TREASURY secretary Martin Parkinson has hit out at subsidies for industry, calls for further sweeping budget cuts, and pessimism about Australia's economic future which he says is "incredibly promising".
Appearing before the Senate economics committee, Dr Parkinson implicitly poured fuel on calls to cut government support for the car industry. But he also warned that more deep spending cuts as the Coalition proposes would hurt growth for no gain.
Dr Parkinson pointed to the recession now engulfing Europe, where governments have given deep spending cuts priority over economic growth. He warned that Europe's recession would last for years and be a source of global instability.
"If you want to be really hairy-chested about this, you run the risk of getting into quite dangerous territory," he told Liberal senator Arthur Sinodinos.
Treasury, he said, estimates the combined effect of federal and state budget cuts already will cut Australia's GDP by 4.25 per cent over two years.
Dr Parkinson said there were times when fiscal consolidation could enhance growth, when budget deficits were hurting business confidence. "But that's not the issue we're confronting here." He said the dangers of deep spending cuts were magnified when trading partners all cut spending together, as in Europe now.
"When the Greeks started, the expectation was that their GDP would shrink by 2 per cent, and they would do a fiscal consolidation of 8 per cent over three years," he said.
"Now their GDP has already fallen 8 per cent in 12 months, and the fiscal consolidation is about 25 per cent of GDP. How you can consolidate back into a sensible fiscal position when your economy is shrinking so rapidly is beyond me.
"We're taking the view that Europe is going to be both in recession and probably a source of global instability for a number of years to come."
Dr Parkinson, who had earlier attacked government intervention to support industries, repeated the attack to the committee, telling Labor senator Doug Cameron that the car industry has been receiving taxpayer support for 105 years.
In a speech on Thursday night, Dr Parkinson warned that industry assistance would fail in its goal of creating competitive advantage unless it was focused, defined and limited in its term.
"If you replace quotas and tariffs with other interventions, no matter whether to create 'national champions' or to support so-called strategic industries, you are placing producer interests ahead of those of consumers," he said. "It is still akin to protection."
Dr Parkinson told Senator Cameron, the former head of the Australian Manufacturing Workers Union, that the task was to transform the car industry and the rest of Australian manufacturing into "something sustainable" with a high Australian dollar.
"The exchange rate will threaten the viability of a whole lot of industries," he said. "If you think it's going to last for 12 or 24 years, we can't pretend that things can stay the same.
"The challenge for us is, how do we help manufacturing and other sectors transform themselves so they can cope in a world where we have a high exchange rate . . . We will end up with a very successful manufacturing industry." Dr Parkinson said the best way to do this was by improving the education system, workplace skills, management skills, infrastructure and industrial relations.
His third theme was to denounce pessimism, declaring Australia was "in the grip of unjustified economic gloom".
"It's almost as if most Australians think we live in Greece. We don't," he said. "We actually have an incredibly bright future ahead of us. Yes, there are challenges, but the opportunities ahead of us are the sort we've never seen before."
