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Federal

Sep 16, 2013

Stimulating hypocrisy from Hockey: Joe's changed tune

With Treasurer-elect Joe Hockey considering fiscal stimulus, it's time to revisit what he said about how pointless stimulus was four years ago in opposition.

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With incoming Treasurer Joe Hockey now publicly musing about providing fiscal stimulus to the economy out of concern about how weak it is, let’s look back at the Coalition’s best arguments against stimulus when Labor used it during the financial crisis …

A weak economy is no justification for spending.

In September 2009, the June quarter national accounts showed the Australian economy was growing at 0.6%. The budget in May that year had forecast unemployment to rise from 6% to 8.25%. In September, unemployment was at 5.8%. That was when then-shadow treasurer Joe Hockey said that the GDP numbers showed it was time “to pull back on the spending … to pull back on its massive spending program”.

“The proof today in the accounts,” Hockey explained, “is that the money being spent over the next four years by the Rudd government will be about politics and not about economics. The outcome today is proof positive that Australia is resilient and capable, and if we continue to spend money the way the Rudd government is, we will have higher taxes and higher interest rates. Today’s a warning bell for Mr Rudd.”

Australia’s most recent GDP growth rate is 0.6% and unemployment is now at 5.8% — just like when Hockey spoke. Unemployment is currently forecast to reach 6.25% next year, not 8.25%.

According to Hockey’s 2009 argument, it’s time to pull back on spending.

Borrowing for stimulus crowds out the private sector and drives up interest rates.

“A tighter fiscal policy would not have soaked up so much of the scarce available capital market resources, lessening the chance of crowding out of private sector borrowers,” Hockey said in August 2009. “We must ensure that fiscal policy does not result in the government crowding out private sector access to affordable credit in a growing economy,” he said a few months later. The dead hand of government borrowing “crowding out” the private sector and lifting interest rates became a Coalition theme.

“It’s why I have been so resolute in my opposition to the reckless accumulation of debt by government,” said Hockey. “That debt is placing upward pressure on interest rates domestically and has an effect internationally, making it more difficult for enterprise”

Four years later, Commonwealth net debt:GDP has gone from negative when Hockey spoke to 11% of GDP. Under the crowding out thesis, this must mean interest rates have soared and business, as opposition finance spokesman Andrew Robb put it later, would be unable “to access finance for love or money”.

The RBA cash rate is currently 0.5 of a point below where it was when Hockey spoke in 2009. Small and big business lending rates have been falling for two years and according to the Reserve Bank are now equal to or lower than they were in 2009 at the depths of the financial crisis. As for crowding out, the RBA shows business investment even after the peak of the mining boom remains higher than in 2009, when Hockey warned business would be unable to access credit.

Stimulus doesn’t create jobs.

“It was the automatic economic stabiliser of the exchange rate and the work of the Reserve Bank which restarted our economy,” said Robb in 2012. Any other claim was a “deceit” that “has been used to justify borrowing and spending of $87 billion and more”.

In fact, it destroys jobs.

Both then-opposition leader Malcolm Turnbull and Hockey claimed in early 2009 that the Rudd government was in fact destroying jobs with its stimulus and bank deposit guarantee policies, although Hockey struggled to give an example when repeatedly asked for one by Leigh Sales.

At that point the number of employed people was 10.9 million. Two years later employment stood at 11.4 million, with the same (in fact, marginally higher) participation rate. Just under half a million jobs had been created in the period after Hockey spoke.

For that matter, low interest rates are more important than jobs.

At a media conference at Parliament House in September 2009 (the transcript, oddly, never emerged from Hockey’s office) on the August 2009 jobs figures — same unemployment rate as now — Hockey was asked by a journalist, “you’re saying it’s more important to keep interest rates low than spend money to keep people in work?” “Yes,” Hockey replied.

The economy may well need some additional fiscal support in coming months. Hockey has already flagged the Coalition will not be aggressively cutting spending to return quickly to surplus and flagged that if stimulus is necessary, monetary policy is near the end of its capacity to provide it. That is, Hockey is going about the task of managing the economy sensibly.

Too bad that when Labor did the same, he could do nothing but attack it. Labor has every right to repay him in kind.

