JOHN MENADUE.- Economic and money mismanagement

The Liberals claim that they are better  economic and money managers. But there is scanty evidence to support that claim.

Michael Pascoe in The New Daily has listed $8.1 b of Morrison Government rorts. They range through the Regional Growth Fund,Building Better Regions,the Urban Congestion Fund and more and more like the Inland Rail Project. See https://thenewdaily.com.au/news/national/2020/03/03/michael-pascoe-liberal-grants-costs/

For Party political purposes the The Morrison Government has raided the public  purse on an unprecedented scale. Not quite good, let alone trustworthy managers of public money.And Scott Morrison’s earlier management in the tourism sector is not at all reassuring.

Then there is management of the economy. The record is even worse.

In the pre election budget Josh Frydenberg boasted that the budget was ‘back in the black’. But we know it wasn’t true then and even less true today. As Michael Keating has pointed out we have a very sluggish economy and the claimed budget surplus is fading rapidly.
See The Budget surplus: is it believable and at what cost?

Having been so foolishly critical of  Labor’s stimulatory GFC package Scott Morrison would now be embarrassed to embark on a similar stimulatory package.

Despite the Liberal Party propaganda and an uncritical media the evidence just does not support a commonly held view that the Liberals are better money and economic managers.

Our economy was in slow gear well before the fires and the coronavirus hit. The Reserve Bank’s consistent reduction of interest rates was a clear sign that the government’s budgetary policies were failing.

Only two Australian treasurers have been awarded the coveted Euromoney ‘Finance Minister of the Year’ award. Paul Keating won it in 1984 in recognition of the government’s role in structural reform. Wayne Swan won the award in 2011 in recognition of the government’s successful response to the Global Financial Crisis. It is unlikely that recent treasurers, Joe Hockey , Scott Morrison or Josh Frydenberg would make the shortlist for this award!

But what about Peter Costello who because of his performance as treasurer in the Howard government is now treated by the media as a financial guru.

With record revenues in boom times, Peter Costello introduced measures which have left a very serious and damaging legacy. Continuing chronic budget deficits are very much due to Peter Costello. The Howard and Costello government wasted the buoyant revenues of the mining boom.

The parliamentary budget office put this problem in the following terms.

Over two-thirds of the five percentage points of GDP decline in structural receipts over the period 2002/3 to 2011/12, was due to the cumulative effects of the successive personal income tax cuts granted between 2003/4 and 2008/9. A further quarter was the result of a decline in excise and customs duties as a proportion of GDP. Significant factors driving this trend included the abolition of petroleum fuels excise indexation in the 2001/2 Budget and the decline in the consumption of cigarettes and tobacco over the period.

The IMF came to much the same conclusion. It identified two periods of Australian ‘fiscal profligacy’ , both during the Howard turn in office – in 2003 at the start of the mining boom and during his final years in office between 2005 and 2007. (SMH Jan 11, 2013).

In short, our continuing structural budget deficit is due in substantial part to the Howard/Costello government’s laxity with government spending in it’s last years in office. We blew the benefits of the mining boom when we should have been doing more to improve the underlying budget position.

The Howard/Costello years locked in negative gearing concessions and generous treatment of capital gains which have been at great cost to the government in lost revenue and priced many young Australians out of the housing market.

There were also tax-free superannuation benefits, family trust concessions, franking credit rebates and a whole series of decisions on spending and tax that have caused continuing budget difficulties and the skewing of the tax system and the economy in favour of older generations. There really has been generational theft.

These tax concessions introduced by Howard/Costello cost the budget over $50 billion a year. We are paying a very heavy price for the budget damage that Peter Costello inflicted over a decade ago.

The other major cause of the structural deficit is that the Rudd government spent heavily to counter the global financial crisis. It was more successful than almost any other government in the world in avoiding a major recession and unemployment, but when the recovery took hold, the Rudd and Gillard governments did not focus on the structural deficit problem particularly as identified by the Henry tax review. Some improvements were made to reduce middle-class welfare like the subsidy to private health insurance and the over-generous concessions that Peter Costello had given to superannuants. But the improvements were nowhere near enough.

Outside the budget context, the Coalition government has shown mismanagement in critical areas.

