher wages drive higher inflation drives higher interest rates. How does Labor explain this reality so inconsistent with its election messaging? …

Energy, where they are so incompetent and ideological that they accepted the global bureaucracy’s carbon dioxide theory of global warming without ever doing any due diligence:

The grand paradox of the week, however, is that on energy policy the government’s long-run strategy remains in place. It is not ruined by short-term market failures — just the reverse.

The immediate crisis is a perfect storm that has shattered public confidence and raised the spectre of east coast blackouts. The alarm was driven by coal-fired plant outages, high gas prices and shortages, the impact of the war in Ukraine, policy blunders over a decade and generators gaming the system. The government offered full support for the move by the Australian Energy Market Operator to intervene and take effective control of the system to halt blackouts. Every step in this saga eventually will be passed to consumers in higher prices. ..

Anyone deluded into thinking this week’s crisis would drive Labor to increasing its emission reduction ambition or offering concessions to coal-fired power has been quickly disabused.

The political reality remains in place — Labor has wide institutional and public support for its 43 per cent reduction target that will become the Australian benchmark. …

Labor is the renewable energy party. There could not be a stronger enunciation of Labor’s views and priorities.

Opposition climate change and energy spokesman Ted O’Brien tells Inquirer: … The most important promise from Labor at the election was to cut the cost of power bills. That is the promise I will hold them to account for.” …

Albanese’s relentless message this week is that he will blame the immediate energy crisis on what he calls the Coalition’s “decade of denial” of proper energy policy.

We are going to suffer for their intellectual shortcomings.

hat-tip Stephen Neil