As no doubt many of you are already aware, Wayne Swan has been declared Finance Minister of the Year by Euromoney magazine.
As someone who has created and engineered similar types of magazine executions, let me establish first that I really don’t think this is worth the bally-hoo it has received. Such special issues are created largely to drive advertising, they are generally quite thin editorially and amount to not much more than discussion pieces.
Still, everyone likes a pat on the back and quite rightly Wayne Swan should be proud of this achievement.
Does he deserve it?
The feature article that accompanies the Euromoney award is written by Eric Ellis, who is a credible independent journalist. He has done quite a good job of tracing out the dimensions of the award, dedicating most of the article to the question of why, if Euromoney sees Swan as so good, everyone at home thinks he’s terrible.
The first reason put forward for the award is Swan’s successful negotiation of the GFC. Yet the piece also says:
Critics argue that little of that is Swan’s handiwork. He was lucky, they say, to inherit to strong set of numbers from his Liberal (meaning conservative) predecessor, Peter Costello.
Against this claim, the article quotes Saul Eslake:
But any objective observer would say that Swan had a good financial crisis, with a greater set of challenges facing him than Costello ever had. Swan’s response to the crisis in the broad macro sense can’t be faulted.
In general I agree with this. The staged roll out of the stimulus worked very well. I also agree, as the article says, that much of the stimulus was not as wasted as it has been accused of. Neither the schools program nor insulation programs were perfect but in the circumstances they were good. It’s silly expecting governments to be perfectly accountable and precise when broad based stimulus is the point.
I do have a problem, however, with the doubling of the First Home Owners Grant. That was simply pouring petrol on the core problem of household indebtedness. The banks were not in any danger once their liabilities had been protected with the wholesale guarantee. They should have taken a hit to assets and the deleveraging process should been allowed to proceed. If policy-makers believe all of the supply and demand arguments that they pump out around housing so relentlessly, then the falls would have been limited.
Another point I’d make is that the ‘good luck’ argument applies more to the preceding government than the current Labour government. Consider, Costello enjoyed the fruits of productivity reform in the late nineties, when those effects began to wane, he contributed mightily to a housing and consumption bubble through pro-cyclical policy to sustain growth through the millennium and up to 2003. Then, when that threatened to burst, he was bailed out by the iron ore boom.
Back to Swan, and the second debate canvassed by the article is whether the push to surplus now under way is necessary. Again, the article quotes Saul:
He’s [Swan] become almost anal in his insistence that the Budget be in surplus by 2012-13,” says Eslake. I think he’s overdone it but at least he’s imposed discipline, to make sure they’re heading in the right direction.”
To my mind, Swan has got this right. Pretty much all of this year, as fiscal policy has been withdrawn, we’ve had 5% unemployment with the RBA on the trigger. The RBA has also actively stoked Dutch disease to ‘make room’ for the mining boom. To claim Swan should be spending more in that environment is to ask him to fly in the face of the country’s major independent economic body.
Moreover, the one point nobody ever mentions about the Budget is that it basically now operates as implicit guarantor of the banking system. Moody’s has openly stated that this kind of support adds two notches to Australian bank ratings. That puts a lot of pressure on keeping the Budget as close to surplus as possible.
The article’s final criticism of Swan is his record of policy reform. Again from Saul:
“Swan hasn’t been a spear-carrier for reform, whereas Keating and Costello, and Keating more so, would argue in Cabinet and outside to the public for good economic policy even if it wasn’t popular.”
I’m not sure I agree with this either, at least, not the way it is angled. I mean, Swan argued the case for the RSPT. The need for a counter-cyclical resource rent tax of some sort has been abundantly clear ever since (even if Parko can’t see it).
Swan’s failure seems rather to have been political (which Saul also points to). He did not foresee the unsellable nature of the tax, nor the likely blow back. Having said that, after supervising this comprehensive debacle, Swan showed a great of political spirit in getting promoted, even as his boss got the boot.
In sum, I can’t say one way or another whether Swan deserves the Euromoney award. I think is fair to say that Treasurers are largely seen in the reflected glow of what the economy means to most people. In that sense, Costello’s riding of the credit bubble has overrated his talents whilst Swan’s trudge through the post-bubble gloom treats him a little unfairly.