Bernard Keane — Politics Editor

Bernard Keane

Politics Editor

Bernard Keane is Crikey’s political editor. Before that he was Crikey’s Canberra press gallery correspondent, covering politics, national security and economics.

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78 thoughts on “Stimulating hypocrisy from Hockey: Joe’s changed tune

  1. This is going to be one of the few joys of an Abbott govt, watching them try to justify doing things which are inherently sensible but they have attacked for the last 4 years, things like running a defict, allowing debt to grow and good forbid stimulate the economy – and I can’t wait to hear the libs spruikers on this site reverse their position.

  2. There should be a regulation that says any politician who lies during an election campaign automatically loses pre-selection. Problem is that we would only end up with about 20 representatives. Too generous?

  3. Having lived through the lies and half-truths from Hockey, Robb and Kormann for the last few years on the so-called crisis in our economy etc I don’t feel that I will ever be able to consider these people as a legitimate government. It was obvious that the only way they were able to achieve government was to completely fool the voting public

  4. Sounds a lot like after they have seen the real state of the economy and the forward spending committed on political gewgaws by Labour they need to shift some goal posts.

    Not entirely unexpected and the usual Labor legacy.

  5. Yeah Gary it is all the ALP’s fault – nothing to do with a ridiculously expensive PPL, or winding back means testing of the private health rebate, or reversing the high income super tax changes or the expensive direct action that won’t work or most importantly that the govt stimulating the economy when it weakens is actually good policy.

    And why couldn’t they see this real state prior to the election?

  6. Hockey, Robb et al were talking about the weak economy all election campaign. It was Rudd, Swan, Albanese etc shouting “Cut cut cut” and “cut to the bone” with regard to Coalition economic policy.

    The fact is that the Australian economy in 2013 is much weaker than it was in 2009 at the height of the resources boom. That’s why the cash rate is at a record low. It’s also why Hockey will be running a deficit.

    There you go Jimmy.

  7. This place has more bias than the Sydney-Centric Rugby League Administration. Just let Joe get on with doing what he has to do to sort out the mess and let the other mob play the leadership games that is the Labor Party.

  8. “Hockey, Robb et al were talking about the weak economy all election campaign. It was Rudd, Swan, Albanese etc shouting “Cut cut cut” and “cut to the bone” with regard to Coalition economic policy.”
    And it was Hockey Robb et el spruiking the need for surplus while promising billions in new spending. Given they still haven’t released their costings but we know they factored in higher growth rates than treasury predicted in the PEFO “cuts” are still highly likely while a surplus is unlikely – the exact opposite of what the libs have “promised”

  9. Learn some basic economics, Gary; Hockey’s brazen hypocrisy is just par for the LNP course: say anything, do anything to attract votes (at least in the short term)and of course automatically oppose whatever the ALP government proposed, however stupid such opposition turns out to be.

  10. Savonrepus – the only mess Joe Hockey has to clear out is the one between his ears. I’m afraid that could take a lifetime to achieve which leaves the state of our economy in the hands of a partisan and bumbling ideologue.

  11. “lefties still reeling after the massacre?” What massacre? Seems to me the margin was on the smaller side of what the libs were expecting and they don’t control the senate.
    “Hockey will prove a better treasurer than Swan.” Should he prepare space on the shelf for the treasurer of the year award then? And exactly what economic policy gives you that confidence?

  12. Seriously ‘the duke’- look at his comments and responses. Hockey has no idea about economics, and that is a pretty frightening outlook! Not being party political here, cos u did win, but Hockey HAS NO IDEA!

  13. “And exactly what economic policy gives you that confidence?”

    ha! funny thing is, the Coalition doesn’t even need a policy for this one. Leadership stability and having the ability to connect with the business community will work wonders.

    In fact, the recent NAB Business Sentiment survey provides ample evidence that the business community had no confidence in the ALP whatsoever.

  14. “the ….” it’s been the same after every Oz election-a spike in all things economic-business confidence, stock market, Oz dollar etc. then it all falls back to reality, just as the market has. Choose anyone else on your side as treasurer, but not Hockey.

  15. “ha! funny thing is, the Coalition doesn’t even need a policy for this one.” Are you trying to out do Fiona Scott for the stupidest statement of the year?

