The relationship between politics and the economy, particularly who people blame for the economic problems that affect them, is complex.
Many things may effect voter’s views- media being the most obvious.
But there is also an underlying tendency for voters to mistake correlation in time with causation. In other words, save for relatively short “honeymoon” periods, they tend to blame whomever is in government at the time when the economic problems hit them. This is the case even when that government is unlikely to have been responsible for all or most of these problems.
It requires skilled politics and communication abilities for a presiding leader to overcome this correlation effect. The leader needs to be able to shift (or at least spread) the blame, while at the same time looking authoritative, responsible and in control. A good scare campaign is often to chosen method.
The correlation effect was the major factor (not the only factor) in the recent U.S. election result. Here are the comparative average inflation rates under Trump and Biden.
Trump
2016- 0.44
2017- 1.82
2018 – 1.93
2019 – 1.74
2020- 0.73
Average: 1.33
Biden
2020 – 0.73
2021- 2.82
2022- 8.24
2023- 5.68
2024- 2.70
Average: 4.14
The average inflation rate in the OECD between 2016 and 2020 was 1.3. Between 2020 and 2024 it was 4.80.
In 2022 when inflation peaked under Biden at 8.24 the OECD average was 9.6.
This was the main factor behind Trump’s win. His scapegoating of immigrants helped. But I think more importantly, people forgot or forgave his mishandling of COVID but remembered how cost of living increases were not a major problem under him.
Anthony Albanese will likely face a similar problem.
Inflation under the Morrison government was:
2018- 1.9
2019- 1.6
2020-0.8
2021- 2.6
2022- 6.6
Average:- 2.76
Under Albanese it has been:
2022:- 6.6
2023-5.6
2024 (up to September): 2.8
Average: 5.00
Of course the RBA fights inflation by raising interest rates. The average cash rate under Morrison was 0.85 percent. Under Albanese it’s been 3.05 percent and has remained at 4.35 percent since November 2023.
An equally big problem for Albo is Australia’s housing and rental crisis. This has been decades in the making, caused by a number of factors I won’t go into here.
Suffice to say that Australia is now a leader in unaffordable housing, probably second worst in the world, behind only Honk Kong.
Housing affordability has worsened, not improved, under the Albanese government.
Median house prices surpassed $800,000 for the first time, with loan repayments averaging 48 percent of median household income, the highest proportion since 1996. The average mortgage repayment nearly doubled from $2,291 in 2022 to $4,428 in 2024.
Median house rents rose 38 percent between September 2021 and September 2024 and by 7.8 percent from the first quarter of 2023 to the first quarter of 2024.
Many of the factors in the decline in housing affordability have been beyond the government’s immediate control, such as inflation and interest rates, supply chain issues and skill shortages.
The government has responded with the Housing Future Fund and the Social and Affordable Housing initiative. But these programs take years to materialise and affect the market.
It’s unlikely to sufficiently assuage voter’s pain. Many will be attracted to Dutton’s simple and seemingly more immediate solution- cut immigration.
Despite voters having suffered a recession under his government, Paul Keating was able to mount the mother of all scare campaigns over the GST and defeat the correlation effect and John Hewson in 1993.
Will Albo be able to do a similar thing?