It must have been an extraordinary series of frontbench and party-room meetings that led to the Opposition’s decision to oppose Kevin Rudd’s $42 billion stimulus package.
This is "courageous" politics of an extreme kind, and it’s not immediately apparent the senior Coalition leadership have fully apprehended the risks they face in taking this tack. It doesn’t help that their leadership is looking increasingly out of its depth, with Julie Bishop as Shadow Treasurer the best example.
Last week, Bishop managed to confuse and then amuse Australia’s economists with her incoherent presentation of the discredited "Laffer curve" theory, the one that says reducing taxes leads to higher growth and therefore more government tax revenue. It’s the part of the doctrine that sends a class of bored kids to sleep in Ferris Bueller’s Day Off as "voodoo economics" and its adherents include Dick "deficits don’t matter" Cheney. Unfortunately, most serious economists agree that cutting taxes has negative impacts on the budget bottom line.
But there is a sense in which Dick Cheney has a point just now. With the current Nobel Laureate for Economics just happening to be a Keynesian social democrat and left of centre governments in electoral and ideological ascendancy in much of what used to be called the "free world", deficit spending is being thrown at the problem of slumping demand. With interest rate cuts simply not producing their customary upswing in confidence, deficit spending is suddenly not as horribly unpopular as it used to be.
But why would the senior Coalition leadership choose this issue to take on Kevin Rudd? It appears to be a policy that’s driven more by internal Liberal Party machinations than political common sense, as Turnbull sides with the economic dries of his party. The hard right of the Liberal Party is apparently unable to watch on in silence as Kevin Rudd embarks on what is — by his own admission — the biggest public spending program by an Australian Commonwealth since World War II.
The problem is that neither the economics nor the politics of the Coalition’s stance make sense for Turnbull.
In terms of the Parliamentary politics of the issue, the Opposition can’t even block this bill in the Senate. Although this morning’s vote by the minor players to send the stimulus package to committee means it will be delayed by a week and no doubt heavily amended, no-one seriously expects The Greens, Xenophon or Fielding to vote it down next week. In other words, the Opposition’s stand on principle will have been symbolic at best.
The idea that consumers will spend more of a one-off $950 lump sum than they will if presented with a $20 a week tax cut seems like common sense. Even if there are many economists in the US who are prepared to question the logic of fiscal stimulus, there seem to be few so inclined in Australia. In any case, economically speaking, the doctrines of neo-liberalism and Chicago University-style economics that underpin the views of stimulus sceptics have taken a significant battering in recent months, and libertarians horrified by unprecedented government spending are finding few prepared to listen just now.
The Opposition’s new-found fiscal rectitude would be a much more credible pitch if the Liberal and National Parties had performed better on that measure when in government. This is the Coalition that gave us the Baby Bonus, the Regional Partnerships Program, the flagpoles in schools program, Super Seasprite helicopters, vast extra spending on defence and the AFP — not to mention more worthy but none-the-less stimulatory policies like Peter Costello’s many tax cuts, the one-off pensions bonus and Family Benefits A and B.
The Coalition under John Howard also never worried about ramming complex legislation through both houses of Parliament, a deplorable practice that Labor has disappointingly but unsurprisingly continued.
For the ordinary public, the economics of an extra $950 is pretty clear-cut. For those who have lost their jobs, it will be a real plus, and even for those still in the workforce it’s likely that much of the money will flow through to the rest of the economy, even if it’s simply in the form of utility bills, school uniforms and credit-card repayments which free up spending in a few months’ time.
But really, this is Malcolm Tunrbull’s opportunity to make a success or a disaster of his own stint as Opposition Leader, and he appears to have juggled and dropped the catch. Kevin Rudd was no doubt hoping (perhaps even praying) for a gift like this from the Opposition. It’s a beginner’s mistake, as many commentators have observed, and it’s terrible politics for the Coalition at the very time when they had most to gain from embracing bipartisanship.
After all, according to the polls, the tactics so far are obviously failing.
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