    “the recent NAB Business Sentiment survey” And there we have it, the old “confidence” argument, there have been numerous article recently outlining how stupid this line of thinking is from the conservatives, business investment wasn’t at all bad under the ALP and “confidence” doesn’t generate GDP growth or employment.

  16. partially true however a key dynamic that has been constraining demand in the Australian economy has been the failure (to date) of business confidence to respond to lower interest rates in the way interest rates have acted as
    a circuit breaker in previous economic cycles.

    also, and you think Wayne Swan was an astute treasurer? believe what you want i guess…

  17. I think we will see a lot of hypocrisy coming out of this new government. They will convince the tabloid newspaper/radio audience that its O’K to go further into deficit/debt under the coaltion because its “only the coaltion that can fix it”. Under Labor it always labeled a “mess”. Under the coalition its labeled “strong, decisive government in difficult times”, under Labor its labeled “bad Government”.
    Hypcrisy – that’s precisely why I don’t like em.

  18. the duke – ” key dynamic that has been constraining demand in the Australian economy has been the failure (to date) of business confidence to respond to lower interest rates” Please find evidence of this beyond simple confidence surveys – what has been the level of business investment or business borrowing for example? Could you also include an analysis of the Australian dollars behaviour in recent years compared to other occasions that interest rates have been low and how that has “constrained” the economy?

  19. the duke – ” key dynamic that has been constraining demand in the Australian economy has been the failure (to date) of business confidence to respond to lower interest rates” Please find evidence of this beyond simple confidence surveys – what has been the level of business investment or business borrowing for example? Could you also include an ana ly sis of the Australian dollars behaviour in recent years compared to other occasions that interest rates have been low and how that has “constrained” the economy?

  20. the duke – Here is the first paragraph from an article on this site just last week –
    “A surging Australian dollar to near three-month highs overnight will help to bring a big dose of realism to all this talk of expectations and confidence driving a weak Australian economy higher. As US economist Paul Krugman said, the “fairies of confidence” and the “imps of expectations” are nothing but ephemera in the greater scheme of things, there to wave their wands when all else fails. We saw this yesterday when the sharp rise in business confidence in the National Australia Bank’s August business survey, but little or no impact on weak trading conditions.

  21. The duke – I forgot to put the title – its “Our biggest economic problem could be a housing price boom” and it goes on to say – “Much of this “confidence” stuff is economic gobbledygook — like Tony Abbott’s line that Australia is now “open for business”. Improving expectations and confidence among business and consumers is imprecise and hard to formalise, and has minimal correlation with real-world outcomes.”

  22. Jimmy, The mess is the $250,000,000,000+ debt that needs to be serviced and retired. Interest at say 4% would currently be in excess of $25 million a day which must either come from taxes, borrowing or money printing.

    As tax revenue is the only way to service debt without inflation or further debt, the Coalition seeks to improve business confidence and activity thereby raising further revenue without having to increase tax rates. Whether this can be done remains to be seen. Business confidence appears to have improved but the structural damage to the market system due to poor and excessive legislation will take some time to repair.

    Keynesianism is not a long term solution it just kicks the can down the road to a time that proponents hope will better suit debt reduction. But that time never comes as Labor always spends 110% of available funds. I hope Mr Hockey will have the courage to make the unpopular moves necessary to put the budget back in the black and slowly reduce debt. There is no other viable long term solution. You cannot service household debt by incurring further debt so why should the rules be different for government? Eventually the piper must be paid.

    I invite rusted on Labor supporters to view the current Treasury Bonds on Issue and advise how they would propose to service this enormous debt and maintain their favoured ‘bread and circuses’ style spending.

  23. well, as per RBA data, business lending increased in 2012 from a starting point of $635bn in January to $653bn (+$18bn in 2012) in December. As at the end of July 2013, business lending has grown to $660bn (+$6bn in 7 months).

    Based on my calculations, whilst the ALP was in power, business lending is going backwards?

  24. The duke – Just to help you out – “Capital expenditure by businesses rose by 4.0 per cent in the June quarter, the Australian Bureau of Statistics said today, higher than the 0.8 rise the market was expecting.”
    “During the 2013/14 financial year, businesses expect to invest $159.236 billion, which is 11.2 per cent lower than the estimate made for 2012/13 this time last year.” – You would think if your argument is correct given the election result was known that 2013-14 would of been higher than 2012/13.

