That the Senate notes the Rudd Labor government’s reckless spending.
Senator FIFIELD (Victoria) (5.04 pm)-Imagine Mr Acting Deputy President, that you have just been appointed chief executive of one of Australia’s largest companies. The chief financial officer comes to you and says, ‘Chief Executive, I’ve got good news and I’ve got bad news. The good news is that you have just been appointed chief executive. Congratulations. The bad news is that your predecessor has left you a basket case. Your predecessor fibbed to the market, fibbed to the shareholders and failed to practise full and continuous disclosure. So, Mr Chief Executive, we have an operating loss of $12 billion and the company has a debt of $96 billion. There’s no plan to retire the debt and there are losses forecast as far as the eye can see.’
The ACTING DEPUTY PRESIDENT (Senator McGauran)-Sounds familiar.
Senator FIFIELD-Mr Acting Deputy President, that does indeed sound familiar. It is not hard to recognise that situation. That is the advice that the then Treasury secretary had to tender to incoming Prime Minister Howard and Treasurer Costello in 1996. The Australian Labor Party had lied to the Australian people. They said the budget was in surplus when it was not. There was $96 billion of debt and a $12 billion budget deficit. That situation, as we all know, was not of the coalition’s making, but the coalition resolved to fix it. It was not easy. It was not popular. The easy thing would have been to keep borrowing, but we chose to do the right thing. What made an already difficult task of balancing the budget and repaying the debt that much harder was the Australian Labor Party. The Australian Labor Party opposed, as we know, each and every measure designed to put the budget back into balance. The hide, the cheek! Labor created the debt and they tried at every step to stop us repaying it. We did not expect Labor to repay the debt; we just wanted them to get out of the way. They refused. It was just cheapjack, opportunistic politics at its worst. Despite the opposition, we balanced the budget and we repaid every cent of Labor’s $96 billion debt-every cent.
That is not all we did. We established an asset position-a future fund, a higher education fund and a health fund. We established the world’s best corporate financial and banking structures and, as a result of that, the best banking and financial culture in the world. On top of that, we gave the Reserve Bank Independence. I can remember the then shadow Treasurer, Gareth Evans, threatening to sue the government for taking that step-that was quite extraordinary.
During our time in office we presided over a booming economy with record low unemployment and a dramatic increase in household wealth. That is the legacy of the coalition government. That was the bequest of the coalition to the Australian Labor Party. Upon inheriting office, Labor complained that the coalition had done too well, that the economy was growing too strongly. Can you believe that-the government complaining that the economy was growing too strongly? And who was to blame for that? Who was to blame for the fact that the Australian economy was growing too strongly? It was the coalition. We plead guilty. It was our fault that the Australian economy was booming.
Senator Mason-They put the brakes on!
Senator FIFIELD-They sure did. They slammed their foot on the brake pedal. Remember that pesky inflation genie breaking the bonds of its bottle; remember Wayne Swan’s reckless fuelling of inflationary expectations; remember Wayne Swan’s chilled jawboning of the Reserve Bank, egging them on to increase interest rates, which they did? In the process of fuelling inflationary expectations, Mr Swan king-hit business confidence and Mr Swan king-hit consumer confidence. Mr Swan did this in 2008, before the effects of the global financial challenge had reached Australia. At just the time Mr Swan should have been focusing on the strengths of the Australian economy he was fearmongering. Mr Swan caused the Australian economy to slow unnecessarily before the effects of the global financial situation had reached here. That is very important to understand. The problem was, I think, that after watching the coalition’s management of the economy for a decade, Mr Rudd and Mr Swan thought managing an economy was easy. In fact, Mr Rudd thought running the economy was so easy that anyone could do it, even Mr Swan. Labor thought that it did not really matter what it did or said, the economy would just keep on ticking along pretty much as it had been. How do we know that that was Labor’s view? You do not need to look much further than Mr Swan’s first budget speech when he said these interesting words:
We are budgeting for a surplus of $21.7 billion in 2008-09, 1.8 per cent of GDP, the largest budget surplus as a share of GDP in nearly a decade. This honours and exceeds the 1.5 per cent target we said in January, without relying on revenue windfalls.
