Laura Tingle of the AFR and Malcolm Maiden of The Age today take up the question I posed yesterday about the positions of Treasurer Chris Bowen and Prime Minster Rudd (as usual, without any acknowledgement or link). From the former:
[Rudd’s] gloomy economic prognosis last week sounded a lot like he was preparing ground for a shift to a loosening of the purse strings.
After all, expectations have been raised about bringing forward a shift to a floating carbon price, reversing cuts to single parents’ pensions and higher education.
But how does this fit with Rudd’s cocky preparedness to take on Tony Abbott next Thursday on debt and deficits?
Well of course it doesn’t. The budget is already under enough pressure from the falling terms of trade hitting revenues.
Maybe there are things about Kevin that will change this time around. The one thing his colleagues are alarmed won’t change is that you shouldn’t stand between him and a bucket of money.
The man who has to square the circle on this is new Treasurer Chris Bowen. The kitchen cabinet of the government will be a gang of six, including Anthony Albanese, Bill Shorten, Penny Wong and Jacinta Collins. They will all have to exert the pressure on Rudd.
But Bowen – often tipped as a future leader – has made a big investment over the years in being a fiscal conservative. He also ultimately served as Rudd’s numbers man in the ballot that finally brought the Rudd-Gillard battle to a close.
If Labor’s budget story unravels it will be Bowen’s reputation that suffers most.
He got through his first press conference as treasurer OK…he conspicuously locked himself into the existing budget strategy and forecasts – somewhat more positive than the Rudd view of the world – but he also agreed with what Rudd was saying about “the mining investment boom is drawing to an end”.
But Bowen didn’t quite nail where he was heading. He was a lot clearer in a Fairfax interview on Thursday where he made it clear any new spending will have to be offset by savings.
RBA governor Glenn Stevens also fired a casual shot across the bows in a speech in Brisbane on Wednesday.
Things have changed since 2007. The economy has changed and is changing more. Most importantly the budget – and its prospects – have changed. Whether Rudd and his new treasurer can land a punch in the new round of the match is their biggest immediate challenge.
During the 2007 election campaign, Kevin Rudd presented himself as a “fiscal conservative”. To my mind the big GFC stimulus was not inconsistent with that. Although it was large, so was the challenge and other than the first home owners grant it was a well executed program.
More damaging to Rudd’s claim was his GFC essay in The Monthly which eschewed market reform and convinced everyone that underneath it all he is a nanny state politician prepared to spend will nilly:
The intellectual challenge for social democrats is not just to repudiate the neo-liberal extremism that has landed us in this mess, but to advance the case that the social-democratic state offers the best guarantee of preserving the productive capacity of properly regulated competitive markets, while ensuring that government is the regulator, that government is the funder or provider of public goods and that government offsets the inevitable inequalities of the market with a commitment to fairness for all.
I don’t know where Rudd’s real instincts lie but I don’t think it entirely reasonable to paint him into the spendaholic corner as he pursues a post-China boom narrative and policy platform. I personally think that there is scope for a well-managed productivity focused infrastructure plan from government, in fact I think we’ll need it to support growth, so the first point I would make is that not all deficits are bad.
However, Rudd hasn’t actually argued in favour of increased spending at this stage. What he has argued is that in a post-China boom era we will need to diversify our production via boosted competitiveness. During a mostly rattled interview on the 7.30 Report on Wednesday, Rudd declared:
What most Australians are concerned about is what do we now do to maintain a strong economy and jobs growth now that the China resources boom has ended? This is a practical and it’s a new challenge. Our response to that, our plan is to number one, ensure that we diversify our economy and grow jobs out of other sectors like manufacturing, food processing as well as the services industries, so that we don’t have all our eggs in one basket, and number two, to make sure that we can do that by boosting national competitiveness. Because my fear is that we might end up in the future pricing ourselves out of international business.
Competitiveness is not restored by stimulus. It is a real exchange rate and productivity issue requiring a lower currency, capping of wage growth and any number reforms in public service delivery, as well as public and private enterprise.
This leads me to three conclusions. The first two are political. Whichever way the government chooses to go with its economic narrative and platform, it still means that Treasurer Bowen is going to need to ally himself much more strongly with Rudd’s view of post China boom challenges than he has to date, even if the outcome is not increased spending but reform. Second, it it is clear that this choice has not yet been made. And if Labor fancies itself at all at the election, that needs to be sorted out pronto.
Third, this forthcoming debate shows again just how allied to China the Australian economy has become. As the post-GFC stimulus and the mining boom wind down, we face exactly the same question as the Chinese: should we prompt growth with more stimulus or with economic reform? The Chinese have chosen the harder but more sustainable road of the latter. Do we have the gumption to follow our Great and Powerful friend?