  25. PeterW – “Jimmy, The mess is the $250,000,000,000+ debt that needs to be serviced and retired.” if that is the mess then how are the libs going to fix it – they aren’t predicting a surplus for this term of govt and possibly not for 10 years.

  26. The duke – “Based on my calculations, whilst the ALP was in power, business lending is going backwards?” Only a liberal supporter can take increasing figures and claim the are going in reverse.

    And don’t try to change the topic to some 2007 promise that is irrelevant to what we are discussing – answer my questions or admit you are wrong.

  27. as per the latest Westpac Market Outlook – “Business investment slumped in the March quarter, –4.2%, then fell further in the June quarter, declining
    –1.2%. That comes after a broadly flat finish to 2012, with investment expenditure up only 0.4% in the
    December quarter. Annual growth turned negative in the June quarter, printing at –1.3%, the first negative
    reading since mid-2010. Cuts in investment have been widespread. Mining investment trended lower
    from the December quarter 2012 and non-mining spending declined over the past two quarters. By asset,
    in the June quarter: non-residential building activity fell –1.6%; infrastructure work declined by –0.8%;
    equipment spending was cut by –2.5%; and intellectual property products rose 0.8% (constrained by a
    1.5% fall in exploration spending).”

  28. do the math Jimmy.. 2.8% growth in 2012, year to date growth of 1.1% in 2013.

    i’m not changing the topic, you were kind enough to bring up ‘a housing price boom…’

  29. So the westpac market outlook has “business investment” going backwards while the ABS has “capex” going forwards which is interesting.
    Now even if we assume you are correct with your figures could you put some context around the figures – what is causing them, “mining investment is trending lower” from historically massive peaks for example, what role has “liberal state govt’s played on “infrastructure investment”? and is it your argument that all this will be turned around simply by a govt change not policy implementation?
    And still waiting for your Aussie dollar impact on the interest rate circuit breaker.

  30. “do the math Jimmy.. 2.8% growth in 2012, year to date growth of 1.1% in 2013.” Do the math the duke “growth” is still “growth” it isn’t going backwards.

    And I didn’t bring up the housing boom, I referenced an article that mentioned the housing boom that also belittled your “confidence” argument, the housing boom part is irrelevant to our confidence discussion.

  31. The Duke – This is from the ABC PM website for a story dated the 29th of August-
    “Business investment unexpectedly picked up slightly in the June quarter, but economists say the ABS survey shows firms are planning to cut their spending on new machinery, equipment and buildings next year. Analysts say the weak outlook means at least one more interest rate cut is likely, and whichever party wins next week’s federal election is likely to face further pressure on already battered government revenues”
    How is this good news for the new govt and why isn’t the increased “confidence” of a coalition govt going to increase spending?

  32. The Duke – This is from the ABC PM website for a story dated the 29th of August-
    “Business investment unexpectedly picked up slightly in the June quarter, but economists say the ABS survey shows firms are planning to cut their spending on new machinery, equipment and buildings next year. Ana l ysts say the weak outlook means at least one more interest rate cut is likel y, and whichever party wins next week’s federal election is likely to face further pressure on already battered government revenues”
    How is this good news for the new govt and why isn’t the increased “confidence” of a coalition govt going to increase spending?

  33. Confidence is absolutely critical to get Australia’s economy growing after the end of the resources boom. It is lack of confidence that has caused over $300bn in resources projects to be scrapped and why households are paying down debt rather than spending.

    The record low interest rates reflect the gloomy outlook. Employment is soft. This is why the coalition has postponed any talk of a return to surplus any time soon.

    None of this is hypocrisy or misleading the electorate to get elected. Hockey will lead a sensible policy response to current economic conditions.

  34. David – What has caused this loss of “confidence”? What has caused people to pay down debt? Govt policy or global conditions?
    And what changed between when the coalition was calling for surpluses and now when they are talking about deficits?

  35. The loss of confidence has been caused by changing global conditions. Certainly the collapse in coal and iron ore prices brought the investment programme for the resources sector to a shuddering halt. We haven’t seen the end of it yet. And during that time, the ALP government was AWOL. There was no policy response as the Gillard government was captivated by the Greens agenda and thought that supporting the resources sector would not play well in voter land. So we just got insults about greedy billionaires instead.