He also said in his budget speech:
We have honoured our commitment to deliver a budget surplus of at least 1.5 per cent of GDP-
No, that was not delivering a budget surplus. This government has never delivered a budget surplus; that was a forecast of a budget surplus which has not transpired. Not only has this government never delivered a budget surplus; this government will never deliver a budget surplus. Then came the sting in the tail for Mr Swan in his budget speech:
The previous government forecast a surplus of only 1.2 percent at 2008-09.
Who was the fool? I think it is clear. Poor old Mr Swan have not worked out that you cannot spend more than you bring in in revenue and come out with a surplus. It is a pretty simple equation, but that had eluded Mr Swan. Having trash-talked the economy, killed confidence, slowed growth and started the spend-a-thon, Mr Swan was looking for some cover. He was looking for an excuse and from this point of view he received a godsend. The global financial situation was indeed a godsend for Mr Swan because it provided the cover for the first year of his bungled treasurership. It provided the cover of the reckless new spending and Mr Swan’s irresponsible economic commentary. Seemingly overnight, Mr Rudd and Mr Swan morphed from being fiscal conservatives; they morphed from nudge-nudge, wink-wink ‘economic liberals’ to being great central planners. Overnight, the mark of fiscal virtue was no longer a balanced budget and a surplus; the mark of fiscal virtue became a deficit and the bigger the better. The bigger the deficit, the more virtuous you were. The bigger the deficit, the more you were trying to do good, the more you were seen to be doing good. That is what it was all about-being seen to be doing something, regardless of the effects.
That is why Senator Arbib cannot answer how many jobs will be created from the $14 billion being spent on school halls. They cannot answer because they do not know. They do not know because they never asked. They never asked because they were not interested, because the purpose of the spending is to be seen to be doing something. It is there as a cover for a bit of old-fashioned pork-barrelling. Do not tell me, Mr Acting Deputy President-I am sure you wouldn’t-that boom barriers, bike paths and pink batts will a recovery make. This is not productivity- enhancing economic infrastructure.
I think Chris Berg from the Institute of Public Affairs put it very well in an opinion piece in the Age on 21 June. Mr Berg, whom I am sure Senator Mason is a fan of, coined a new definition for the noun ‘stimulus’: ‘a huge sum of money spent on any old crap’. I do not think I have heard a better definition of Labor’s stimulus package than that of Mr Berg. Mr Berg went on to cite a few examples of what justifies his new definition. In his piece, he wrote:
The Commonwealth Government is planning to spend $1.4 million helping a recreation hall in the ACT install iPod docking stations, among other things. Children these days apparently won’t go anywhere if they can’t plug in their MP3 players. And the global economy needs-really, really desperately needs-a couple more iPod docks.
It would interesting to find out what proposals the Government thought were bad value for money, if any. If the iPod docking stations got through, what wouldn’t have?
I think that is a very fair question. So much for evidence based policy.
Mr Acting Deputy President, I know that I have been depressing you, so I want to lift the mood. There is some good news. Australia is faring better in the global financial situation than most other nations-that is good news-and the reason for that is that we had a better starting point. We started with no debt. We started with an asset position. We started with the coalition’s $21 billion budget surplus. We started with the world’s best financial infrastructure. None of these are thanks to the Rudd government. All of these are because of the hard work of the coalition. That does explain our relative position compared to other nations.
