Peter Costello’s tenure as Australia’s longest serving Treasurer has ended. Already the revisionists are circling. Before they totally destroy his legacy, it is fitting to reflect on both his successes and failings.
Some of our best Treasurers have departed the job having lowered inflation. Others have presided over falling unemployment. Perhaps there are a few who could even say that they left office having achieved either lower interest rates, lower government debt, higher GDP growth, higher real wages, higher living standards, or a higher credit rating.
Since 1996 every one of these economic indicators improved -– some dramatically so. This is an impressive record that is unlikely to ever be repeated. The biggest criticism that can be levelled at Costello is that he did not do enough to lower Australia’s overall tax burden. To be fair, no Treasurer has ever done enough on this score.
Our top marginal tax rate is still far too high at 45 per cent. But unless Labor reneges on its campaign promises – a distinct possibility – Australia’s highest marginal tax rate will fall to 40 per cent by 2012. Fittingly, this program of tax reduction was Costello’s last significant act as Treasurer.
Costello was often referred to as the man who “runs Australia’s economy”, but the truth is that nobody “runs” it. In that sense Costello was “lucky” because the vast majority of economic transactions in Australia now occur on relatively free markets, which pretty much run themselves.
But politicians make their own luck. Our economy’s vibrant performance owes much to a series of ongoing reforms that have been implemented over the last thirty years, and Costello was “lucky” because he did not make the silly mistake of trying to reverse them.
In fact, Costello did not make any big policy mistakes. This is not as easy as it sounds. When governments intervene they rarely achieve anything positive, but they can do immense damage if they get things wrong.
Just ask Paul Keating, who plunged the economy into a deep recession in the late 1980s; or Gough Whitlam, who presided over a record high 17.6 per cent inflation rate in early 1975.
The essence of good economic management is to let individuals get on with their own lives and manage their own economic affairs. The biggest boast any politician can make is that that they aren’t perfect but will probably be better than their opponents at avoiding big economic policy errors and silly interventions.
Labor has yet to show that it understands this, which is why Costello’s departure from any leadership position will hurt.
Sinclair Davidson is a professor in the School of Economics, Finance and Marketing at RMIT University and Alex Robson is a lecturer is the Department of Economics at the Australian National University.