    Consumer confidence probably disappeared when people’s houses stopped increasing rapidly and they worked out they’d have to pay the loans off eventually.

    I think the Coalition remains committed to surpluses. They’re just not going to cut, cut, cut, to the bone. Call it hypocrisy if you like. Some of us think it’s good economic management.

  36. “do the math”? Erm, “The Duke”, are you American? If so, then that’s cool, Americans contract Mathematics to Math, and that’s widely acknowledged.

    We don’t, however. Our lexicon of the English as it is spoke, contracts the noun Mathematics to Maths (to me it makes sense, but that’s a different story).

    It’s just, to me, any point you may have with the above discussion, is lost with clumsy, trite slogans. Anyway, carry on.

  37. Business confidence took a hit because for three years the Abbott opposition was threatening to wind back government reforms and business didn’t know where it stood until September 7. Business confidence 101: business needs certainty.

  38. I’m with you Jimmy #2 @1.19pm. Watching the LNP supporters change the goal posts is fun. Pity they cannot open their eyes a little further to take in a ‘bigger picture’ (as Gavin #7 said, to join the Keynes club).

  39. “Call it hypocrisy if you like. Some of us think it’s good economic management”. Its all semantics isn’t it David Hand. I just think its a shame that we have lived through a three-year period of divisiveness, negativity, rhetoric and the reinforcment of political stereotyping, for what? Just so an Abbott led government could grab power and do basically the same thing that the outgoing government was doing. They even talked down the economy only to now be faced with the difficult task of talking it up again.
    The language and tactics we had to endure was harsher, meaner and more hypebolic than we have ever had to endure from an opposition, for what? Just so they could talk up what they spent three years talking down?

  40. Hey Johnnie,
    The ALP government was not thrown out because of the economy. It was thrown out because of a flagrant breach of trust with the Australian voters. Most of the divisiveness and negativity was that appalling circus witnessed almost daily in the form of the ALP federal government. This was an election lost by an incompetent, inward focused political movement with scant awareness of the needs of voters and their demise was well earned.

    I don’t think Abbott had much to do with it at all. I think the 23 June 2010 and all the pain that followed had a massive impact on it.

  41. UNFAIR! OUTRAGEOUS to use his words, past arguments & behaviour against him, as if tories are accountable to ..umm, honesty or integrity.
    This reality based thinking has no place in the world of the born-to-rule, even if only in the Bekaar valley.

  42. Spin and justification David. Even words like “flagrant breach of trust”, and “apalling circus” is lexicon taken straight out of the Tory song book. We don’t need this type of hyberbole.
    Besides, for a Tory to say that Labor’s leadership issues was an “apalling circus” is not justifiable given that in six years the Liberals went through 3 leadership changes and Labor went through 2! All the peripheral stuff was hype generated by the media and opposition.

  43. it is amusing to see that ‘confidence’ is widely disregarded by some posters.. trying telling property developers that are trying to pre lease office space that confidence is not an issue within the economy.. the previous government treated the electorate with contempt given the instability they caused.. as one would say, suffer in your jocks Kevin07.

  44. Winged Keel – It isn’t “confidence” being disregarded, it is confidence generated simply from a change in govt. To argue that just because the libs are in the economy will improve just on the back of confidence regardless of their policies is just foolish.

  45. David Hand, Winged Keel etc, etc,
    You are all off on a tangent, whether you believe that the Liberal party policies are good, bad or indifferent is not the point- Hockey has in the space of about a week, completely reversed his attitude to how the economy works, and yet, you do not call this hypocrisy?

    And your arguments regarding confidence- you must therefore belive that a dictatorship is the best form of government, as historically this is the form of government that gives business the most confidence.

    As to the whole leadership issue, the labor Party and the Liberals and the media are allto blame for this being an issue in any way shape or form- for it to be a critical issue to the operation of Government the notion of 2 parties, and even the status of the Prime Minister would need some sort of definition within the constitiution, and since they don’t there is no particular problem, in facyt, as history shows- the previous Government was extremely succesful, despite being a ‘hung’ parliament.

