John Fraser’s voice. Treasury Secretary John Fraser (that’s the bloke Joe Hockey, Tony Abbott and Petra Credlin appointed to head up Treasury after they removed Martin Parkinson) popped up at the Sydney Institute (props, Gerard and Anne Henderson) last night and gave a mostly sensible speech on the budget challenges confronting this government (and the country) as we move into the preparations for the 2016-17 federal budget. The speech was full of the right stuff, with phrases such as “credible fiscal repair” and “structural reforms” and “long-term growth challenges”, “long term fiscal sustainability and stable economic growth” to quote just one of the many paragraphs. It could have been his former masters, Messrs Abbott and Hockey, speaking at times last night. But there was just one bit of the speech that grated:
“Faced with the same difficult choices that Australia now faces, many developed countries [such as the US, the UK and Ireland] have managed to undertake significant budget repair in a relatively short time. While at the same time, they have seen economic growth prosper …
“Australia’s budget position never was as bad as these countries and our economy never stopped growing. But we cannot be complacent. Expenditure restraint played a key role in all these countries in improving their fiscal situation. All that said, over the longer term, economic growth will be critical for fiscal sustainability as well as continued improvements in living standards. This will require ongoing productivity-enhancing structural reform.”
— Glenn Dyer
Some rubbery claims. Fraser underlined his point by telling his audience that if spending is not cut and brought under control, we could lose our AAA credit rating. But he makes it seem all so easy. So are his spending reference points — Ireland and the UK — as instructive as he claims they are? No, they aren’t. The reality is very different. For example, the UK Chancellor of the Exchequer George Osborne has hacked into spending and the deficit — but instead of eliminating it by 2014, as he said he would in the 2010 budget, he now claims a surplus will appear in 2019-20 (that is the third promise after a second promise of a surplus by 2018 was abandoned). And to get to its present position, the UK has drifted in and out of recession before stabilising and starting to grow in the last three years.
And then there’s Ireland. It was bailed out by the eurozone and IMF because of stupid bank lending and poor governance at the highest of levels. The spending cuts were so deep and debilitating that it forced tens of thousands of young Irish people to emigrate to countries like Australia. And much of Ireland’s rebound has been built on dodgy tax structures with multi-nationals that have helped drain tax revenues from economies like Australia’s. Fraser missed that one. A bad miss. The poor Poms also had to bail out dud banks poisoned by the private sector (dud managers, dud deals, dud assets), just like the US had to mount a US$700 billion bailout of a series of badly run banks, insurance companies, car companies and other groups as the private sector way of doing things, especially in subprime mortgages and other financial exotics, was found wanting.
There was a feeling from his speech that Fraser admires these countries for cutting spending and showing “expenditure restraint” when the reality is that it was forced upon them in the case of Ireland, and the UK because their financial systems and economies were mortally wounded by dud banks and other financial groups (and poor oversight), ditto the US and the hands off administrations of George W. Bush and his clowns. — Glenn Dyer
So why not mention Australia’s stronger growth? Australia’s economy has grown strongly since before the GFC struck (as Fraser pointed out for Ireland, the UK and US). From the year to September 2007, when GDP totalled $1.34 trillion, the Aussie economy has grown by nearly $294 billion, to total $1.63 trillion in the year to September 2015 (the latest figures). That’s growth of 22% in eight years. That’s without a recession, includes the greatest investment boom we have ever seen (and bust), without an inflationary boom, and coping with the impact of a surge in the value of the dollar to above parity with the greenback. That’s without help from the IMF, eurozone and other creditors.
This is not to say the Aussie economy is out of the woods — nor is the budget. But it would also be handy for the head of Treasury to talk about boosting revenues, while acknowledging that the revenue problems have been caused by the very successes of economies like pin up Ireland. As a former senior executive of Swiss bank, UBS, Fraser would know a lot about what happened in the GFC and the years afterwards. He at least survived UBS’s 2008 multibillion-dollar bailout by the gnomes of Zurich at the Swiss National Bank and by the state investment arm of the Singapore government and other “friends”. Australia survived by the dint of good management, governance and hard work by millions of people. That’s a big, big difference, Treasury secretary. — Glenn Dyer