In a major speech yesterday, Treasury deputy secretary David Gruen reviewed the roles of fiscal and monetary stimulus in handling the recession, and in doing so demolished whatever is left of the coalition’s argument that the government spent too much in response to the global financial crisis.

In a little-reported address to the Australian Business Economists Annual Forecasting Conference, Gruen started from the orthodox position that monetary rather than fiscal policy was the best tool to respond to economic slowdown, partly because fiscal measures take so long to implement, and partly because, in open economies, unilateral fiscal stimulus tended to drive up the exchange rate, neutering the stimulatory effect.