  • It allowed the greed and abuse by our banks to continue year after year. It refused to intervene, partly because it didn’t want to offend its political friends and partly because of an ideological view that government intervention and regulation should be ‘light’.
  • Over $20 billion will have to be written off the dud NBN for it to have a viable and modern future. The Coalition’s performance in the NBN debacle must rank as the most wasteful infrastructure project in our history.
  • Barnaby Joyce’s inland rail will need a substantial capital write-down because its operations are unlikely to be economic.
  • The opening, closure and opening again of Christmas Island at a cost of $185 million does not suggest a government that is good at business management. It was all political posturing at the expense of the taxpayer.
  • There has been widespread waste and lack of due process in the provision of security and support services for asylum seekers marooned in Manus and Nauru.
  • The Coalition has committed $50 billion plus, for the twelve French submarines to be built in Adelaide. We could have bought modern submarines off the shelf that would be much cheaper and would be delivered much earlier. For a 300% effective rate of protection for the French submarines, we will have an increase of less than 2,000 employees. The motor vehicle industry, which the government forced to shut down had a rate of protection of less than 8% and employed 200,000 people. What a price we are paying for Christopher Pyne. One thing that is certain is that this submarine project will leave major budgetary headaches for Australia in the years ahead. None of this sounds like good business management.
  • The Coalition continues to make it virtually impossible to import second-hand cars on any worthwhile scale. The restrictions on imports of second hand vehicles were imposed to protect our motor vehicle industry. But the motor manufacturing industry has now been closed. Consumers are denied choice because the government has decided to side with the vested interests in the motor distribution sector.

To top off this poor record in money and economic and management we have an economy  which is promoting great inequality and even more  concerning is seriously degrading our planet. Our planet is in increasing peril, our rivers  have become unhealthy and we are unable to afford the level of public services that we once had.

One must then ask the question that despite the rhetoric, why does the Liberal Party has such a poor record in economic and business management.

The reason I suggest is that the Liberal Party has ideological blinkers about the role of government in the economy and particularly the need for appropriate regulation. Following the ideology of Reagan and Thatcher, the Coalition places far too much confidence in markets and lacks an appreciation of the appropriate role for government in our mixed economy. The Coalition is handicapped and hidebound by an out-dated ideology about markets and private enterprise. The tide has turned in the world that now sees the failures of the market system. The Coalition has failed to catch up. That is why we are seeing the failure of the Liberal Party in economic and business management. Its ideology has passed its use-by date.

print
This entry was posted in Economy, Politics. Consider contributing. Bookmark the permalink.

15 Responses to JOHN MENADUE.- Economic and money mismanagement

  1. John Doyle says:

    There are several false premises regarding the economy. They suit the capitalist class to promote them and we the public let ourselves be hoodwinked over them

    1]The Household analogy ,a pernicious statement that the Government has only so much money, so they must cut welfare, healthcare etc to balance the budget. Absolute garbage.

    2] Monetary Sovereignty. Our Federal government has a monopoly over the currency. It can never be in short supply, never needs to save and borrow its own currency.. So all references to borrowing are false. Most of all Federal taxes are never used as funding[Taxes are still useful just not as funding]. The “Australian Taxpayer” is a paper effigy.

    3] the Budget. Here the mainstream excel themselves with dodgy policies. They have the budget backwards. They have taxes as revenue and spending as cost. Instead Spending is the creation of the currency. And taxing is currency destruction. Spending has to precede tax anyway which fact alsp destroys their model. A surplus, much touted by Morrison etc is totally false. A budget surplus tells us the government has spent less that they withdrew in taxes leaving a hole which the private sector must fill for end of year balance. It is a cost for the private sector. On the other hand a budget deficit is spending over and above taxing.It adds resources to the economy!

    There are more, but here already is the ammo to destroy the mainstream

    • Greg Bailey says:

      All true and is a good complement to John’s excellent summary of the situation. However, the LNP knows the exact kind of buttons to push which will excite the emotions of the general public. The idea of an economy operating in terms of inflows, outflows, investment and saving, is too abstract for most people. Much easier to look at the economy–a debatable concept in itself–as a household, where people understand the effects of mortgages and the need to repay them.

      The LNP know this and encourage it, as does the MSM. Education seems not to have worked on this problem. I don’t know what will.

  2. Colin Cook says:

    Thanks John – wonderful to see the Liberals incompetence set out so fully and clearly.
    Just one quibble, I hate to read ‘…….the Liberals are better money and economic managers’. I know that is out of context – but it pains nevertheless.
    The paragraph could have read:
    ‘Contrary to Liberal Party propaganda and an uncritical media, the evidence clearly shows that the Liberals are very poor – even incompetent – money and economic. managers.’

  3. greg hurst says:

    Why is QE a dangerous idea? If it only involves buying back Treasury Bonds there is no risk. Mind you’it wont stimulate the economy either.

