Lucky John reaps the legacy

ScreenHunter_1584 Mar. 10 08.39

By Leith van Onselen

The Australian newspaper today reports that a new poll has ranked John Howard as the best Australian Prime Minister of the past 40 years:

The poll, conducted last week by Essential Research and provided exclusively to The Australian, shows that 39 per cent of voters ranked Mr Howard, the Liberal prime minister from 1996 to 2007, as the best.

Labor’s Mr Hawke was rated as the best prime minister by 14 per cent of voters. A further 8 per cent of voters chose Mr Whitlam while another 8 per cent selected Mr Rudd.

I am not surprised by this result, given the Howard Government’s reign was an era of unparallelled prosperity and calm for the Australian economy.

That said, it is my firm belief that John Howard’s success was more due to good luck, given that he governed during a period of benign macroeconomic conditions, both locally and abroad. Consider the following facts.

First, Howard presided over the most lucrative part of the resources boom when commodity prices and the terms-of-trade literally exploded, providing the key impetus for the rising disposable incomes (see next chart).

ScreenHunter_1585 Mar. 10 08.51

Second, nominal GDP is the dollar value of what’s produced and earned across the economy and is also the measure that drives taxation revenue. Due in part to the inexorable rise in the terms-of-trade, the Howard Government experienced ever growing nominal GDP growth as commodity prices surged, whereby it reaped the benefits of growing personal and company taxes, not to mention increased capital gains taxes as asset markets boomed.

ScreenHunter_1586 Mar. 10 08.55

Third, after the Howard Government made the disastrous decision to halve the rate of capital gains tax (CGT) in 1999, making property speculation more fruitful, he helped kick-off a boom in household debt, whereby debt levels literally exploded over the 11 years that Howard was Prime Minister (see next chart).

ScreenHunter_05 Jul. 08 10.51

This extra demand (spending) by the household sector meant that the Howard Government was able to achieve higher growth and run bigger surpluses, without adversely affecting overall demand in the economy (see next chart).

ScreenHunter_1587 Mar. 10 09.00

Put simply, the Howard Government’s reign was as much a case of good luck and being in the right place at the right time as good economic management.

For me, the mark of a great Prime Minister is how he reacts when the times are tough. Bob Hawke faced adversity early in his reign (the 1983 recession was one of the nastiest in living memory) and yet he used the circumstances to undertake a widespread program of microeconomic and macroeconomic reform, which helped build the basis for a competitive and prosperous economy (a reform effort that waned under Howard).

This is why Bob Hawke receives my vote for Australia’s best Prime Minister of the past 40 years.

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Unconventional Economist

Leith van Onselen is Chief Economist at the MB Fund and MB Super. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.

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Comments

  1. Yes the Howard government surf board certainly caught the cleanest part of the economic wave.

    • The last few years of each of those graphs must be depressing reading for Prime Minister Abbott.

      A bit like turning up to Balmoral Beach with a malibu and hoping for some nice sets.

    • Illegal war on patently false “information”
      Lying about the Tampa
      Inflating / perpetuating a massive housing bubble
      Imposing a raft of police state laws
      Creating / perpetuating boat people myths to distract people
      Doing a lot to dismantle free education
      Staying quiet whilst massive imbalances accrued to the economy because at the time they made him look good
      the list goes on

      John Hunt is a coward.

  2. The Oz wouldn’t have reported a different result. It’s like the Telegraph in Britain showing the same for Thatcher.

  3. A bit harsh don’t you think? Yes Howard had some luck, however, they reduced Australia’s government debt to nothing; faced down the Asia crisis (which brought on a five to six year mining bust which no one talks about!!!); brought in gun control after Port Arthur; instrumental in the establishment of East Timor. The Howard Government went through the tech boom and bust, and brought in a bunch of micro economic reforms that we have had the benefit of for the past seven or eight years.

    In fact you could argue that it wasn’t until 2006 that the Howard government even started seeing increased tax receipts (given the 12-18 month tax lag) from the Chinese mining boom – with the real beneficiary the Rudd Government doing their utter-most best to piss it up against the proverbial wall.

    I do not want to denigrate Hawke – he made some courageous economic decisions, but Keating clearly played a major role in implementing those reforms too. And having grown up on a cattle and small fruit farm in Tasmania, I remember 17% interest rates like yesterday – that was a clearly home goal made by Hawke under mismanagement. I can tell you personally, they were really, really tough times. I don’t remember anything like that done under Howard stewardship….

    • I remember 17% interest rates like yesterday – that was a clearly home goal made by Hawke under mismanagement.

      But Hawke did a great job of keeping the petrol price down. I remember 60c per litre fondly. That was a stroke of genius by Hawke and Keating. Perhaps Abbott should try it.

    • @ Researchtime; Very good points – the OP claims that the rise in NDI was the direct result of the TOT and mining boom, yet if you look at the actual chart, it wasn’t intil the mid-00s that TOT started to rise significantly, where-as NDI was rising steadily the entire time Howard was in office.

