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Dec 5, 2012

Hockey on four-point plans and a falling economy

Joe Hockey's confused criticisms of the government's economic policy are reflected in the Coalition's own economic "plan". They're going to need do better than this in government.


“The Reserve Bank is trying to catch a falling Australian economy. The government is making it worse by going on a big taxing, big spending program.”

That, from yesterday, could be the single dumbest thing Joe Hockey has said this year.

The shadow treasurer is at his best when he’s least partisan. No other major party politician has dared put their name to the sort of comments Hockey made about entitlements. Speaking to international media and observing the rule that you don’t bag Australia to foreigners, he looks a measured, mature Treasurer-in-waiting. When he’s trying to score political points in an economy that for so long has resolutely failed to produce any bad news, the result, like yesterday’s quote, is painful.

Hockey’s dilemma is that he wants to point out evidence of weakness in the non-mining sector of the economy and blame the government for failing to do anything about it. And there’s a sound basis for doing so: the government’s fiscal policy is ripping a huge whack of demand out of the economy while commodity prices are falling, the peak of mining investment is passing, the Aussie dollar is proving it’s now virtually bulletproof and the US and European economies show little sign of recovering from their respective malaises. Labor’s fiscal policy is pro-cyclical, compounding downward pressures on the economy.

But, problematically, Hockey also wants to maintain the narrative that the government is spending like drunken sailors, despite Labor’s tax and spending to GDP ratios being below the levels maintained by the Howard government for most of the 2000s.

The result is a complaint that the government isn’t doing enough to prop up the economy coupled with a complaint that it’s doing too much to prop up the economy.

Oh well, that’s what you get when you have a political class that has installed a budget surplus as the be-all and end-all of economic policy.

Hockey talks about a four-point economic plan. It sounds commendable as a broad agenda, but as an immediate response to problems in the non-mining sector of the economy? Hmmm.

The first point is “living within our means” i.e. cutting spending. Cutting spending significantly in the absence of matching tax cuts necessarily will remove more demand from the economy, putting even more pressure on the RBA to use monetary policy to support the economy — exactly the scenario of which Hockey is complaining. It’s also likely to further encourage the “safe haven” view of Australia and put more upward pressure on the dollar.

Point two is to get rid of the carbon and mining taxes. Given Hockey complains the mining tax is not bringing in any money, its removal won’t have any effect either way, while removal of the carbon price, long after it has matured to the point where it is providing a net return to the budget, contradicts the idea of “living within our means”. And again, it will have limited effect given the bulk of the carbon price revenue is cycled back to big polluters in the trade-exposed sector.

Third is a “a six-point plan to improve productivity”, which is, unfortunately, rather vague. It involves such commendable things as “get greater value from infrastructure spending” and “improving competition rules”. They sound great. But how much would this help catch a “falling economy”? Well, nothing for many months, if not years, but the Coalition does like to cite the $1 billion it claims can be gained from “removing red tape”. It’s a little difficult to believe given one of the crosses Hockey must bear are the Nationals, who want more red tape when it comes to foreign investment and wheat regulation — it’s only a few weeks since the Coalition voted against Labor’s wheat deregulation bill.

The fourth point is “proper engagement with the Asian region”. Again, check with the Nationals on that, Joe. It’s hard to be properly engaged with Asia when you have a bunch of xenophobes screaming about Chinese investment.

Hockey also notes that consumer and business confidence has been damaged by the government. To which one might point out that it wasn’t Wayne Swan out there repeatedly claiming that the carbon price would send a “wrecking ball through the economy”. It wasn’t Labor warning of $100 legs of lamb as a result. It wasn’t Julia Gillard claiming Australia was a poorer place to invest than Tanzania or Zambia. It wasn’t Labor that called for a “people’s revolt” against the carbon price, that claimed the government was illegitimate, that called the Prime Minister a “crook”.

Then again, while its four-point economic plan may not be much chop, the Coalition’s one-point plan for getting back into government has so far worked a treat.

This article has been corrected: it originally stated that the Coalition claimed productivity gains of $12 billion. In fact the figure is $1 billion. The text has been amended to reflect this and to remove a misleading reference to the source of the figure. The error was entirely mine – BK


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