Tax and Transfer Policy Institute

John Hewson on what’s in store for Australia and the region in 2015

Governments, reflecting their people, are very poor at understanding, analyzing and assessing risks.

People worry about flying when the risks of death are greater in traveling by car, bus, or ferry, and as the statistics on air safety improve.

People worry about the threat of terrorism, when the risks of death are less than being struck by lightening. And so on.

Moving into 2015 initiates the ‘prediction game’, when the media fills up with all sorts of commentators, pundits, clairvoyants, and psychics attempting to open the window on the year, on how they see it unfolding.

I would suggest that the likely economic and geo-political risks, and especially the possible combination of some of these, makes predicting and forecasting the likely course of events in 2015 more difficult than it has been for most of the period since the Second World War.

I am also concerned that our political leaders are nowhere near as forthcoming as they should be in offering their honest assessments of the risks and challenges to our current and prospective position as a nation.

They would have us believe that the grass will always be greener next year, as they seek to maximize their short-term political advantage, by selectively capitalising/exploiting circumstances and events as they unfold.

When circumstances don’t turn out as they might have hoped, they are quick to rationalise and blame, rather than to analyse and adjust policies and commitments accordingly.

They have little or no vision, strategy, or longer-term plan. They do little or no ‘scenario’ strategising. Yet, they persist in making commitments and promises to the electorate which are most likely to be undeliverable, as economic and geo-political realities play out.

The short-termism of our governance and politics stands in sharp contrast to that of many of our Asian neighbours that think, plan, and operate in terms of generations.

Yet, our future as a nation is in the Asia-Pacific region. Rather than the ‘tyranny of distance’, we now enjoy the ‘luck’ of geographical proximity, but not the understanding and respect to be successful in the region.

Some of the key realities of 2015 are: in economic terms, Europe (except UK) is teetering on the brink of recession, still fighting deflation/debt/banking/Euro problems some six years after the GFC; the US is recovering, but the FED may put this at risk by beginning to raise interest rates, as well as inducing a significant response in bond, stock and commodity markets; China is slowing faster than expected, while Japan and India are struggling. All compounded by inadequate economic management and uncertainty about oil and other commodity prices.

In geo-political terms: the collapse of the Russian economy, and the crisis in the Ruble, could see Putin even more active in pursuit of his ‘Greater Russia’; ISIS will persist destabilising Iraq, Syria and beyond; Iran will continue to delay an anti-nuclear agreement; Middle East tensions will persist; as will a range of Chinese territorial issues with Asian neighbours; all compounded by relatively poor global leadership, several new key leaders, and a host of electoral contests.

More broadly, expect a significant global movement towards a non-legally binding global agreement on emissions reductions, but little real progress towards the G20 goal of boosting global growth.

All up, this spells considerable volatility in financial markets and in government policy responses.

Against all this, Australia is particularly exposed, especially with a Government that doesn’t seem to recognise the significance of some of these realities.

For example, our economy is weaker than they concede; the Budget will get even worse, before it gets any better; they are now laggards globally in the response to climate change; and they are way behind electorally – indeed, the Abbott Government is at risk!

Read more about Economics and Finance policy at Policy Forum. A year of volatility was published at Policyforum.net – the website of the Asia and the Pacific Policy Society.

This piece was first published in Southern Highland News.