      I also note that the rise in household debt also seems to correlate with the rise in NDI. It also happens to rise almost directly in line with the rise in aggregrate superannuation account balances through the same period.

    • disco stuMEMBER

      Woooo 17% interest rates – which translated to mortgages eating what, 35% of your disposable income, for what – like 18mths….. obviously a boomer with such a soft wussy view of hardship.

      Try 35% of disposable income going to debt servicing for much of the past 15 years.

      • 35% on your income at 17% interest rates… not sure what math you studied!!!! That particular year, both my parents were working full time together with income of the farm totalled $117k – doesn’t sound much now, but it was a lot in late 80’s early 90’s. After tax income from all three was $17k. Ironically, the family for a year or two was on social benefits. We had literally nothing – drove to Hobart (an hour plus one way) every day for work and school; we had no new clothes, not much food. We weren’t spending 35% of our net income – we were spending 85% of our gross!!!! And there were people far worse off than us.

        You would be a fool to think this could never happen again.

      • 85% of $117,000 equals $99,450

        At 17% interest rates that would suggest an interest only mortgage of $585,000.

        How much debt was your family carrying at the time for the repayments at 17% to gobble 85% of your income?

        Why so much?

        Has the ‘debt bet’ paid off in the sense that the value of the assets acquired are now much higher than what your family originally paid?

    • And yet while interest rates are at record lows, % of income required to service the interest is even higher now and the repayment period is blowing out.

      All thanks to the massively inflated principle, to which Howard’s “reforms” have contributed significantly.

      While Howard had several triumphs (gun control, East Timor), he also set us on a path to an unbalanced and hollowed-out economy. That Labor also followed this mold after, is also atrocious.

    • “And having grown up on a cattle and small fruit farm in Tasmania, I remember 17% interest rates like yesterday – that was a clearly home goal made by Hawke under mismanagement. I can tell you personally, they were really, really tough times. I don’t remember anything like that done under Howard stewardship….”

      Perhaps you don’t personally, but the country as a whole was paying far more interest as a percentage of household disposable income (roughly 50% more) just prior to the GFC.

      Even with record low interest rates we’re still paying a similar amount now to when rates were at 17%. A 17% rate is meaningless without taking in to account the amount of debt it’s being paid on.

      See the Household Finances graph in the RBA’s chart pack. http://www.rba.gov.au/chart-pack/household-sector.html

      • Yes, but the whole discussion is in relation to the rise in debt under the early years of Howard. I would contend that debt was so expensive in the early 90’s, that when interest rates inevitably fell, the amount of debt afforded could only but rise – hence total levels of debt rose. The affordability of that debt over the longer term is another issue. Would I buy in Sydney at the moment? Not on my Nelly – house prices can go down as well as up !!!

      • ” I would contend that debt was so expensive in the early 90’s, that when interest rates inevitably fell, the amount of debt afforded could only but rise – hence total levels of debt rose. The affordability of that debt over the longer term is another issue.”

        Ah, OK. That’s a fair point.

  4. Godwin might not like me to say it, but Adolf Hitler did quite a good job of running the war for the first few years.
    The Captain of the Titanic gave his passengers a very smooth and comfortable first half of the journey.
    Mr Howard did a great job of running up all that (private) debt. How does he expect it to be paid back?

    • As a remember, I don’t recall anyone holding a gun to my head when I took out a loan? I had a look around at general economic conditions, and thought – “Yep, I can afford this” – and signed the document. My personal belief is that we should take more responsibility for our own decisions. Its not Governments role to make my mortgage affordable. Big fan of free will -is that unfashionable? Maybe?

      • disco stuMEMBER

        Yeah great – economic conditions transpired to allow you to enter the housing market without taking on an exorbitant amount of debt within a couple years…. that option, waiting it out, has run now to 15+ years for young people. Most young women’s ovaries will have shrivelled up to dates if they’d tried to deploy your tactics of waiting for an opportune time + they’d still be waiting.

      • @ disco stu – wow, didn’t know that possession of title to real property was an integral part of the reproductive process???

        Maybe you’ve been doing it wrong? 🙂

      • Researchtime,

        I have no problem with people letting their cognitive limitations get the better of them and run up excessive debts in the pursuit of capital gains providing they live with their decisions.

        Instead we have had an endless stream of policies designed to subsidise their misjudgements.

        Interest rates driven to the floor
        Vendor of first home bonus
        strangulation of new supply
        permitting leverage into SMSF
        open door policy to off shore buyers
        govt guarantee of TBTF banks off shore borrowing for residential mortgages.
        etc
        etc

        By all means let people place their ‘debt bets’ but how about we make them live with the results.

      • wasabinatorMEMBER

        “Its not Governments role to make my mortgage affordable.”