But there is more good news: our economy is holding up better than forecast at the last budget. As expected, the government is claiming that the anticipated better position is because of-and you guessed it-the stimulus package. But let us look at the facts. The RBA governor’s statement on monetary policy on 4 August makes it clear why we are travelling better than anticipated. He cites five reasons. The first: the strong state of the Australian financial system. Does that have anything to do with the Rudd government? No. The second reason: significant monetary stimulus from the reduced cash rate. Does that have anything at all to do with the Rudd government? The answer is no. The third reason cited by the RBA governor is the depreciation of the exchange rate in 2008. Does that have anything to do with the Rudd government? The answer again is no. The fourth reason the RBA governor cites is China’s strong economic recovery. Does that have anything to do with the Rudd government? The answer is no. The fifth reason cited by the RBA governor is this government’s fiscal stimulus. No doubt the fiscal stimulus had some effect. But the question to ask is: how much effect and at what cost? I would contend that it was at great cost and for very little effect-and I am not alone.
Professor Tony Makin, a respected economist from Griffith University, agrees. Professor Makin, in a piece
in the Australian on 14 July-I will quote him because he does make a lot of sense-stated:
In most recent commentary on the state of the economy, it has become routine to credit federal fiscal stimulus, particularly the cash handouts to households, for any positive economic news. Whether it is the avoidance so far of a technical recession, higher than expected retail sales, or other miscellaneous measures of spending, we have been led to believe that things would have been much worse without the unprecedented fiscal activism. But objective economic analysis based on standard textbook theory suggests that fiscal policy has played a significantly less important role in cushioning the impact of the global financial crisis on the economy as compared with the role played by monetary policy through interest rate reductions and associated exchange rate depreciation. In other words, since the global financial crisis climaxed last October, dramatically easier monetary policy has probably done more for the Australian economy than fiscal policy.
The next statement by Professor Makin brings together his thoughts and those of the Reserve Bank governor:
A less modest, or perhaps more independent, Reserve Bank would take more credit for this.
I think Professor Makin nailed it. The RBA governor was being polite; he was being modest. The four main factors for our relatively better position have nothing to do with this current government. I do concede that there was an argument for some stimulus, but I would have argued for a smaller and better targeted stimulus. We have heard the cry time and time again from this government: ‘Go early, go hard’. You would think that you were listening to a coach at a state of origin match rather than to serious economic managers. Rather than go early, go hard and go household, I think we should have gone slow, gone soft and gone business. We should have provided support to small business to continue to employ people. The coalition argued that there should be a tax loss carry-back for small business and that there should be assistance for small business for their super guarantee obligations for their employees. We also argued that there should be some stimulus spending but that it should be much smaller and much better targeted so as to focus on serious economic infrastructure to lift the productive capacity of the nation.
Having blown the budget, now is the time for the government to be honest and to reassess the balance of the stimulus money. When we put that to them, the government posed the question: ‘Why not spend the balance of the stimulus money?’ There are a few good reasons, I think. One is that it will be good money after bad. It will be money that will not do much good. The second reason is that, if that additional stimulus money were not spent, the debt would be less. At the moment we are on track for an interest bill of $17 billion per year. Surely that is something to be avoided if possible. The third reason why I think the government should re-examine the balance of its stimulus spending is interest rates. Again I will quote Professor Makin. Professor Makin, in the same opinion piece in the Australian which I cited earlier, said:
What economics textbooks also tell us is that continued fiscal expansion will limit the extent to which interest rates can be lowered in the future.
There is a warning there: ‘continued fiscal expansion will limit the extent to which interest rates can be lowered in the future’. Here is the kicker:
This is because extra fiscal activity raises the demand for funds, which pushes up long-term interest rates.
The government are pursuing a policy which will rapidly escalate the nation’s debt and not only see us on track for a $17 billion interest bill but also have the nation on track for higher interest rates. These will come just as the economy is recovering. Running the nation’s finances, running the nation’s budget and running an economy are not easy. It is a serious business. It is hard work. While I readily admit that our former Treasurer, Mr Costello, did at times make those tasks look easy, they are not easy. It is time for this government to mature. It is time for this government to get back to what they argued for early in their term- evidence based policy. If the government do get back to evidence based policy, they will review the balance of the stimulus spending and they will at least avert this nation from having a net debt in excess of $200 billion. The government need to think again.