For both Labor and the Coalition, economic policy poses plenty of opportunities.
For Labor, the economy remains the Government’s potential strong suit: one the few areas of public policy where voters grudgingly admit it is doing a decent job. Labor’s efforts to see the country through the worst of the GFC with only one quarter of negative growth may not win it too many plaudits in the community — Labor in fact still trails the Opposition in poll figures on questions about which party is best at managing the economy — but compared to the unpopularity of issues such as asylum seekers and the carbon tax, the Government at least sees the economy as favourable territory in which to manoeuvre.
For the Coalition, the economy is similarly conducive terrain. The last recession in this country was under Paul Keating in the early 1990s. Since then the country has enjoyed a long boom that coincided with most of John Howard’s reign. We can never be sure exactly why, but perhaps this is the reason the conservative parties enjoy a natural advantage with voters, who seem automatically prepared to believe that the Liberal Party in particular is a better manager of the economy that spendthrift Labor.
Labor has been dealt a rather more tricky hand of cards than the Coalition thanks to external economic events. Sure, the Coalition navigated the Asian financial crisis of 1998 and the bursting of the dotcom bubble in 2011, but neither can really compare to the worst economic downturn in the northern hemisphere since the 1930s. That’s what confronted Labor in September 2008, only 10 months after John Howard was thrown out of office. The turbulent and unsettling years following 2008 have seemed very different to the sunny years of the mid-2000s.
The actions that the Rudd government took in response to the GFC in late 2008 and early 2009 form the backdrop to the current economic debate. Simply put, that response was a triumph of pragmatic economic policy-making. Australia went hard and early with fiscal stimulus accompanied by a big drop in interest rates. This pumped money into the economy at a time when consumers could have been frightened into putting away their credit cards. It also helped strugglers in the mortgage belt with a windfall reduction in their fortnightly mortgage repayments. Despite some significant corporate failures from over-leveraged companies like Centro and Babcock and Brown, Australia didn’t see a massive wave of corporate insolvency, and the fiscal stimulus took up the slack of falling private investment. As a result, unlike most of the western world, Australian aggregate demand therefore held up, and the country stayed out of recession.
To do all this, the government had to engage is some good old fashioned Keynesian deficit spending. The stimulus package amounted to roughly 2 per cent of GDP, and made a huge impact at the time when it was needed most. Indeed, contrary to the criticisms that the stimulus would take too long to roll out, the stimulus appears to have been almost perfectly timed, tapering off over the course of a couple of years while the rest of the economy is by no means going gangbusters. But it meant that the government borrowed money. And for many people, government debt is always a bad thing.
The textbook response to the incipient economic downturn proved a difficult task for Labor to explain politically. Borrowing modest amounts of money has had absolutely no impact on Australia’s credit-worthiness or bond yields, but it has provided the most politically effective line of attack for the Opposition. As Alan Kohler pointed out yesterday, the political orthodoxy in Australia has settled around the notion of a budget surplus as the measure of good economic policy-making. For many in the community, the Coalition’s line that Labor simply can’t stop spending is a potent one.
Unfortunately for Labor, even if the claim isn’t true, it’s proving hard to convince the electorate that it is fiscally responsible. Australia is actually not a high-taxing, high-spending country by any international measure. If you rank us in the OECD on things like overall tax levels and share of government as a proportion of GDP, we’re down towards the bottom. One of the key reasons is the stinginess of Australia’s social safety net. Australia’s welfare payments are in the main very targeted (Family Tax Benefits notwithstanding) and they are paid at miserly rates: just look how the dole has not kept up with rising costs of living in recent years.
But over the term of the Rudd-Gillard Government, the Coalition’s attacks against Labor’s so-called "waste and mismanagement" have been very effective. The home insulation fiasco certainly helped, but even a very good policy, the school halls program (or the "Building the Education Revolution", to give it is full Orwellian name), came to be seen by the general public as expensive and not very effective.
Because of this, Labor has a credibility problem when it comes to selling its economic policy successes. The Government is returning the budget to surplus faster than at any other time in modern history, a program of tight budgeting and various efficiency dividends aimed at returning some — any! — kind of stimulus for the May budget. This is actually hurting the rest of the economy, at a time when consumers are saving and not spending, retailing and manufacturing are struggling, and the expected extra interest rate cut from the Reserve Bank has not materialised. Managing the multi-speed economy is difficult enough. Explaining it to ordinary voters is even tougher.
But if the economy poses risks for Labor, it poses equal perils for the Opposition.
The Coalition has some real issues of its own with fiscal credibility. After enjoying the marvellous resources of the Treasury for 11 years, Coalition politicians were unprepared for the slim resources of the opposition benches. They have struggled to adequately cost their proposed policies since losing office.
Their nadir of dodgy accounting was the 2010 election, when Joe Hockey and Andrew Robb flailed in response to perfectly reasonable questions about how much Tony Abbott’s various promises would cost. Refusing to submit their costings to the Treasury until 48 hours before voting day, the Coalition instead relied on auditors WHK Howarth, who were later fined by Institute of Chartered Accountants after being found to have breached professional standards by signing off on the cooked books. Worse, when the figures finally came back from Treasury, it turned out Robb and Hockey had indeed got their sums wrong — to the tune of billions.
You would have thought that chastening experience would have prompted the Coalition to be a bit more careful when making various claims about spending and savings. But no. This week, Robb was again flubbing his lines about when, and whether, the Coalition would return a surplus. It doesn’t matter that Robb was making an entirely sensible point, in response to a hypothetical question, that he’d like to wait to see what the true situation before committing; "there is so much uncertainty around the numbers," he was reported saying. The problem here is that Joe Hockey has been telling anyone who will listen that the Coalition will of course return a surplus bigger than Labor’s, any time, anywhere, no questions asked, so the two key spokespeople were not quite reading from the same play book.
As has been repeatedly demonstrated, Hockey has a tenuous grasp on economics and is liable to wander off on meaningless tangents when pressed to explain Coalition policy. There was a prime example of this on Tuesday night, when Lateline’s Emma Alberici tied Hockey in all sorts of knots as he tried to clear up the confusion about whether the Coalition plans $50 billion or $70 billion in spending cuts. Nor do Hockey’s posturings about job losses seem very consistent with his oft-repeated pledge to cut 12,000 jobs from the federal public service.
So if there were any policy area where the Government should fancy its chances to land some punches, it should be on Hockey on the economy. But there’s the rub. Wayne Swan, for all his policy nous, has not been a very effective Treasurer in political terms. The same may well be said for Penny Wong in Finance.
Hence, the battle over the economy shows every sign of petering out into a stalemate, albeit for contrasting reasons. Labor has the runs on the board in policy terms, but can’t sell its message. The Coalition can’t make its numbers add up, but still cuts through with effective slogans. Welcome to economic policy in 2012.
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