Senate debates

Monday, 5 February 2018

Matters of Public Importance


4:32 pm

Photo of James PatersonJames Paterson (Victoria, Liberal Party) Share this | Hansard source

I find myself again following Senator Bernardi in a debate in the Senate today, and I thank him for raising this important issue. It certainly is a milestone that should not pass without us marking it here in this place—reflecting on it and, as he says, learning the lessons of history.

The February 2009 economic stimulus was completely excessive and obviously wasteful. It led to a shocking legacy of debt and deficit, which we are still grappling with today, not to mention the human tragedies that it caused at the time it took place. In size, $42 billion was obscene and, by its very nature, inherently wasteful. As Senator Bernardi mentioned, it led to cheques being paid to deceased people; school halls going up at campuses around the country, regardless of whether they wanted them or not, or whether it was appropriate for their school or not; and laptops being sent to schools, but no support being provided to install, service and maintain those laptops. Those laptops have long since gone, becoming technologically obsolete, and are probably sitting in landfills somewhere, which I know Senator Whish-Wilson would be very disturbed by. They were of no use to the schools for much more than the 18 months or two years they would've been able to use them. And of course, most spectacularly, there was the home insulation debacle which led to the deaths of several young installers and to many house fires.

But you don't have to rely on my view that the stimulus package was excessive, wasteful and damaging to Australia because there are many economists who share that view. I turn to the archives to take out an article by David Crowe The Australian. I should note he has since moved on to The Sydney Morning Heraldand Fairfax, and I congratulate him on his new appointment. In 17 August 2013, he was writing for The Australian and wrote an article entitled 'The stimulus we didn't really need'. He quotes a number of economists, and I want to share their views here for posterity.

Tony Makin, a professor at Griffith University who wrote three academic papers on the subject in the years following the stimulus package, is quoted as saying:

I believe it was unsuccessful and shouldn't be repeated. It sets a precedent that I think is a dangerous one.

His view is shared by an economics professor, John Freebairn, at the University of Melbourne, who I was lucky enough to study under when I was an undergraduate student of commerce at the University of Melbourne. The article says Professor Fairbairn 'advised the Labor government on tax policy last year' and quotes him as saying there is no proof the stimulus saved the economy:

I would have thought the exchange rate, China, and the flexible labour market did a hell of a lot.

Warwick McKibbin from the Australian National University has a similar view. He said:

In case the world fell into a hole you had to be ready to put more spending out there, but you didn't need to put it out there all at once.

He was a Reserve Bank member during the crisis and he lists a number of factors that he thought played a more important role in helping avoid recession, such as a financial sector that was in good shape and was well regulated; an Australian dollar which responded to events and fell rapidly, which helped local employers and exporters and effectively led to a boost in our competitiveness; The Reserve Bank's timely action in aggressively reducing interest rates, which were cut between September 2008 and April 2009 from 7.25 per cent down to three per cent; and a number of other factors, including the massive stimulus that occurred in China and which led to an improvement in exports of many Australian products and services to China—most particularly from the mining industry, which was one of the shining lights during and after the global crisis.

It was not just academic economists who held and shared that view. Others included even the Labor Party's own Treasury secretary, Ken Henry, who, in a number of interviews following the loss of government by the Rudd government in 2013, reflected on his time as Treasury secretary and reflected on his role in the stimulus package, particularly in interviews with ABC's Sarah Ferguson in the aptly named The Killing Season, which looked into the Labor years. He was quoted at saying:

My view at the time, and it remains my view, was that there were too many measures.

I think there is no doubt the stimulus package in February 2009 was too large, was poorly designed and was hastily executed, and it has left us with a budget deficit legacy that we are still tackling today. We are still tackling the embedded decisions that were made at that time. We have not yet begun the task of paying back the money that was borrowed at the time. We are trying to get the budget package back to surplus so that we can begin paying that debt down, and it is a legacy that has gone on for too long already.

We in the coalition would have liked to have brought the budget back to surplus much sooner than we are forecasting, and we have worked very hard towards that goal. But much of the responsibility for our inability to do so unfortunately rests with parties in this chamber and decisions that they have made on savings measures proposed by the government. Time after time after time, savings measures put by the government to the chamber, including ones we have taken to an election and won a mandate for, have been refused. Billions of dollars of spending reductions have been opposed that would have helped the budget get back into shape much earlier and would have resulted in us beginning to pay down the debt much earlier than we will.

Nevertheless, we have made some very real and very welcome progress on this, and I want to spend a moment detailing that. Of course, everyone remembers the record of surpluses under the Howard and Costello government, but the Rudd and Gillard governments increased gross debt during their time in office by an average rate of 33.9 per cent per year. If we had continued on that same path when we came to office—if we hadn't changed course in the way we did following 2013—our gross national debt would have reached one $1 trillion by now. Thankfully, it is only a little bit more than $500 billion, although that is far more than any of us would like it to be. But at least it has not gone all the way to a trillion dollars, as it was set to if we had come to office and let the settings stay in place that the Labor government had put there when they lost office.

We are on track, as all the budget forecasts have confirmed—including MYEFO before Christmas last year—to bring the budget back into balance in the 2020-21 financial year and into surplus thereafter. That will be the first down payment on that debt that we'll be able to make, and it's a day that couldn't come soon enough. We're projecting that net debt will peak at 19.2 per cent of GDP in 2018-19, an amount which is $11.9 billion lower than the peak estimated just in the budget last year, and it will decline to 7.7 per cent of GDP over the medium term.

Gross debt is projected to be $684 billion at the end of the medium term, which is around $40 billion less than was projected in the budget. However, it is still an eye-wateringly high figure of debt that will be a legacy for future generations to grapple with and pay back, if we are not able to make more progress on it in our time in this place.

As we know, Labor accumulated $240 billion of deficits in just their six years in office, which amounted to 16.9 per cent of GDP and, with many of those spending decisions being baked in the future when we came to office, we've been able to reduce that. Still, deficits of $80 billion have been racked up, although 30 per cent less than what Labor was doing.

Spending of course was rising again, had we made no changes to the policy settings that we were handed, to 26.5 per cent of GDP by 2023-24. Thankfully, in this financial year, it will only be 25.2 per cent and is projected to fall to 24.9 per cent by 2020-21. But it is still a number of percentage points higher than what was left by the Howard-Costello government. If we are not able to address that, we are going to inherit permanently higher levels of debt and tax, which no Australian should welcome.

One of the real achievements of this government, which was noted in the most recent MYEFO, was that real spending growth in this government has averaged only 1.9 per cent over the budget and forward estimates, which is significantly lower than the four per cent average that we inherited from Labor. Of course, we're still going to have a cash deficit this financial year. It's expected to be $23.6 billion—again, more than any of us on this side of chamber would like, but we're working to get it down—and, as I said before, projected to return to surplus in the 2020-21 financial year which will allow us to start getting those payments down.

Since the 2017-18 budget, because of the good economic news, the 400,000 jobs that were created last year and the positive developments in our economy, we have been making even more progress than we thought we would. That's a very encouraging sign, given some of the scepticism sometimes about budget forecasts. At this stage, on the early figures available, it looks like we are ahead of where we forecast we would be, and that is a pleasing thing.


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