Is it any wonder we’re struggling to stop the resurgence of economic populism and maintain a quality economic debate when people like Treasury Secretary John Fraser are key contributors?
A speech in London overnight Thursday by Treasury Secretary, John Fraser, confirms previous impressions that his mindset is still in the 1970s and 1980s when Treasury was dominated by his mentor, John Stone. Or, at least, that’s what media reports suggest — we can’t actually read the speech because our agile, innovative Treasury hasn’t bothered putting it on its website yet.
According to those reports, Fraser told a conference sponsored by Macquarie Bank that government spending must be cut, debt was growing (too) rapidly and fiscal consolidation should be a top priority. And if the public did not accept government spending cuts, Fraser believes, this will lead to higher taxes, which would slow the economy: “inappropriate tax increases can distort economic incentives and lower international competitiveness and that has negative consequences for investments, growth and jobs creation,” he said. “We cannot, we believe, continue to finance recurrent expenditure by increasing debt.”
Remember that this is coming from the department that wants to exacerbate our fiscal problems with a mammoth company tax cut, and which seriously proposed dealing with multinational tax avoidance by cutting the rate so that the amount being lost to tax dodging would fall. Fraser’s logic is the classic “starve the beast” approach of US small government groups — cut taxes to erode revenue, thereby forcing governments to cut public spending — which tends to flow to low-income earners. Alas, Fraser doesn’t appear to have nominated any areas of spending that he’d particularly like to see cut — perhaps they’re to be found in the actual text of his speech, should it ever appear.
Fraser’s remarks stand in stark contrast to the view recently put by Glenn Stevens, outgoing governor at the Reserve Bank, in his discussion of the challenges of fiscal policy. In his final major speech last month, Stevens called for a smarter approach to the issue of deficit spending and debt, both in relation to infrastructure and private debt.
“I am not advocating an increase in deficit financing of day-to-day government spending. The case for governments being prepared to borrow for the right investment assets — long-lived assets that yield an economic return — does not extend to borrowing to pay pensions, welfare and routine government expenses, other than under the most exceptional circumstances. It remains the case that, over time, the gap in the recurrent budget has to be closed … The point I am trying to inject here is simply that popular debate in Australia about government debt and how we limit or reduce it seems so often to be conducted while largely ignoring the size of private debt … the way ahead is going to have to involve a rather more nuanced consideration of all these issues.”
Fraser, it seems, doesn’t do nuance, just a fire-and-brimstone warning that a reckoning is coming for an indulgent populace enjoying $8.50 meat pies at sporting events, untroubled by rampant government spending.
If Fraser appears more comfortable adopting the sort of fiscal disciplinarian rhetoric of yesteryear, business leader Harold Mitchell today offered his own back-to-the-’70s routine by lecturing workers for taking too many days off. “I question whether Australians should be having the days off that we do. Our economy is not doing well, despite what people say. We need to be working harder,” he reckons. “Asia is a 24-hour economy without any RDOs.” (Presumably for Mitchell “Asia” is one vast economic monolith.)
If you were around in the ’70s and ’80s, this would be familiar stuff — business leaders eternally lecturing Australians about how slack we all were compared to the industrious masses of Asia. Eventually, even the most rabid business leaders gave up on such rhetoric though, perhaps because we began to see how ridiculous it was — Australian workers became so reluctant to take leave entitlements that the tourism industry began complaining; last year Australians had over 120 million leave days sitting on their employers’ books. And the productivity of Australian workers has also been the strongest growing in the OECD in recent years — something confirmed by this week’s national accounts, which showed labour productivity growth up over 2015-16.
The common theme between Mitchell and Fraser is of complacent Australians too busy enjoying our apparent prosperity to see the need to slash spending and save up even more leave than they already have. Do they actually think this is going to provide a robust response to the cheap populism that now threatens the successful market economy we’ve built over the last 30 years?