Alex Robson (Source: Griffith University)

The PM’s getting the band back together. Economist Alex Robson is returning to the employ of Malcolm Turnbull, joining his office as one of the PM’s economic advisers. Robson is a protege of both Turnbull and Turnbull’s dear friend Henry “inability to  express an objective expert opinion upon which reliance can be placed” Ergas, as Robson’s CV makes clear. Robson was adviser to Turnbull as shadow treasurer and then Liberal leader in 2008-09, before heading to join Ergas at Concept Economics, a hard-right Canberra consultancy that also included Brian Fisher, climate sceptic and former ABARE head. To the considerable bemusement of the Canberra economic consultancy industry, Concept promptly went belly-up, despite Turnbull as opposition leader asking Ergas to undertake a tax review that ended up advocating a flat tax. Turnbull’s own leadership went belly-up not long after, as well.

As it turns out, Robson has quite a bit to say about tax.

It’s long forgotten now, but under Malcolm Turnbull, the Coalition opposed the Rudd government’s second stimulus package (well, Tony Abbott didn’t — he slept through a crucial vote, after a big night on the grog in the Member’s Dining Room). Turnbull’s argument was that the government’s stimulus package — handouts to taxpayers and infrastructure programs — wouldn’t work as well as a permanent tax cut, because economic theory insisted voters were more likely to spend a permanent tax cut than a one-off tax rebate or handout.

It now seems a ludicrously arcane argument (Ross Gittins called it “humbug”), but Turnbull was obsessed by it, insisting that only permanent tax cuts would work properly as a stimulus measure. And it was a favoured argument of the right — The Wall Street Journal likewise insisted that economic theory proved permanent tax cuts were the best stimulus.

As it turned out, the Rudd government’s stimulus program was — to Turnbull’s visible chagrin — hugely successful. It warded off recession, boosted consumer confidence and kept unemployment below 6% — something the Coalition has only just managed to achieve more than two years after being elected. Joseph Stiglitz lauded the Rudd-Swan package as “probably, the best designed stimulus package of any of the countries, advanced industrial countries, both in size and in design, timing and how it was spent”. Despite efforts by both News Corp and the ABC to discredit the package, it ensured that the Australian economy maintained its recession-free run since the early 1990s and avoided the kind of catastrophic depression that still, all these years later, besets many Eestern countries.

Who was behind Turnbull’s obsession with an obscure hard-right economic theory? Robson wrote a 2009 paper for the Institute of Public Affairs arguing that stimulus should have been provided via tax cuts, not handouts and infrastructure spending. ‘Tax cuts are the best way to grow the economy,” averred Robson back then. “They increase an individual’s economic freedom and allow people to keep more of their own hard-earned money. While permanent tax cuts are the best stimulus, even a temporary income tax cut would improve individual incentives and produce higher economic growth than wasteful, ill-directed spending.”

And in 2012, Robson and Ergas were commissioned by the new Baillieu government in Victoria to write a paper on state fiscal policy in an economic downturn, in which they argued that the Victorian government shouldn’t bother trying to stimulate its economy in the event of a recession. Just sit back and watch the mayhem unfold, apparently (fortunately Barry O’Farrell and his successor Mike Baird in NSW ignored such scorched-earth economics and directed state government stimulus of infrastructure and home building, turning the worst-performing major state economy five years ago into the best performer this year).

Increasing infrastructure spending is now accepted as one of the best ways to stimulate activity in the economy: the Reserve Bank has been calling for more in Australia for the past two years, and the International Monetary Fund has recently joined it; even the Abbott-Hockey government, despite its failure on infrastructure investment, argued it was an important tool of economic stimulus. Individuals’ economic freedom is great, but handing tax cuts to voters doesn’t get new roads, bridges or ports built, doesn’t provide critical infrastructure that will help business grow and employ Australians, doesn’t provide the schools and universities that generate a high-skilled workforce.

But the real irony is that Robson is now adviser to a PM whose government is spending nearly as much as the Rudd government temporarily did in 2009 as a proportion of GDP (stay tuned for the update in Mid-year Economic and Fiscal Outlook next month, which will probably show the government is now spending above 26% of GDP) in order to support a tepid economy. Will Robson offer the same scorched-earth fiscal advice to Turnbull now?

Not, of course, that we’d ever suggest Turnbull doesn’t have the best track record on whom he takes advice from. That would be a Greched thing to suggest.

Peter Fray

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