Date: May 16 2012
FORMER Treasury secretary Ken Henry says the eurozone is highly unlikely to survive, and he never believed the troubled currency union would work.
The top economic adviser to successive governments also said it had become far more difficult for politicians to make people ''feel good'' by raising benefits, in contrast to the Howard government's challenge of how to spend the ''huge amount'' of mining boom revenue.
In a wide-ranging interview on ABC's 7.30 last night, Dr Henry revealed he had always held serious doubts about the eurozone because it allowed countries to run budgets independently of each other.
Asked if he thought it was ''almost impossible'' for the eurozone to survive because of these flaws, Dr Henry said: ''Well, that is my view. Personally, I've never seen how the euro would work. I've never seen how it could be expected to work without a genuine fiscal union.''
Echoing the criticism of other economists, he said the critical problem facing the eurozone was its failure to require wealth-sharing between member states.
''People in Australia understand that without our system of horizontal fiscal equalisation, without fiscal transfers from one state to another state, this federation would simply not hang together,'' Dr Henry said.
''People in Australia understand that, people in Europe have not understood that and they need to understand it.''
His comments come amid rising political uncertainty in Europe, which has rattled investors.
Fears that Greece may abandon the union flared again in recent days, sending the Australian dollar below $US1 on Monday for the first time since December.
But Dr Henry said if the ''worst thing happens'' in Europe, the dollar might actually climb because Australia was likely to be seen as a haven for global investors.
That was ''good news'' because it would allow Australia to finance its current account deficit, but could cause further headaches for struggling exporters.
''It would mean a higher-valued Australian dollar and that's an issue that's already causing some concern for some sectors of Australian business,'' he said.
Dr Henry was the head of Treasury for 10 years, under the Howard, Rudd and Gillard governments.
A key architect of Mr Rudd's ill-fated mining tax, Dr Henry would not be drawn on whether Australia had wasted the mining boom. However, he did contrast the ''huge amount'' of tax revenue under the Howard government with today's weak tax receipts.
''It was a challenge for the Howard government, a real challenge of what to do with it,'' he said. ''They were targeting surpluses of about 1 per cent of GDP, they were then delivering big tax cuts, big increases in family payments, not only in budgets but between budgets, and delivering surpluses of 1.5 per cent of GDP.''
Today, it was much harder for governments to make people ''feel good'' because this mining boom was raising less tax revenue.
Dr Henry also helped design Kevin Rudd's $42 billion fiscal stimulus to counter the global financial crisis. Last night he defended the package, which drove the budget into deficit.
Dr Henry said his worst fear was that Australia would be plunged into a recession and he was determined not to repeat the mistake of the early 1990s, when Treasury stood ''on the sidelines''.
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