House debates

Monday, 3 June 2013


United Kingdom Economy

9:43 pm

Photo of Laurie FergusonLaurie Ferguson (Werriwa, Australian Labor Party) Share this | | Hansard source

In late April the sister party of the opposition, Britain's Conservative government, faced some significant reverses with regard to financial commentary. Fitch became the latest credit rating agency to strip the UK of its coveted AAA rating. IMF chief, Christine Lagarde, commented:

We have said that should growth abate, should growth be particularly low, then there should be consideration to adjusting by way of slowing the pace—

of austerity. That was a period in which, of course, unemployment in the UK reached 2.56 million and, in contrast with Australia's 5.6 per cent, 7.9 per cent. At that time Polly Toynbee in The Guardian newspaper commented:

All he—


has left to keep him up is blind faith. Growth is flat, debt is rising, banks won't lend, business won't invest without consumer demand. Now Osborne has lost his last prop as unemployment rises. Last week Osborne's most crucial supporter betrayed him: the IMF, once staunch proponent of his austerity, came knocking at his door. His performance was "lacklustre"—a strong word for IMF officials. They warn "it may be time to consider adjustment to the original fiscal plans".

That kind of analysis, that kind of thinking, certainly has not affected the opposition. Whilst in Australia it could be contended, as Alan Mitchell in the 18-19 May Financial Review did, that:

The government was dealt a poor hand.

The slump in nominal GDP … has been dramatic and tax revenue per dollar of nominal GDP has fallen.

…   …   …

If the global recovery is not running smoothly and commodity prices are volatile, a deterioration in the trend could be difficult to recognise.

Indicating that, despite late knowledge by those opposite, it was not all that clear that the significant write-downs that occurred in Australia would do so. Of course, in the same month when the unemployment rate in the UK was climbing to 7.9 per cent in Australia there were 50,000 new jobs created, making a total of 960,000 under this administration.

The IMF has not only been vocal with regard to the failings of the British government; in January this year it also had some commentary with regard to Australia's most wasteful spending. It noted that it was actually during the John Howard regime. The study by the International Monetary Fund—no radical think tank—bills itself as the first to examine 200 years of government financial records across 55 leading economies. The IMF study mirrors findings in a 2008 Australian Treasury study that found real government spending grew faster in the final four years of the Howard government than in any four-year period since the 1990s recession. The number of big-spending decisions worth more than $1 billion climbed from one in the first Howard budget to nine in the last. The proportion of savings measures fell from one-third of budget measures at the start of the Howard era to 1.5 per cent at the end. So we had a situation where at a time when revenues were far larger and taxation was a greater percentage of GDP than it is today there was extremely wasteful spending that has led to part of the situation we face today.

As they advocate austerity over there there has been a major demolition job undertaken on this theory. Thomas Herndon, a graduate student at the University of Massachusetts Amherst, absolutely destroyed one of the leading intellectual engines for austerity measures in the world—demolition of the article 'Growth in a time of debt' by Harvard economists Carmen Reinhart and Kenneth Rogoff. He exposed an artefact of programming mistakes, data omissions and peculiar statistical techniques. He suddenly made a remarkable number of prominent people look foolish. That article of course had for years argued that economies fall off a cliff once government debt exceeds 90 per cent of GDP. Day after day we hear those opposite say that we should emulate Uzbekistan and we should try to learn from the Cameroons, who have an extremely low level of government debt. What we have seen in recent months is analysis of the so-called argument that low levels of debt lead to economic resurgence. The major work trying to prove that in the early 21st century has actually been exposed through major statistical errors. Of course, the authors were not too quick in coming forward to make the work available to the general public. It took very determined action by Thomas Herndon and others to expose this document. Interestingly enough, Canada, New Zealand and Australia, which emerged from World War II with high debt— (Time expired)