Peter Costello was an average to poor Treasurer and his legacy has soured with each jump in inflation and each data release showing weaker economic growth.
But rather than skulking, plotting, holidaying, writing or whatever he has been doing since November last year, Mr Costello should move on and allow the Liberal Party to develop the economic policies of an alternative government.
His track record as Treasurer reveals he would have nothing to offer as Opposition leader other than a bit of question time pantomime and a guaranteed door stop interview whenever there was a snippet of economic news that he could twist to his political advantage.
As Treasurer, Mr Costello tried to take credit for the boost to the Australian economy from the once-in-50-year boom in the terms of trade. This is clearly not down to him, although it helped generate sustained economic growth, a tax windfall for the government and a 30-year-low for the unemployment rate.
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Where the issue of his policy failure is now clear is in his abject failure to quarantine the inflationary aspects of the terms of trade shock from an already elevated inflation rate. Worse still, he added fuel to the fire but engaging in years of pro-cyclical fiscal policy which lead directly to the current inflation problem and the amazingly aggressive interest rate response from the RBA. Even with the likely interest rate cut today from the RBA, monetary policy in Australia has few global peers in terms of its tightness.
Let’s recall other aspects of the Costello legacy.
The level of Government spending and taxing as a share of GDP was the highest on record. Linked to that, he delivered the fastest increase in government spending in any year since the “money-from-a-helicopter” years of Gough Whitlam and Frank Crean. This in turn contributed to inflation skyrocketing to 16-year highs, prompting the RBA to hike interest rates to levels that take an all-time-high 14 per cent of household disposable income to service.
At the same time, Australia registered a record current account deficit of 7 per cent of GDP for five straight years and net foreign debt rose to 55 per cent of GDP.
But perhaps the most damning assessment of Mr Costello lies in what he did not do.
He failed to build infrastructure to allow the productive capacity of the economy to expand. Mr Costello slashed funding for State Governments and then had the audacity to blame them for the infrastructure problem. He disingenuously suggested that the infrastructure spending requirement caused inflation to further accelerate even though such spending was and is vital to Australia’s long-run productivity.
This neglect of infrastructure from Mr Costello extended to education where his legacy was a drop in high school retention rates and a labour market skills shortage which further underpinned the inflation problem.
Mr Costello, do the right thing and leave Parliament and allow the Opposition to get some fresh talent that may provide an alternative to the Labor Party and help keep economic policy makers in the government on their toes
Stephen Koukoulas is the London-based head of global foreign exchange and fixed income strategy for TD Securities.