Measuring the track record of Australia’s treasurers by worst growth figures detonates the Coalition myth of superior economic management. Michael West reports on 50 years of treasurers and Scott Morrison’s hospital pass to Josh Frydenberg.

When Joshua Anthony Frydenberg was elected deputy leader of the Liberal Party last year he got his choice of portfolio. Julie Bishop had selected Foreign Affairs. Mr Frydenberg was in Environment and Energy. Treasury offered an extra $32,101 in ministerial salary.

Prime Minister Scott Morrison could show him a nice set of quarterly GDP growth numbers: 0.675 per cent, 0.650 per cent, 0.782 per cent, 0.827 per cent; all up for the year, 2.935 per cent. Mr Frydenberg chose Treasury and walked into his new office on August 8, 2018. Four weeks later he got the June quarter number. It was 0.716 per cent. It was good too. It lifted growth for the Australian economy to 3.009 per cent for the year.

This was the highest growth under this government and higher than anything Tony Abbott and Joe Hockey had seen. Mr Morrison was truly delivering, or so Mr Frydenberg thought.

Appearances can be deceptive

Did Mr Morrison know that things were already going pear-shaped? What were his Treasury officials saying behind closed doors? Mr Frydenberg certainly found out.

Three months later, in early December last year, Mr Morrison’s last report card was released: 0.447 per cent for the September quarter, almost half Mr Morrison’s 0.827 per cent of just three months ago. Mr Frydenberg must have turned white and felt the chill of impending failure.

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It would only get worse. In March, with an election having to be called, he was told the number was down again; to 0.307 per cent for the December quarter. What had happened? Perhaps he could blame this one on Mr Morrison too. After all, Mr Morrison was the previous Treasurer. Or perhaps the polls were right, Labor would inherit the mess, it would be theirs to sort out. Like the Global Financial Crisis.

On April 2, Mr Frydenberg gave his first budget speech, probably assuming it would be his first and last. All he had to offer was the prospect of a budget surplus. Better to bury the downward trend in the growth numbers and simply say, “Australia is stronger than it was when we came to government six years ago. Growth is higher …. It is a testament to the strength of the Australian economy that it is its 28th year of consecutive economic growth”.

Bonds, lame bonds

It was true that growth was higher. But it had been a lot higher under Treasurer Morrison than it was now. And it was not true to say the country was stronger, at least if the trend in bond yields and GDP were any guide. Notwithstanding the narrative “Back in the black and back on track”, the numbers were all heading the wrong way, and it was Budget day.

Quarterly growth had slumped from 0.827 per cent to 0.307 per cent in nine months. It had more than halved.

And, as he stood at the rosewood Despatch Box, the eyes of a nation upon him, he knew that two year government bonds had dived from 1.842 per cent to 1.444 per cent in less than three months. Five year bonds were even worse, down from 1.967 per cent to 1.434 per cent — a shocker, an interest rate nose-dive which augured ominously for the economy.

Worse again; the yield on the five year bonds had been less than the two years bonds, and this had been going on for ten days. A dreaded short-term “inverse yield curve” had arrived and it had been sitting there for nearly two weeks, conventionally a bad omen. Indeed, something not to be uttered in any Budget speech.

Promises, promises

The Prime Minister then needed to move fast if he wanted to spin this growth number into the never-never. On April 10, he called the election and told his party, by his actions, if not his words, that he would run the campaign and everybody else should keep out of the news.

Mr Frydenberg had promised 1.25 million new jobs over five years: “under a coalition there will always be more jobs”. Mr Morrison repeated the jobs number in his campaign launch speech, saying that growth was higher, but not saying what it was higher than.

Obsessed with the excitement and theatrics of the big campaign, it was glossed over by the media.

Now safely and surprisingly back in office: three weeks ago, on June 5, things took another turn for the worse. March quarter growth was now at 0.259 per cent, under one third of what it had been when Mr Frydenberg ascended to the cherished role of Treasurer last year.

You would have to go back to Peter Costello to find any quarterly number that bad, even during the GFC.

It was underplayed however, due to “round-ups”. What the public saw in the last one was the number rounded up to 0.3 per cent but if you looked into the actual data which Mr Frydenberg must receive, it is far more frightening at 0.259. Moreover, the rounded 0.7 per cent from June last year is still sitting in the annual data so it’s propping the headline numbers up.

Treasurer measurer

Throughout the election campaign, Mr Morrison and Mr Frydenberg made much of the Coalition’s mantra “superior economic managers”. How does this claim stack up?

Did you know that the only treasurer to start and also finish his time as treasurer with lower quarterly growth than Mr Frydenberg was none other than John Howard (1977-82)? And he inherited his bad start from fellow Liberal Phillip Lynch.

Did you know that the treasurer presiding over the worst quarterly growth since Australian Bureau of Statistics records began in 1959 is likewise Mr Howard at negative 1.214 per cent in December 1982 (the biggest quarterly negative so far)?

Did you know that the most recent treasurer with worse quarterly growth than Mr Frydenberg is Peter Costello who conceded growth of 0.167 per cent for September quarter 2000, 0.202 per cent for December 2000 (the 2000 figures were affected by the introduction of the GST) and 0.212 per cent for March 2003?

Mr Frydenberg’s 0.259 per cent is even less than the lowest result during the GFC when Wayne Swan was treasurer and notched up his worst at 0.286 per cent.

And back in 1961, future Liberal prime minister Harold Holt notched up a string of quarterly negatives during his time as treasurer.

Ranking the worst quarterly growth achievers:

John Howard romps in in 1st, 2nd and 4th positions with the worst quarterlies
Harold Holt comes 3rd and 5th
Labor’s Paul Keating is 6th.

Consecutive negative quarters – and bearing in mind the definition of recession is two negative quarters in a row – this time ranked by annual negatives:

Mr Howard is the winner with four quarterly negatives in a row (and the worst annual result at negative 2.943 per cent)
Mr Holt had three in a row (and an annual negative 1.237 per cent).
Mr Keating had four in a row (and an annual negative 1.147 per cent)

Sources:

The Australian Bureau of Statistics: 5206.0 Australian National Accounts: National Income, Expenditure and Product Table 2 (1959 to 2019).

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So what do Josh Frydenberg’s numbers look like to June?

We’ve let Josh Frydenberg and Reserve Bank chairman Phillip Lowe devise an index. We call it the MWI – the Michael West Index. It shows that the economy has decelerated since December. It has lost momentum. It’s a bit like what happens when you drive a car uphill and take your foot off the accelerator.

How does the index work? We took the Government’s election pitch on Growth (in GDP) and gave it the greatest weight. We blended in the RBA’s concerns with the CPI and interest rates (bond yields) and gave them less weight. We smoothed the numbers because they only come out quarterly. And added in the currency. All these numbers are down since December. This gave us 75% of the MWI. The rest reflects market sentiment and some data derived daily. It could pick up.

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