So, which bright spark in the Coalition thought it was a good idea to support Bob Brown’s inquiry into the Government’s stimulus packages?
At best, the Coalition was only ever going to be able to rope in a handful of conservative economists to declare either that the stimulus needed to be immediately withdrawn, or should never have even been implemented in the first place, a position that the Coalition itself doesn’t hold.
Ken Henry, apparently an “ambassador” for the Government, despite being appointed and reappointed by the Howard Government as Treasury Secretary, had his appearance, originally scheduled for this afternoon, delayed a week by the Coalition because, they said, Treasury had failed to answer a letter from the Committee chair – Liberal senator Alan Eggleston – asking a number of questions. A peculiar decision, given they could always ask the same questions of Henry himself.
Instead, they had Glenn Stevens this morning, offering about as strong an endorsement of the Government’s stimulus strategy as you’re likely to get from the RBA head.
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Stevens’s opening statement identified four reasons why Australia had performed so much better than virtually everywhere else: a better financial system, supported by the RBA’s efforts to maintain liquidity, and the Government’s bank guarantees; the rapid return of China and other Asian economies to growth; ongoing demand for our dirt, and the capacity to provide significant fiscal and monetary stimulus.
Stevens particularly made the point that, while both fiscal and monetary stimulus needed to be reduced “as private demand increases”, the Government had designed its fiscal stimulus to do exactly that. “The peak effect of these measures on the rate of growth of demand has probably already passed. The extent of support will tend to tail off further over the next year.”
That’s exactly the argument that Wayne Swan has been making for at least two months, and longer, ever since the fatuous question of when he was going to withdraw the stimulus started being asked.
In what will be a particularly unfortunate choice of words for Malcolm Turnbull and Joe Hockey, Stevens said that the expected adjustments of both the fiscal and monetary stimuli (in the latter case, via the movement by the RBA of interest rates “off their current unusually low levels”) “would mean that fiscal and monetary policy would be acting broadly consistently.”
Turnbull and Hockey have been reiterating for a fortnight that the Government’s fiscal settings are now at odds with the RBA’s direction of monetary policy, despite the inconvenient failure of the RBA to lift rates.
But the pain for the Coalition got worse as Stevens went on. He suggested that Government debt levels will be lower than forecast – which we already knew – and that they “ought to be seen as manageable” and would be envied by other countries.
Worse, he explicitly stated that they would not result in any “significant upward pressure on borrowing costs”.
That’s two Coalition scare campaigns killed off in the space of a few minutes.
The ridiculous nature of the “withdraw the stimulus” debate is shown up by the clear evidence that the Government is indeed withdrawing stimulus as private demand returns, even apart from the scheduled deceleration of the stimulus package. Automatic stabilisers like higher tax revenue and lower-than-forecast unemployment benefits are likely to see significantly lower deficits for 2008-09 and 2009-10.
The Government’s efforts to curb general government spending in the next budget will play the same role. While spending directed at the construction sector – which is where the stimulus package is now almost entirely directed – has a larger multiplier in terms of employment, there’s otherwise no difference between a dollar spent as part of “Building the Education Revolution” or a dollar saved by Lindsay Tanner’s razor gang.
But if you believed many in the media harping about the stimulus, only dollars with a Julia Gillard picture on them have any impact in the real world.
On the weekend, it was the G20 confirming the continuing need for stimulus until private demand returns. That can correctly be dismissed as reflecting the parlous state of many member economies – or even, if you’re Joe Hockey, as a left-wing conspiracy. But now Glenn Stevens has endorsed the Government’s approach. And the Coalition were the ones who invited him to do it.