        Well it’s apparently been their role to make it as unaffordable as possible, and that’s where the objection comes from.

      • Its not Governments role to make my mortgage affordable.

        According to Government, it’s been one of their biggest roles for the last decade and a half (if not longer).

      • disco stuMEMBER

        Do a little research Gonderd and you’ll find family formation usually commences around the same time people buy their first house.

        The rise in house prices and their increased unaffordability has resulted in a parrallel decline in fertility rates and an increased delay in when women are having their first child.

        But that might require a little research on your behalf, which I’m pretty doubtful your capable of. Easier to make spurious comments implying that anyone who draws such an association between high house prices and fertility probably “isn’t doing it right”

        So in anticipation of your can’t be stuffed attitude, here is a link:

        “Our results suggest that house prices are a relevant factor in a couple’s decision to have a baby at the present time. House prices lead to a negative price effect that conditionally reduces birth rates in the current period, and an offsetting positive home equity effect that leads to a net increase in births among homeowners.”

        http://econweb.umd.edu/~dettling/dettling_kearney.pdf

        Go make babies.

  5. yet he [Hawke] used the circumstances to undertake a widespread program of microeconomic and macroeconomic reform

    I reckon that was more his Treasurer’s doing than Hawke himself. Keating pushed harder for further reforms (remember Option C at the tax summit?) which Hawke knocked on the head.

    Having said that, the Hawke-Keating government was at its reforming best under Hawke. Prime Minister Keating was much less impressive than Treasurer Keating.

  6. Howard wasn’t too bad between 1996 and 1998 (Guns, GST etc). Actually, most governments are at their best in their early days (Hawke-Keating 1983-1987, Howard 1996-1998, Rudd 2007-2009) which makes you wonder how bad the Abbott government can get.

  7. sydboy007MEMBER

    YAY negative savings rate. YAY halving of CGT and NG to the max. YAY baby bonus and increased welfare spending on those who were not in the bottom 1/3 of income earners.

    YAY Howard, more Socialist than an ABBA revival party 🙂

  8. I’m with the 39%.

    Interested to know who got the wooden spoon. I’d give it to Julia, but then it’d have to be the wooden broom.

    • Considering she had to work with a minority govt, a back stabbing predecessor, a biased and at times misogynistic MSM I think Gillard did remarkably well.

      Kevin “Biggest Moral Challenge” Rudd gets a fail mark. He botched the Resource Tax, lost his nerve on carbon pricing. They say crisis is a terrible thing to waste, which is exactly what he did with the GFC. Instead of using the dynamics of the crisis to kill some sacred cows (CGT discount, NG etc) he simply reinflated a housing bubble that was beginning to sag.

  9. Howards best achievements were on guns, Timor and the GST.

    Most shameful actions were the (unnecessary) CGT discount, Tampa and the “Big Australia by Stealth” program.

    I’d give him a low pass mark as PM.

    I agree that Hawke deserves kudos for taking on the established orthodoxy of his own party, just as Blair did.

  10. Howard was a parochial, mealy-mouthed, grubby little worm who along with his puffed up non-entity of a preening glorified country club treasurer squandered of the proceeds of a once in a generation mining boom. Never has a generation been allowed to accrue so much wealth so fast at the expense of indebting those with the least means. His legacy is a nation far more insular, mean-spirited and self-entitled than the one he inherited from the true reformers that came before him.

    • GunnamattaMEMBER

      Well I was going to say he inherited a nation which had done the hard yards in restructuring to gain a niche in a globalized economy, and left it with its head up its economic arse and a generation of chenille lipped sanctimonious wankers in full lecture mode sailing the economy towards the reef while doing for the future what hits and memories radio does for music.

      …but as usual Spleenblat says it better.

    • migtronixMEMBER

      But to do him justice he was a tireless and fearless defender of Murdoch and Packer interest.

  11. Both sides of govt have been hugely committed to housing unaffordability over the past couple of decades. It’s the one thing they have a unilateral agreement on.

    Howard’s policies pushed up house prices, but then Rudd took it many steps further when he threw everything at an already over-inflated market. And now that we’ve got Abbott, he is not going to do anything to change the status quo. If we were to change to Labor now, Bill Shorten has already said he wants a Big Australia, so we can only guess that he also will do anything to prop up the bubble.

    Edit: At the time I hated Keating for inflicting us with the “recession we had to have.” On reflection, at least he allowed house prices to fall; or maybe he just couldn’t do anything to stop them falling. I now think we are way overdue for a big recession we’ll have to have one day.

  12. I’m with Keating. The only one prepared to tell the electorate to take their medicine (in the form of a recession).

  13. bolstroodMEMBER

    John Howard lied to the Australian people about weapons of mass destruction in Iraq & took this country to war on his own ,without consulting Parliament or his own Cabinet.
    He is a War Criminal & complicit in the deaths of half a million people.
    In a just world he would be tried in the Haig & sentenced to life in prison.