Someone Lend This Man An Economics Textbook


Budget week is drawing to a close and it’s increasingly clear that it’s been a good week for Labor all round — and that the Opposition has missed some important opportunities.

Wayne Swan’s budget lacked any Paul Keating-style "bringing home the bacon" pyrotechnics, but it appears to have played a critical role in raising the Government’s spirits. Swan’s highly competent performance on budget night — and especially defending the budget in the media afterwards — have visibly buoyed Labor, and taken some of the heat off a Prime Minister still struggling to regain his once-impregnable composure.

The robust performance of Labor’s key economics spokesmen in Swan and Lindsay Tanner has also reminded us (and perhaps the Labor backbench) that this Government boasts senior Cabinet figures with significant intellectual and economic ability. As the Financial Review‘s ever-astute Laura Tingle put it yesterday, "Labor has relied so much on Rudd’s popularity since 2007 that it was almost a shock to realise there were other people in the Government who could provide a steadying hand."

The transformation of Swan from the nervous, stage-struck novice of 2008 to the hard-hitting veteran of 2010 is all the more relevant when we compare him to the Opposition. Despite nearly 12 years in power, the Coalition’s senior leadership appears to lack any deep understanding, or even interest, in the fiscal and economic issues facing Australia.

Last night’s budget reply speech by Tony Abbott was a case in point. It was strong on rhetoric, attacking the Rudd Government’s performance on everything from school spending to pink batts to the Resource Super Profits Tax and the deficit.

As we’re coming to expect from Tony Abbott, however, it was light on policy details. Abbott announced a Coalition government would abandon the mining tax, but he didn’t adequately explain where he would find the extra billions of cost savings to offset that revenue. His biggest cost-cutting measure — shrinking public service numbers by 6000 positions — would save around a billion dollars a year, while killing off Labor’s renewable energy fund would save $650 million. Abbott didn’t even put a figure on his 25 per cent cut in government advertising, but according to media analyst Steve Allen, that figure is only around $200 million. A cut of 25 per cent raises only $50 million — chump change in a $360 billion budget.

And … there wasn’t a lot more than that, really. Abbott’s speech was a reprise of his health debate, in which strong attacks were a poor substitute for policy substance.

Economic credibility is a continuing problem for this Opposition. In the two-and-a-half years since losing office, no-one in the Coalition has been able to advance a credible alternative economic agenda — or even some decent alternative policies — let alone a David Cameron-style platform that attempts to acknowledge either the new reality post global financial crisis or the crumbling foundations of neo-classical economics.

It’s not just Abbott, who Peter Costello has revealed as once remarking he was "bored" by economics. There’s Barnaby Joyce, whose short-lived tenure as shadow Finance Minister saw him confuse millions for billions and raise quixotic fears about a US sovereign debt default.

And there’s Joe Hockey, who spent nearly the entire Howard Government in senior finance-related cabinet positions, but has been unimpressive as shadow Treasurer.

In a recent speech to Brisbane think-tank Eidos, Hockey blamed the global financial crisis on "the market-interfering role that the United States government played in actively encouraging lenders to extend loans to people who were fundamentally unable to service their debts". In other words, Hockey seems to think that risky US sub-prime lending was caused, not by the greed of US banks and mortgage lenders or the lax regulations that allowed them to get away with it, but by US housing policies encouraging home-ownership.

Not to put too fine a point on it, this is a crazy idea. The greatest market failure in 60 years was not caused by governments. It was caused by markets.

Unfortunately, the Coalition seems to have largely abandoned any connection with sound economics. Exhibit A in this sad display is the Opposition’s utter obsession with government debt. There is no doubt that too much government debt is a bad thing. It’s just that Australia has very little government debt.

A simple glance at the OECD league tables should be enough to convince any numerate person of this. Yes, we have borrowed money during this downturn. Yes, the Australian government is running a deficit. But the budget will return to surplus in three years and public debt will peak at only 6 per cent of our GDP. Compare that to the US (53 per cent in 2009) the UK (60 per cent in 2008) and Japan (164 per cent in 2007) — none of whom are in any danger of defaulting — and you can see why the debt and deficit scare is completely vacuous.

The credibility problems for the Coalition don’t stop there. Take Joe Hockey’s interview with Laurie Oakes in response to the budget. Hockey has been arguing that the budget is somehow "built on quicksand", because the Resource Super Profits Tax might lead to less mining industry investment, and therefore less tax.

Let’s leave aside for the moment the fact that the Treasury thinks the RSPT, which includes billion-dollar tax breaks for minerals exploration, will actually stimulate resource exploration and investment. What would happen if there was no RSPT at all, blowing a $9 billion hole in the budget. Would that mean the budget "is built on quicksand"? Of course not. The deficit would simply be a little larger. The RSPT represents $9 billion in a future revenue pool in excess of $350 billion.

In the interview with Oakes, Hockey attacked the Treasury projections. As Oakes pointed out, he did this last year too — arguing that there was no way the budget would get back into surplus as quickly as Treasury predicted. As we now know, the Treasury predictions were too conservative. But Hockey seems to have forgotten what he said last year, and is now attacking the Treasury projections for not being conservative enough.

But, in an election year, consistency and logic are the furthest thing from the Opposition’s mind. After all, if the Coalition really was serious about cutting government spending, there are plenty of bloated middle-class entitlement programs it could slash: negative gearing, superannuation tax perks, family tax benefits, the private health insurance rebate, federal government funding for private schools, billions of dollars worth of border security spending, and tens of billions of dollars worth of big defence acquisitions. There really is no shortage of fiscal targets for an opposition that really believes in cutting back on wasteful government spending.

But courage of that magnitude eludes Tony Abbott so far. After railing at length against the big new mining tax last night, he then reiterated his commitment to his own new tax on companies — in order to pay for the Coalition’s generous, non-means tested maternity leave policy. Like any politician, Tony Abbott likes to be able to have his cake and eat it too.

Ben Eltham is New Matilda's National Affairs Correspondent.