From the SMH this morning:
TREASURY boss Martin Parkinson is losing patience with people who call for action to bring down the dollar.
”I will be completely open with you,” he told the Sydney Institute last night. ”Anybody who thinks you talk down the dollar or talk up the dollar is a fool.
”I mean what drives the dollar? What’s driven it up is the rising terms of trade. The world is trying to give us a massive amount of wealth.
”If I tried to lower the dollar, I would be really saying I am going to take part of that wealth, pour petrol on it, and I’m going to burn it.”If you want to live in that world, that’s fine, but I don’t think it’s sensible for the long-term living standards of the Australian people.”
Ah, battle is joined. Good on you, Parko, for bringing some fire to this debate. Sadly, it’s a bit hard to comment on these comments because they were clearly made outside of the ambit of the official presentation (find it below).
What I will say in passing is that any effort to suppress the rising dollar is obviously not aimed at “pouring petrol” on our wealth. By boosting competitiveness, it’s aims to achieve the exact opposite. The world isn’t trying to give us a nebulous “massive amount of wealth”. It’s trying to give us a very narrowly-based massive amount of commodities wealth. Any long term view of economic history shows there are enormous costs and risks in relying on such a narrowing, usually the bigger the more dangerous.
And let’s face it, the dollar is one component of a much larger question about how to manage to commodities boom without losing everything else in the process. Parko has been ridiculing the existence of the two speed economy since his appointment but everybody operating a business east of Perth knows its real, even in Queensland. Moreover, if it’s all so hunky dory, why did Parko’s predecessor destroy his career proposing a resource rent tax? Is that a lesson, perhaps, that Parko has learned?
But he’s not finished:
The Treasury secretary also took a swipe at ratings agencies who he said were trying to overcompensate for past mistakes.
”They are becoming mechanistic and excessively simplistic, running the risk of moving from excessive optimism to excessive pessimism every time they look at a country or firm. If you’ve got a small checklist of indicators and you bang through it, you never really understand the circumstances.”
Far be it for me to defend the agencies, their business model remains broken and should be fixed by getting investors to pay for their services. But, credit where it’s due. The agencies have done good job in the last twelve months of identifying Australia’s imbalances and vulnerabilities, as well as its strengths. We don’t have anything to complain about on that front.
On China, Parko is an optimist:
China was succeeding in slowing its economy without a hard landing. ”I am not worried about it,” Dr Parkinson said. ”The more we can get them to start to use proper instruments of monetary policy rather than direct lending controls, the better we will all be.”
I more or less agree, though the recent PPI shook me up. There is clearly still a risk of a hard landing in China, but even then I expect it will grow at a decent level once stimulated. However, the growth is unlikely to be as commodity intensive or as fast as this last cycle, given the need to control property speculation. That also rather puts a dampener on Parko’s last point about getting China off lending controls. How do you stimulate a new round of lending but deny it to property speculators if your not going to use and entrench some form of macroprudential suasion? Given the analog with Australia’s current position, Parko should be observing this process closely not throwing it out on an ideological whim.
Finally, there is Europe and the US on which we agree:
Our assessment is that if everything goes well, the recession could be shallow and over soon,” he said. ”If it doesn’t, it could be protracted indeed.
Fortunes in the US appear to have turned, but the failure of the congressional committee to find budget savings has triggered automatic spending cuts that are likely to cut US GDP by up to 0.75 percentage points in 2013, ”a potentially significant shock to what was still likely to be only a still modest recovery”.
I apologise in advance if I’ve responded to anything out of context. One can’t really trust the MSM, you know. I really don’t know if Parko believes this stuff. I certainly don’t think that all of Treasury does. Parko is kind of left carrying the can given the political corner the Government and Opposition have painted themselves into following the RSPT debacle.
The AFR has a bit more on Parko’s speech:
Federal Treasury secretary Martin Parkinson says the global financial crisis will have a lingering effect on budget revenue for the rest of the decade, with the Australian economy also facing the prospect of further collateral damage from Europe’s debt woes.
Dr Parkinson told the Sydney Institute last night that while a weak outlook for government revenue would continue beyond the budget’s forward estimates, this didn’t diminish the need to continue fiscal consolidation. “Tax receipts are expected to stay below 2007-08 levels as a share of [gross domestic product] for much of this decade,” he said. “The government’s medium-term fiscal strategy will continually involve tough decisions.”
Hmmm. This is interesting though, again, without context it’s difficult to know why Parko sees sustained weak revenues. Presumably its a result of ongoing weak credit growth. But I recently saw little of this reality reflected in the MYEFO growth projections so one wonders why we can’t get some consistency.