  46. Is Joe Hockey “qualified” to be Treasurer of Australia’s economy. What are his qualifications exactly? He represents a minority party of which 68% of voters rejected his party’s policies.

  47. Wrong, Oldskool.
    Hockey has been going on about the weak economy and backing away from a return to surplus any time soon for months. This is the problem in this thread. You make something up by saying Hockey changed his mind about the economy on the evening of 7 September, then you call that hypocrisy. There is no basis to constructively engage with such thinking.

  48. David Hand – “Hockey has been going on about the weak economy and backing away from a return to surplus any time soon for months” But what changed from the previous 3 years where he bagged the ALP for running deficits and promised the Libs would have surpluses – the only thing that changed is that he had to face reality – it is easy to say surplus good deficit bad when you don’t have any responsibility but as soon it became clear he would have to take the reins his completely changed his thinking, as evidenced by the article above.
    And when the ALP was advocating surpluses to support a weak economy you were bagging them – what has changed in your thinking?

  49. I lived through 17% interest rates under Howard as Treasurer and I can tell you 5% is much better. Expect the actions of Hockey to again inflate interest rates. Don’t take any notice of what happens in the rest of the world – we live in a bubble controlled by incompetent foreign managed/ owned resource giants and lazy, greedy banking executives. Look at how much these gurus have collectively lost in the last five years. Any government relying on sensible behaviour from this business elite is captive to incompetence.

  50. Hey Johnnie, call it hyperbole if you like but “There will be no carbon tax under a government I lead” sounds suspiciously like a breach of trust. And Cabinet members lining up to demonise Kevin Rudd in Feb 2012 sounds like a circus.

  51. “but “There will be no carbon tax under a government I lead” sounds suspiciously like a breach of trust.” Do we have a carbon tax – when did that happen? We have a ETS with a fixed price period.

  52. Jimmy,
    Surpluses remain a good thing in spite of current economic conditions and there is far more likelihood of achieving one under a Coalition government than an ALP one.

  53. David Hand – SO considering the Libs aren’t going to deliver a surplus in this term of govt and are making no promises for one inside 10 years, plus their policies actually make it harder to achieve one are you going to start criticising them ?
    And on what basis do you say they will achieve one before the ALP given their polices?

  54. Sydney Morning Herald 12 Feb 2011 “….her plan is a blatant breach of Gillard’s election promise not to introduce a carbon tax. Notably, Gillard shied away from the T-word at her press conference, although she admitted in question time that the initial part of the scheme, a fixed price, was ”effectively like a tax”.

    By last night, Gillard was saying on TV: ”I’m happy to use the word ‘tax’ . . .”

  55. Jimmy, my optimism about the Coalition managing the economy better is my opinion. Everyone can have their own opinion. People voted the ALP out of office by expressing such opinions.

  56. David Hand – ”effectively like a tax”. That doesn’t make it a tax.
    ” Gillard was saying on TV: ”I’m happy to use the word ‘tax’ …” And in her article over the weekend she says that was the biggest mistake of her PM term, allowing something that wasn’t a tax to be termed a tax.
    “Everyone can have their own opinion.” Yes everyone can have their own opinion but others are allowed to test the veracity of that opinion and if you can’t point to anything other than faith it seems your opinion isn’t worth much.

  57. Hey David Hand, so you have already watered down your words from “flagrant breach of trust” to “sounds suspiciously like a breach of trust”! That’s a good start. The Coalition went into the campaign promising a surplus within the first term of an Abbott Government. At the end of the campaign it had blown out to something like 10 years, not even a surplus, just “moving towards a surplus”. Now, I know you tories will say “oh but circumstances have changed”, but isn’t that exactly what Gillard also said and you guys still label it a “breach of trust”. I’m glad that you (David Hand) know a breach of trust when you see one, because I reckon you’ll see plenty over the next few years. But I reckon I don’t need to ask you to stop using inflamatory language because I know you won’t while your bloke’s in power.

  58. Not to mention that Tony ‘the weathervane’ stated that a tax on carbon emmissions was the best way to redunce them, but never mind- we obviously cannot point to hypocrisy amongst the Coalition, because…

    why is that Mr Hand?

  59. The Coalition wombats will spend what time they have in government digging themselves into burrows and will be rarely seen in daylight hours.
    It is that sort of retreat.