Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

The contribution by the Deputy Leader of the Opposition in this matter of public importance shows that, despite their rhetoric, the opposition are determined to put cheap political point-scoring and economic sophistry in front of good economic management. Everywhere around the world since the 1930s it has been an accepted economic given that at times when there is downward pressure on economic growth, at times of economic downturn, you can put a stimulus into the economy by government expenditure. Not only is it accepted that that is a reasonable approach but it is accepted that that is a responsible approach—accepted by all apparently except those opposite, the Leader of the Opposition and the Deputy Leader of the Opposition, as they attempt to emulate Herbert Hoover and say, ‘All we need is more surpluses and everything will be okay.’ Whatever the question, their answer is the same: surplus. What we have said and what the Prime Minister has said very clearly, despite the mischaracterisation by the Deputy Leader of the Opposition, is that, while our projection is for a surplus, a deficit may be necessary to ensure robust growth next year.

Yesterday the MPI was all about jobs. The opposition proposed an MPI saying the government does not care about jobs. And today the surplus is paramount. The inconsistency and illogicality of those two arguments seem to escape those opposite. Yesterday they said, ‘Where is your plan for jobs?’ and today they say, ‘How dare you have a plan for jobs which involves a stimulus to the economy.’ The hypocrisy and inconsistency is breathtaking. Even if the situation deteriorates further around the world, even if there is upward pressure on unemployment, the view of those opposite apparently is: the surplus must be defended at all costs.

How does this neoclassical, anti-Keynesian view of the world compare to the serious views of economic commentators around the world? Let us start with the managing director of a little organisation called the IMF. This is what Dominique Strauss-Kahn had to say recently:

If there has ever been a time in modern economic history when fiscal policy and a fiscal stimulus should be used, it’s now.

And John Lipsky, the First Deputy Managing Director of the IMF—and this is a particularly interesting contribution—last week said:

It is appropriate, therefore, that fiscal expansion will play a central role in helping to sustain domestic demand.

He went on to say:

Any fiscal stimulus should be timely in its impact, as the need to cushion demand is immediate. As a result, innovative measures could be helpful. For example, measures to support low-income households would be particularly helpful in boosting demand, and would be targeted at those most in need.

That is a pretty good endorsement of the Rudd government’s approach from the IMF, I would have thought. It is not only every credible economic commentator around the world saying this. Let us go to some Australian economic commentators. Let us start with the most respected of them all because of his office, the Governor of the Reserve Bank. Mr Stevens has this to say:

… if governments are able to so order their affairs as to continue supporting worthwhile … investment, even if that involves some prudent borrowing, then Australia will come through the present period.

…            …            …

If we see governments at state level or federal level pull back from worthwhile things because of the budget balance deteriorating which it is going to do in this environment that is not stabilising. That is potentially destabilising.

What a disendorsement of the opposition’s point of view from the Reserve Bank.

Let us have a look at some economists. Chris Richardson from Access Economics said:

We should not fear a deficit. That would be a mistake.

He said of the government on a different occasion:

… I would like to see them do more, more of exactly what they’ve already done with the stabilisation package. That’s good spending, because it’s temporary and it’s targeted and it’s rolled out in time to help protect us against recession. The Government could do more like that. You don’t want deficits to become a habit, but right now they would help, not hurt.

Let us go on to Access Economics. They had this to say:

We support the government’s $10.4 billion package and would make the wider point that Australia should not be scared of a deficit in the next couple of years. Australia’s government has the ability to help the economy fend off tough times and it can assist the Reserve Bank in that endeavour.

The list goes on. Stephen Koukoulas of TD Securities said:

In this context, it is important for the current Rudd government to jettison the idea that the Budget must stay in surplus—even in a recession …

…            …            …

If indeed, the economy is as bad as it looks, embrace a Budget deficit, spend up to limit the inevitable human misery that a recession inevitably brings and manage fiscal policy in a counter cyclical way.

Bill Evans from Westpac said that it would be entirely appropriate to move the budget modestly into deficit. Saul Eslake from ANZ said:

The time is rapidly approaching when it would be appropriate for the Government to push the budget into deficit as a result of deliberate policy decisions rather than deteriorating economic conditions.

The Australian Financial Review, that well-known journal of socialism, said in its editorial:

… Mr Tumbull’s opposition to budget deficits is only pandering to opinion polls that show an understandable but ill-considered concern about deficits in the community. He should not be ruling anything out with the economy facing its biggest negative shock in decades.

Perhaps the most conservative economic commentator in the country, Terry McCrann, not traditionally somebody who supports the policies of this government, said:

More pointedly we should want it to go into deficit—to provide some further boost, along with lower interest rates, to a slowing economy.

There we have every economic commentator in the country saying it would be irresponsible for the government to rule out a budget deficit. As I say, we have indicated that, should the circumstances deteriorate further, a budget deficit may be the appropriate response.

Of course, there have been budget deficits before. I note that the Leader of the Opposition was asked about this on Steve Price’s show this morning. He was asked about the the last federal budget deficit in Australia, which happened to be in 2001. The Treasurer at that time was our old friend, the member for Higgins. The Leader of the Opposition was asked to explain that deficit. He said, ‘There was also the GST as part of that. That was rather a special context.’ So apparently budget deficits are okay some of the time when there is a special context. I am not sure what the biggest global financial crisis since the Great Depression is if it is not a special context. What we are seeing is inconsistency and double standards from the opposition. That deficit was not actually mainly a result of the GST, in fairness. It was a result of the dotcom crash, a very big dislocation in the world financial markets—although, not as big as the dislocation we are going through at the moment.

