Sorry Economics, He's Just Not That Into You


All of a sudden, Tony Abbott and the Coalition find themselves on the back foot. It’s a stance you sense Abbott doesn’t enjoy too much.

It should have been a triumphant week for the Opposition Leader. After all, he has just completed a personal athletic goal in finishing an Iron Man triathlon, something that most of us can admire, if from the sidelines. At his age and given the demands of his job, it’s a rare instance of one of our political leaders truly living up to that empty phrase, "positive role model".

Unfortunately, as Abbott himself admitted this week, peak physical fitness doesn’t make the demands of his job any less onerous. Tuesday’s Newspoll showed Labor clawing back all the gains made by the Coalition this year, with Labor now back to 56–44 on two-party preferred terms. It’s Labor’s best Newspoll this year. The other two major pollsters, Essential and Morgan, show broadly similar results. It’s therefore becoming harder and harder to deny the reality of the Government’s comfortable lead.

This has contributed to an inflection in media commentary about the Opposition. Only a few weeks ago, commentary was mainly running Abbott’s way. Now things have turned, and the focus is back on the Opposition’s flaky front bench and lack of policy development. Right on cue, Barnaby Joyce stuck his foot in his mouth again, declaring that he uses the Productivity Commission’s various reports as "toilet paper".

For its part, the Government has cleverly used Abbott’s Triathlon triumph as a stick with which to beat him, arguing that he should be spending more time on policy and less on sport. It’s a slightly unfair jibe — politicians, like the rest of us should be able to do what they like on their days off — but it has gained traction in the media, if only because the Coalition’s policy platform is still so thin. And the lack of a positive policy on health hurt Abbott in his leader’s debate with Rudd.

All this explains the context around Tony Abbott’s so-called "Headland Speech" on "economic fundamentals" delivered to the Leader’s Forum in Sydney this week. The strange coastal title refers to similar speeches given in opposition by John Howard, but the intent of this speech was quite clear: to establish Abbott’s policy bona fides, and to try and silence the critics who question his grasp of the "economic fundamentals".

Abbott’s speech on the economy was well-written and delivered with his customary confidence. There are even quotes from famous economists like John Maynard Keynes. But it contained little in the way of new ideas or concrete policies.

Instead, the speech was largely a laundry list of Labor’s failings — and of Abbott’s achievements as employment and health minster. The result was that most in the media merely reported the only new thing in the speech — Abbott’s announcement that he may end up supporting Kevin Rudd’s hospitals policy after all.

It’s worth looking at the speech in more detail, however, if only for what it tells us about the Opposition Leader. Sadly, when Abbott does turn to economics, he only reinforces the impression that he knows little about it.

There is his customary, reflexive dislike of public spending (exactly what Keynes warned governments against), and a long jeremiad about the evil waste of Labor’s stimulus package. This allows him some punchy one-liners ("installing insulation only to rip it out notionally constitutes economic activity but is actually a parody of productive work"), but scarcely constitutes anything substantial.

One of the strangest misconceptions of Tony Abbott’s economic philosophy is that Australia suffers from a public debt problem.

Abbott states that "the over-riding economic goal of the next Coalition government will be to return the budget to surplus and to pay off Labor’s debt." Even for a Liberal government, that’s quite a strange goal to advance as the nation’s top economic priority. Abbott is effectively saying that paying down debt will be more important than reducing unemployment, increasing exports, reducing regulations and cutting red-tape, investing in public infrastructure, funding public services, decarbonising the economy — or any other economic policy the Coalition might advance.

The fact is that Australia does not face a public debt crisis. Far from it: Australia is one of the most solvent countries in the world. As the Treasury’s Mid-Year Economic and Fiscal Outlook states, "Net debt is expected to peak at 10 per cent of GDP ($153.2 billion) in 2013–14 and fall to 2.2 per cent of GDP ($45.4 billion) by 2019–20."  In contrast, the IMF’s deputy managing director, John Lipsky, recently warned that all G7 countries except Canada and Germany would have debt ratios close to or above 100 per cent of their GDP by 2014.

Of course, some credit for Australia’s low public debt should be attributed to the Howard government, and particularly to Peter Costello as treasurer. Much more credit, however, should be granted to the long boom of the 2000s, which showered the federal government in tax revenue. But John Howard’s government also achieved its fiscal discipline by starving crucial sectors of the economy of federal investment, such as higher education, urban public transport and health and hospital funding.

Abbott also gets tangled up on the issue of the stimulus itself. As nearly everyone — except the Opposition — now admits, the stimulus package was the difference between a severe recession and the mild downturn Australia actually experienced.

Abbott admits as much himself at the beginning of his speech, when he quotes Keynes’ famous line about the treasury filling up old bottles with banknotes. As those acquainted with Keynes’ work will know, the British economist was in fact arguing for exactly the sort of fiscal stimulus package as that implemented by the Rudd Government.

Abbott doesn’t seem to grasp this. Instead, he uses the quote as a way to introduce his claims about Labor’s wasteful spending. Then, later in his speech, he goes on to argue the stimulus wasn’t needed at all. In a breathtakingly twisted piece of logic, the Opposition Leader appears to believe that the very fact Australia didn’t have a recession is evidence that the stimulus package wasn’t needed.

And then there is Tony Abbott’s climate change policy, or lack thereof. As I remarked when the so-called "direct action" policy was released last year, it shows a strange lack of faith in market incentives. Abbott was at it again in this speech, claiming that "raising the price of everyday goods won’t, of itself, reduce carbon dioxide emissions but will certainly raise the cost of doing business." Abbott is effectively arguing that consumers won’t respond to higher prices by consuming less carbon. Not only does this argument fly in the face of any first-year economics textbook, it also belies recent experience. When petrol prices soared in 2008, people used their cars less. It’s not that hard to understand.

What is hard to understand is Tony Abbott’s economic philosophy.

He is against the stimulus, but in favour of Keynes. He thinks debt is a problem, when it isn’t. He is in favour of lower taxes and smaller government, but wants to implement a generous new parental leave entitlement financed by a new tax. He is in favour of economic reform, but also in favour of the Pharmacy Guild’s monopoly on selling pharmaceuticals.

Near the end of his speech, the Opposition Leader opines that "the Coalition appreciates that the Australian people are often far more interested in their communities than they are in the economy."

Perhaps Tony Abbott is far more interested in social policy than he is in economics.

Ben Eltham is New Matilda's National Affairs Correspondent.