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Date: May 16 2012
Europe's economic turmoil could turn Australia into a safe haven for global capital, former Treasury secretary Ken Henry says.
Mr Henry said the unfolding economic crisis in Europe will create large capital movements.
''It's quite possible that some of that capital will come into Australia,'' he told ABC TV.
''Australia will be seen as offering something of a safe haven.''
He said Europe's collapse would be both good and bad for Australia.
It would mean a higher valued Australian dollar, he said.
''The good news side of it is, that is possible, maybe even likely, that any capital flight associated with problems in Europe would make it easier for Australia to finance its current account deficit,'' he said.
Mr Henry said the impact of the 1990s recession on Australians underpinned the Labor government's dramatic fiscal response to the global financial crisis four years ago.
Looking back to that tumultuous period, Dr Henry praised then Labor prime minister Kevin Rudd for being ''far ahead'' on the risks facing the domestic economy.
The sub-prime lending crisis had hit in July-August 2007 and led to collapse of US investment bank Lehman Brothers in September 2008, sparking global recession fears.
''It did look like we were not going to be able to avoid recession. It did look that way,'' Dr Henry, who was Treasury secretary between 2001 and last year, told ABC TV yesterday.
Mr Rudd set about developing measures to buffer the economy and his government implemented two packages between late 2008 and early 2009 totalling about $74 billion, including around $21 billion in cash payments to taxpayers.
Dr Henry said Mr Rudd was thinking about the impact on Australians as early as February 2008.
''My brain was not in that space but it should have been,'' he added.
''That is a great credit that he was so far ahead of where the world was and a long way ahead of where Treasury was, even though we have been thinking about these issues.''
Ministers involved in the planning of the stimulus packages were well aware the government might not get much credit from the electorate for avoiding a recession, Dr Henry said.
But Dr Henry said he hoped policy makers would not avoid using stimulus again in the future if the economy needed it. ''The truth is, of course, if there had been a recession, things would have been much worse for them,'' he said. Dr Henry said he told Mr Rudd and other senior ministers there was no point in going in soft.
At the time, the department's thinking was dominated by the potential human cost of a recession.
''The point about it is what it does to people's lives, and I have lived through and seen close-hand the recession of the early 1990s and the way in which it was handled in policy terms, particularly in fiscal policy terms,'' Dr Henry said. ''That experience was seared on my brain and I was very keen that we not have a repeat performance of that.'' AAP
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