In the May 3 budget and in the public relations selling afterwards, Treasurer Scott Morrison fell back on slogans. In this case the slogan was “jobs and growth”, followed by “we have a plan”. But as Ross Gittins in The Sydney Morning Herald has pointed out, there is really no economic plan to get the budget back into surplus. The surplus is now pushed out again for years.
With no real economic plan, the government again resorts to slogans at it did at the last election — “stop the boats”, “eliminate the deficit” and “reduce the debt”. But we know from experience that the Abbott and Morrison activities did not stop the boats; it was a myth, but still believed by many. And the deficit and debt are much worse.
In my blog, Pearls and Irritations, Ian McAuley pointed out that in the post-war years only Labor treasurers, Paul Keating and Wayne Swan, have won the prestigious Euromoney Finance Minister of the Year award. Peter Costello and Joe Hockey didn’t make it.
In The Guardian on May 2, economist Stephen Koukoulas said:
“In terms of jobs, the ABS data show that average quarterly GDP growth and average monthly increases in employment are stronger when Labor has been in government compared with the Coalition. … GDP and employment growth both rise at a faster pace when Labor is in government.”
Also in Pearls and Irritations, McAuley has set out three reasons why we might be misled into believing that conservatives are better economic managers.
The first is that Labor has been in office at the wrong time. Coalition governments held office in the long boom years from 1949 to 1972 and from 1996 to 2007. Both Robert Menzies and John Howard were very lucky.
By contrast, the Whitlam government, which made many mistakes, encountered the biggest economic shocks of the post-war era — the 1973 oil embargo, the end of the Bretton Woods exchange rate arrangement and severe contraction in the US economy after the end of the Vietnam War.
The Rudd government was also unfortunate in that it was confronted by the global financial crisis, the other major post-war shock.
McAuley argues that conservatives have successfully persuaded many, including themselves that government spending is inevitably wasteful and Labor is all about taxes and spending. Yet there is much more to a successful economy than budget balance and public debt.
In world terms, Australia does not have a large government sector and Australian government revenue is modest in global terms. The most successfully managed economies in the Western world are the Nordics that have high taxation levels and high government spending.
As Ian McAuley also points out, there is, thirdly, an assumption that rich people are clever and therefore better managers. Some clever people may be good managers but many rich people have the benefit of inheritance. Other rich people like developers, are able to manipulate governments to obtain concessions, but they don’t show much ability to compete in an open market without government support.
As John Maynard Keynes reminded us, we need to distinguish between speculators and business persons who really make things. He might have had people like Malcolm Turnbull in mind. When Malcolm really had a business management job — the NBN — he failed badly.
My view is that the big and beneficial changes that have set the Australian economy up in the post-war years were initiated by Labor governments: the Curtin and Chifley governments, and the Hawke and Keating governments.
The former guided Australia out of the depression of the ’30s and the destruction of WWII into full employment and economic growth. The Hawke and Keating governments laid the basis for almost three decades of uninterrupted economic growth.
The Whitlam government clearly had problems, some of which I saw at first hand: too much spending and too many government supported wage claims. There was a poisonous relationship between the government and Treasury. Both sides were at fault.
The Whitlam government did, however, set Australia on the path to freer trade with a 25% across-the-board cut in tariffs. It refused to bow to the Department of Defence and knocked back the Navy’s plan for locally designed and built light destroyers. It chose instead to buy off-the-shelf frigates from the US. The Department of Defence went into quite a sulk.
Bill Hayden was getting the budget back into shape in 1975 but the improved economic performance was cut short by the Dismissal.
The Fraser government’s economies performance was poor as both John Howard and John Hewson have told us. The Fraser government was the most protectionist in history — although Malcolm Turnbull may surpass him with the extraordinary French submarine deal.
Malcolm Fraser said “we will give industry the protection it needs”. The effective rate of protection of the car industry rose from a high of 54% in 1974-75 to a peak of 143% 10 years later. The effective rate of protection for the textile clothing and footwear industries peaked in 1984-85 at 250%.
The Hawke and Keating governments were undoubtedly the most successful economic managers we have had. Among other things, they floated the dollar, reduced protection, broke the wage spiral with a wages accord, introduced the concept of a social wage and broke down a centralised wage-fixing system.
The political problem for the government at the time was the “recession we had to have” and record-high interest rates. But successful economic management reform was the hallmark of the Hawke-Keating governments.
The Howard-Costello government’s economic performance was poor despite John Howard grasping the nettle of the GST. The world economy and the mining boom gave the Howard-Costello governments an easy ride. But Peter Costello left us with more serious structural problems like no other treasurer has bequeathed. He was described by the IMF as “the most profligate Treasurer in 50 years”. This view was shared by the Australian Treasury and the Reserve Bank.
Peter Costello did achieve a brief budget surplus, but he squandered the mining boom with locked-in and permanent tax cuts in response to a temporary increase in revenue. There were eight tax cuts in a row. He cut tax on capital gains by half. He made income from superannuation entirely tax free. With John Howard, he handed out billions of dollars in middle-class welfare; money was being shovelled out both the front and back door as if there was no tomorrow.
Costello was true to his ideological bent. For ideological reasons he wanted to reshape the Australian economy by shrinking the public sector. The best way to “starve the government beast” he believed was to reduce government revenue so that, in future, governments would have to contract government spending in areas such as health and education. We are still paying for the Costello legacy and profligacy.
The Rudd-Swan government, at a critical junction with the GFC, handled it extremely well. Australia was about the only advanced economy that avoided recession. Wayne Swann received international plaudits but was unable to explain his success at home. That success was obscured by the campaign of Tony Abbott with his slogans and the Murdoch media who picked holes in programs such as pink batts and the capital funding of schools. That economic success was also obscured by the political division between Rudd and Gillard.
Swan also failed in his latter years to effectively bring the budget back into surplus. The Mining Super Profits Tax was good policy but in the face of a media blitz by the mining industry — mainly foreign-owned — the government failed to communicate the case for such a tax.
*Read the rest at John Menadue’s Pearls and Irritations