Monday, 5 February 2018
Matters of Public Importance
The conservatives' obsession with the stimulus package is deeply cynical and lacks any obvious grounding of any kind in the reality of our recent economic history. The truth is this: if a conservative government had been in power when the financial crisis hit, Australia would probably have looked like parts of Europe—very high unemployment, low or no growth, and austerity measures squeezing the life out of whatever signs of recovery emerged. That's not what happened. What actually happened was this: Australia's performance during the global financial crisis was the envy of governments around the world. They came to us to ask us how it was being done. The stimulus package was held up by economic institutions as a model of how to respond to the downturn.
It is astounding that at the same time that the Australian government—the Labor government—was being lauded overseas for its response to the crisis, it was being savaged at home for entirely cynical, partisan reasons by the then opposition. The legacy of that stimulus package ultimately became victim to a strategy of total war waged for cynical, political reasons by the then opposition leader, Tony Abbott. The very great shame is that that attack continues today by people who might actually know better.
The Rudd government's response to the GFC was a uniquely Australian achievement. It was something that in another universe, where we had a Liberal Party not quite so obsessed with partisan advantage, Australia could collectively have been proud of as a nation. But that's not the universe we live in. In the universe we actually live in, with this Liberal Party and this government, this party and its supporters have done everything they can to undermine and downplay what is a terrific Australian achievement.
The stimulus package worked. Australia survived the GFC, and that was a remarkable achievement. It's one that very few countries managed, and it was in no small part due to the stimulus package. We were one of only three countries out of the 35 most advanced economies that maintained a positive rate of GDP growth in both 2008 and 2009. There were just three countries, and we were one of them. I would have thought that is something to be proud of. The growth rate from 2008 to 2012 was the sixth highest in the group of advanced economies and the second-highest growth rate outside of East Asia. The Australian economy even managed to maintain a positive growth rate at the height of the GFC in 2009, while the United States' economy contracted by 2.8 per cent, the United Kingdom economy contracted by 4.3 per cent—imagine that!—Germany contracted by 5.6 per cent and Canada contracted by 2.7 per cent.
People need to think about what that means. These aren't just abstract numbers. What that means in a practical sense is that whole generations of people—young people, middle-aged people—experienced unemployment and prolonged unemployment. It has an economic impact. It has a psychological impact. It impacts on the human capital of those individuals. It impacts on the balances of those families. It impacts on their family wealth. It has a lifelong impact on those humans. It is a human impact that is incalculably damaging for those people. That's why Labor governments will always prioritise employment. That's why we'll always think that that is the single most important thing that we need to attend to when in government. That's why this nonsense about short-term spending measures to sustain economic activity ought to be put to bed. It's borne out by the statistics, and those on the other side who wish for their own narrow partisan reasons to continue to take this apart ought to think very carefully about the legacy that they are leaving.
Other people concluded the same thing. The OECD concluded that Australia's fiscal stimulus package 'was among the most effective in the OECD'. It not only 'helped to avoid a recession as usually defined' but also 'had a pivotal role in boosting overall confidence'. The OECD attributed the effectiveness of the stimulus to both the size of the measures and the speed at which it was introduced. The IMF commended the 'quick implementation of targeted and temporary fiscal stimulus' and considered that it provided a sizeable boost to domestic demand in 2009 and 2010.
The secretary of the Prime Minister's own department issued a statement a few years ago rebutting criticism of the stimulus package. Dr Parkinson said:
Rapid and large monetary and fiscal policy stimulus played a critical role in increasing effective demand and promoting the early recovery of consumer and business confidence in Australia.
Chris Richardson, the economist and a partner at Deloitte Access Economics, has described the stimulus program in perhaps the simplest terms as the right thing to do. It worked. Why do we still have a debt? Because it's very convenient for conservatives to blame current debt levels on the Rudd government's stimulus package, but there is nothing in that claim. The numbers just don't bear it out. The stimulus package constitutes less than 10 per cent of our current debt. Where did the debt come from? The IMF examined the financial records of 55 countries, drawing on what it claims to be the most comprehensive database currently available. It has identified just four periods between 1913 and 2011 during which there is what it calls fiscal profligacy in Australia's financial policies, and only two of those have occurred in the past five decades. According to their analysis, both of those periods of fiscal profligacy happened during John Howard's prime ministership, in 2003 and again between 2005 and 2007.
Our public sector debt is a continuing legacy of the poor economic decisions made by the Howard government. The mining boom delivered Australia an unusually high economic rate of growth in the mid-2000s. The government was in an extraordinarily strong financial position during that period as a result of increased personal and corporate tax receipts. What did they do with it? They didn't invest it productively. They spent it on tax cuts, middle class welfare and stimulating the economy at exactly the time when we ought to have been consolidating our savings. They did it for cynical electoral reasons, and that spending was only possible because of the mining boom. When the mining boom finished, it became apparent that this expenditure, baked in, was not affordable. Prime Minister Howard used a temporary increase in revenue to fund permanent spending, and this is the cause of the deficit that continues to affect Australia's fiscal position.
This government is now in its fifth year of governing and still looks to blame the Labor Party for every single thing that goes wrong, unwilling to take responsibility for its own decisions. This government has made no progress on addressing this in any meaningful way. Why? First, because when they are in trouble they turn first to the handbooks of the 1980s, the economic policies now so discredited, which argue that the way out of any economic problem is to provide more and more economic benefits to the wealthiest parts of the Australian community. People are over that. There's no way that the Australian public is going to sign on to give support for budgets that take from middle- and working-class families and give to very wealthy people. There's no way that the Australian public is going to sign off on $65 billion worth of corporate tax cuts at the same time as accepting a very significant increase to the personal income tax paid by people earning in that $20,000 to $80,000 range. There's no way that you can put that case to the Australian people and say that it's fair when you're in the process of dismantling the deficit levy that was paid by the top two per cent of earners in our country. Everything this government has put forward is profoundly unfair and recognised as such by the Australian people.
That's why they can't tackle the deficit. They lack the imagination and the courage to think through an economic program that will not only restore integrity to the budget and tackle the deficit but also share the costs in a fair and reasonable way across the Australian community. Until those on the other side come to grips with that and stop blaming the Labor Party, the government will find themselves without any economic plan, as they do not have at the moment.