    • Jocelyn Pixley says:

      Banks are free to decide where to use their confidence-inducing balances while enjoying lower taxes than necessary if asset profligacy is to be reduced. QE does not in these conditions prompt anything but speculative inflation. QE relies on the “loanable funds theory”, known to be fallacious because bank loans create deposits (i.e. banks don’t need “more funds”). Bernanke found his massive QE (just more than usual, you are right) failed because solid investments with decent returns and well-paid jobs never came! His successor, Janet Yellen, knew better and pleaded for more stimulus from Treasury.

  4. greg hurst says:

    Although P Costello missed out in his play for the top job his lasting achievement is the FUTURE FUND. The Hon Peter Costello is still chairman of a fund which now has over $212 billion in management. .This is public money hidden in plain sight. Set up to cover unfunded superannuation it has morphed into a larger monster and this government has advised it will not now touch it until 2026. Why?

  5. Felix MacNeill says:

    It’s not conplicated: the COALition and the Empire of Murdochristan are mutual support organisms…and the ALP lack the guts to fight back effectively

  6. Rob Stewart says:

    Another excellent and concise list of examples debunking the myth of the LNP’s superior economic management John.

    Facts won’t change blinkered ideological belief though. New kids on the block like Tim Wilson absolutely froth at the mouth in parliament about Labor’s GFC response. Wilson et al make utter fools of themselves, exposing their ignorance and Ayn Randian simplistic, fantastic, juvenile ideological beliefs. I think Wayne Swann’s gong for best Finance Minister drives them mad. No doubt a vicious austerity based approach to the GFC would have served us so much better. They cry out about Labor’s debt and yet they have more than doubled it without a financial or economic crisis.

    Interesting to see calls for government intervention in directly supporting employees and gig economy slaves in response to the Coronavirus. The very thought of it would be causing the likes of Wilson et al to have an outbreak of hives.

  7. Mark Skinner says:

    As a side comment, I wonder if the failure to reduce the tax on imported vehicles might be related to negotiations with the EU over a free trade agreement? It might be something to offer as a quid pro quo.

    Pure speculation of course.

  8. Readers are invited to open this site:

    https://independentaustralia.net/politics/politics-display/coalition-doubles-all-debt-since-the-1850s-and-the-craven-media-says-nothing,12472

    When the Abbot Goverment was elected, the Federal Debt was ~ $250B.

    The Debt has climbed linearly since then, with the 2020 estimate being ~ $600B.

    The wisdom of the recent ‘nil-result’ income tax cuts should be questioned:

    https://www.abc.net.au/news/2019-05-09/federal-election-fact-check-cost-of-coalition-tax-cuts/11092856

    A repeat of the Howard Costello 2001-2007 tax cuts which raised the top marginal rate from $60,000 to $180,000, eviscerating subsequent Government’s ability to ‘save for a rainy day’.

    Now, it is pouring coronavirus on top of a national firestorm. How much more resilient would Australia be if it has an additional $77B to respond?

    • don owers says:

      Government debt is tiny compared to our private debt – mostly from mortgages – which is about $2.4 trillion and mostly sourced overseas so as our dollar drops the debt owed increases….. .

  9. Chris Borthwick says:

    The problem, surely, is not that the Liberals claim to be better economic managers: the problem is that Australians are stupid enough to believe them – https://www.theguardian.com/australia-news/2020/mar/11/essential-poll-scott-morrison-regains-lead-as-preferred-prime-minister-after-bushfire-backlash – in the teeth of all the evidence, including yours. It’s really difficult to see what, if this year hasn’t been enough, would ever disillusion Australians with Morrison, and that includes a recession.

    • Richard Ure says:

      Enough of the public have decided not to follow government advice about toilet rolls. Is this a turning point in the relationship? And the public seems swayed on climate change despite long practised, contrary propaganda about how friendly coal is. If the media keep telling their readers and listeners how clever the government is, will it take social media to change their minds given their experience has not done the job?

  10. Jocelyn Pixley says:

    The neoclassical opinion of M. Friedman, appealing to Thatcher and Reagan, was to rely on monetary policy and pretend that fiscal policy was never related to it. But serious central bankers deny that and, as we have seen, the RBA sought to to insist that was the case since Costello. Labor listened during the GFC. Serious central bankers know the dire problems with QE too: the results of Bernanke’s fed the bubbles that are perhaps collapsing today. Trump has personal reasons for wanting the bubble to continue: Trump Inc. has huge debts that in a crash can rise in value. Morrison seems to know little and is driven by “anything but Labor”: this government wants QE – a dangerous idea – and wants to win at any cost. Thanks John, for laying out those terrible costs.

Comments are closed.