Tuesday, August 17, 2010
THIS election has two economic issues. Does Labor's record in office warrant re-election? And which side offers better leadership, better policies, and a safer pair of hands for the future?
There are no easy answers. The Coalition was out of office when the global financial crisis hit: had it been in government, it would have taken a different position. The political theatre would have been reversed: the Coalition running up deficits, Labor attacking them.
The budget papers imply that in the four years of expected deficits, from 2008-09 to 2011-12, half the budget blowout was due to the financial crisis and half to the stimulus measures. Whenever pressed, the Liberals concede that deficits and debt in some measure were unavoidable.
Economists argue over what would have happened had there been a smaller stimulus, or none at all. Treasury estimates it added 2 per cent to GDP in 2009, and saved 200,000 jobs. Some others estimate a smaller bang for buck. What is clear is that without the stimulus and the bank guarantees that headed off a financial collapse Australia would have suffered a far worse downturn.
The $21 billion of handouts to households allowed many to pay down debt and others to keep retail demand rising and shops are big employers. Even the $16 billion for school buildings delivered only after Australia had begun to emerge from the crisis has played a key role in the recovery of growth and jobs since work began a year ago.
Why? Because private sector activity collapsed. In the non-residential sector excluding education approvals halved from $28 billion in 2007-08 to $14 billion in 2009-10. Bank lending to business has shrunk by $87 billion, or 11 per cent and for many companies there are no other lending sources.
Think about that. Even now, there are 150,000 more Australians out of work and 180,000 more working shorter time than before the crisis. Growth is sluggish, and GDP per head remains less than two years ago. Ask yourself: what would Australia be like now had the government not pumped all that money into new construction?
Construction is usually the epicentre of any slump: not this time. The stimulus kept the industry going. In the March quarter, 38 per cent of work on non-residential buildings was on schools and the like, up from 5 per cent before the crisis. Work also began on 4259 public housing units, more than they normally build in a year.
Without the stimulus, construction would have collapsed in 2009-10 as it did in 1990-91 when 15 per cent of construction workers lost their jobs. That's another 150,000 people unemployed, with flow-ons throughout the economy costing who knows how many more jobs.
Yes, a lot of money was wasted, and Labor has to answer for that. Brad Orgill's taskforce concluded that $1 billion was wasted from middlemen and contractors overcharging for school buildings. Probably more than that was wasted from the Rudd government's refusal to halt its foil insulation program. Even so, they saved us a much worse cost.
We will have to pay later for what we borrowed to avert a crisis. But, as Reserve Bank governor Glenn Stevens has argued, Australia's public debt is a non-issue by global standards. Our debt will peak at 6 per cent of GDP, Japan's at 154 per cent, the US at 86 per cent and even Germany 75 per cent.
By its actions, if not its rhetoric, the Coalition concedes that. It now plans to deliver a surplus in the same year as Labor, and of roughly the same size. We now have a bipartisan fiscal policy. Whoever wins, we'll get the same deficits and debt.
We'll also get the same lectures on how bold economic reforms in the 1980s and '90s laid the foundations for Australia's economic success along with a refusal by either side to risk any of its skin to take similar bold decisions today.
The classic example is the failure to tackle climate change. Tony Abbott and Julia Gillard once supported emissions trading. Then, when the going got tough, they cut and ran. The difference now is that Abbott says he'll never have one, whereas Gillard at least has left the door open.
Yet depending on which British or US monitoring agency you believe, the past year has been the hottest or second hottest since records began. Even to meet both parties' common target of reducing emissions in 2020 to 5 per cent below 2000 levels would require us to cut per capita emissions by more than a third over the coming decade.
You cannot get there without putting a price on carbon. And you cannot do that unless you have leaders and ministers who are prepared to take on public opposition and put their political skins at risk to argue, persuade, and ultimately drive the legislation through. That is how Bob Hawke, Paul Keating and John Howard achieved their reforms.
But, as Ross Garnaut argued in his recent Hamer Oration, that period ended with the introduction of the GST, and there have been no big economic reforms since.
Key reforms proposed by the Henry report have been ruled out by both sides. There has been little put forward to end the waste in which 10 per cent of men (and even more women) of prime working age are not even looking for work and that hundreds of thousands of our young are heading down that path.
Nor has there been any new policy to tackle the single biggest issue for many other young Australians: housing affordability.
In 2003, then Reserve Bank governor Ian Macfarlane warned against complacency, publicly urging the government to give "priority to tomorrow's working age population, rather than satisfying the demands of yesterday's".
At this election, neither side is voting for the future.