It’s a miserable start to an election year when both sides of politics have already effectively ruled out doing anything substantial to help ease the transition from a reliance on commodities investment for economic growth. Such is the cost of worshipping the surplus god above all.
It might explain why a growing list of past and present Reserve Bank board members are telling Wayne Swan and Joe Hockey that their fiscal mantra is wrong, that stimulating the economy can’t just be left to the RBA.
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Michael Pascoe: Surplus worship
Australia is back to work, the children are back to school and the politicians are back in the sandpit.
Present RBA board members Heather Ridout and John Edwards and past members Warwick McKibbin, Bob Gregory and Bernie Fraser have been quoted in various places in recent days more or less recommending that the federal government seize the opportunity to borrow at low rates to invest in civil infrastructure. They’ve effectively demonstrated how ideologically hidebound our big-picture politics have become, strapped to the surplus mast.
The RBA types are flying in the face of the orthodoxy presented by Treasury Secretary Martin Parkinson, presenting the government’s line, and the Abbott/Hockey show over the weekend.
Labor and the Coalition wedging each other over the political prize of some sort of surplus means both sides are precluding the suggested infrastructure stimulus. The impact of this bi-partisan positioning is to leave responsibility for economic growth rate to the RBA and its single blunt instrument.
That’s fine when the economy is motoring along without any particular challenge, but it has severe limitations when the road gets rough. Swan and Hockey are both promising the government will keep its foot on the economic brake despite the RBA’s foot on the accelerator not having much effect.
The last time there was such a disconnect between monetary and fiscal policy was in the final term of the Howard/Costello government continuing in the first Rudd/Swan budget. Then it was the RBA hitting the brakes while the treasurers of the day piled on the fuel of tax cuts, middle-class welfare, sundry handouts and whatever else they could think of to buy votes. The result was the nation hurtling towards a hard RBA-induced landing, only “saved” by the GFC.
The RBA board members of course are speaking as individuals and don’t claim to represent the official RBA view – it’s not the RBA’s remit to tell the government how to do its job, at least not publicly – but you have to begin to wonder when so many people with experience of monetary and fiscal interaction feel the need to speak out. And the public sector’s negative impact on demand has become a regular mention in the board minutes and speeches by the mandarins.
What makes this rather important split between RBA board member thinking and the policy of Labor and Liberal parties worse is that we’re in for several months of politicians raising conflicting expectations in the electorate without being able to deliver anything that really counts to maintain growth over the next term.
Fiscal rectitude – getting back to surplus – remains the bi-partisan given. Add the escalating political promises and there’s no room for what the RBA board members are suggesting.
That was reinforced over the weekend in the latest chapter of what will have been a three-year election saga. Despite the sloth that should be observed over the Australian Day long weekend, natural disaster victims and emergency workers excepted, Tony Abbott chose Sunday to officially launch more of the same. This promises to be a very long year in politics.
Not surprisingly, there was nothing much in Sunday’s show - the usual cut and abolish taxes, boost productivity, enhance border security, increase defence spending and make paid parental leave much more generous. And spare me rhetoric about cutting red tape and lifting productivity – they all say that and neither can be easily achieved.
That was followed on Monday by shadow treasurer Joe Hockey reaffirming allegiance to the surplus. “Our commitment is emphatic,” Hockey told ABC radio. “Based on the numbers published today we will deliver a surplus in our first year and every year after that.”
No, it doesn’t add up, just as Labor’s announced fiscal aspirations don’t mesh with implementing the NDIS and Gonski reforms. There’s stuff neither side is telling us. Or they’re lying. Or they really don’t know. And there’s always option D: all of the above.
Swan at least says the government will think about how infrastructure might be funded. Hockey is still talking about waste of the last war, Pink Batts and all that.
Adding to the problem is that we’re set for another crescendo of politicians telling voters that their lives are uniformly miserable, that they deserve so much more from government and that the right vote will make everything wonderful again, just like it was in the good old days. It really isn’t that simple.
“The good old days” were when Kevin Rudd bored into people that “working families are doing it tough” as a means of defeating John Howard when the facts were that working families had never had it so good. There was no shortage of work for said families, the shortage of labour pushing up wages, the economy unsustainably bubbling on the commodities price windfall, surging debt and asset prices. The 2007 campaign might come to be seen as one of our more inane and venal – an unhealthy auction with each bid met with a “me too” from the other party, the culmination of several years of boom blown.
There are a couple of hundred thousand Australians who are worse off now than they were when Rudd was elected in November 2007 – the unemployment rate that month was 4.4 per cent and now it’s 5.4 per cent. Real estate prices aren’t soaring any more (it was a bad thing that they did) and business now is much more competitive at all levels – profits aren’t as easy to come by. Structural change, global crises and the strong dollar are all extremely challenging.
On the other hand, there are more than a million extra Australians in work, those workers and old age pensioners have seen their real disposable income rise (though many won’t believe it), property prices have stabilised and seem likely to modestly firm, the stock market is on the rise again and the world seems to be managing (though not solving) its various crises.
Keeping perspective about our economy can’t be easy – otherwise so many people wouldn’t lose it. By election day, perspective no doubt will be rarer again. Many people will be convinced that one party or the other will make their lives much better – when neither party is offering to do the basic minimum of working with the RBA instead of against in meeting the main economic challenge of the next federal term.
Michael Pascoe is a BusinessDay contributing editor.