As I say, it is a well-respected economic approach for governments in times of downturn and downward pressure on economic growth to have an expansionary budget. But in the boom times they should perhaps have a contractionary budget. Of course, the previous government governed through the times of the commodity boom. Their approach was, ‘We can spend our way out of this boom no problems.’

Let us have a look at what some of the economic commentators think about the previous government’s spending record. They lecture us about financial rectitude; let us hear a bit about their record. Again, Mr Koukoulas of TD Securities argued this a couple of days ago:

The current economy circumstances bring into focus the inept, short-sighted and hopelessly misguided handling of the economy in the final years of Howard and Costello government.

He went on to say:

In the period from about 2003-2004—

This is good—

Howard and Costello were continually surprised by the size of the budget surplus as the economy boomed on the back of a once in a century surge in national income from the staggering strength in commodity prices and remarkable growth in Australia’s major trading partners.

Instead of saving for a rainy day or building war chest of money for when this bubble burst … they spent the windfall fiscal gains like drunken sailors, which fuelled a surge in inflation, which in turn caused the RBA to hike rates aggressively, which in turn is one reason why Australia is so vulnerable now to the global slow down. Right now, the near certain collapse of the terms of trade and the risk of a deep recession are not helped by this past profligacy.

I wish he had made his views are bit clearer; I am not really sure what he meant!

We do have others to rely on as well. Access Economics recently provided commentary on the previous government’s spending record. Unfortunately, Madam Deputy Speaker, I cannot repeat what they said because I am a gentleman and it would be most unparliamentary to repeat their language and I would not disrespect your office by trying. Suffice it to say, it is on the public record and honourable members can look it up. It is not just them. Let us have a look at Stephen Anthony, a former very senior official of the Australian Treasury and the Australian department of finance. This is what he had to say about the tax-and-spend Liberals who sit opposite. He said:

Unfortunately, the Howard government lost its way from 2004. When the China boom arrived with soaring commodity prices there was no offsetting tightening in fiscal settings to ‘bank’ windfall revenue gains from mining. The drunken sailors pillaged the budget for political ex-ped-iency and produced a structural deterior-ation in the bottom line.

Pretty clear. He went on to say:

The huge spending injection coincided with the further upturn in the business cycle. Blind Freddy knew inflation would be the result.

There we see not only every serious economic commentator in the country endorsing our result but those same respected serious economic commentators condemming the approach of those opposite without reservation, saying in effect, ‘God forbid the day they ever return to the Treasury benches.’ So they should not come in here and lecture us on fiscal rectitude.

What we have now is a situation in which they, who spent like drunken sailors and who let the situation get out of control, say, ‘There must be a surplus at all costs and you can’t let those nasty socialists get their hands on the surplus because they might spend it with the terrible aim of keeping unemployment as low as possible and economic growth as high as possible.’ What inconsistency.

They say that Australia should ignore the rest of the world. Last night, the European Union recommended to its member states a stimulus package of 1.5 per cent of GDP when already many European countries have deficits approaching three per cent of their GDP. An economic stimulus package in the United States is not only being proposed by President-elect Obama but also being delivered by President Bush. There are economic stimulus packages around the world which have not taken budgets from surplus into deficit but which have significantly increased the size of deficits around the world.

But those opposite have the view that we should wait and we should not flag to the Australian people in an upfront and honest way that next year a deficit may be the appropriate response. They say that we should just sit tight, hold our nerve and defend the surplus against all comers. What an irresponsible point of view. They say that we should wait. I am not sure what for. For the unemployment rate to go up? Maybe for the economic growth rate to go down. Maybe we should wait until it is too late. We have taken a different approach. They do not like to hear it, but we are going to keep reminding them: we like to be decisive; we like to be ahead of the curve. We say: ‘We’re not going to wait for the worst to happen; we’re going to avoid, if we possibly can, the worst happening. We’re going to use our judgement and stimulate the economy where possible with every lever at our disposal.’

The Reserve Bank have indicated that they are more than happy to stimulate the economy, but around the world reserve banks have indicated that it is not enough. Governments have to do the same thing. Governments have to have fiscal policy working in the same direction as monetary policy. I know that that is a concept honourable members opposite have difficulty in coming to terms with. They do not believe that the federal government should use their budget to help the Reserve Bank do their job; they think that the federal government should make the Reserve Bank’s job harder.

The Governor of the Reserve Bank in this country has indicated on more than one occasion that it is useful when the government of the day indicates that fiscal policy will be used in the same direction as monetary policy. That is the responsible thing to do. That is what you do if you want to keep unemployment low; that is what you do if you want to create jobs; that is what you do if you want to promote economic growth in the most difficult circumstances any government has faced since the Great Depression.

There are signs that the world economic situation is deteriorating even further. We stand ready to respond, as we need to responsibly do the right thing. We stand ready. Those opposite stand ready to reject what is common sense and what is obvious to every economic commentator in Australia and around the world.

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