From David Uren:
Scott Morrison is ruling out the use of cash handouts or other budget stimulus measures to support the economy, amid differing views between two of the government’s top mandarins.
The Treasurer says a further boost to infrastructure investment will have to wait until the government stops having to fund its daily spending with more debt.
…Malcolm Turnbull’s appointment of a former Treasury chief to head his department always created the possibility of conflicting economic advice with his successor. While Dr Parkinson and Mr Fraser worked together in Treasury in the 1980s and early 90s, they have had very different careers and backgrounds.
The Treasurer’s stand against stimulus, in an advance copy of a speech he is delivering today to a banking conference in Sydney, is designed to put a halt to speculation about how the government would respond to a downturn and comes as the National Australia Bank’s November business survey shows the weakest trading conditions in two years, following the 0.5 per cent GDP contraction in the September quarter.
…Mr Morrison says Australia is still paying the price for the stimulus measures implemented by the former Labor government in response to the global financial crisis. “The Turnbull government will not repeat the stimulus mistakes of the Rudd-Gillard-Rudd government with cheques to 16,000 deceased people, overpriced school halls and catastrophic programs like the home insulation debacle.
More intellectual wreckage from Australia’s most sackable aylite. Is it reasonable to juxtapose today with the Global Financial Crisis? Pfft.
The fiscal stimulus of the GFC period was exceptional. Yes, it had waste. Yes, it went on too long. But that’s the point of fiscal stimulus, throw money out the door and get folks spending. Nobody knew at the time how things would play out, but the very justifiable risk assessment was that we were verging on another global depression, and in those circumstances it was the right thing to do. Its three-part structure – targeting households not banks – will be replicated around the world during the next shock.
If it had a fault, it was in inflating house prices all over again via first home owner grants. But that particular component was the brainchild of Cabinet not Treasury.
Fast forward to today’s circumstances. We have a housing and commodities boom underway, the S&P500 is screaming to new highs daily and China is powering. Yet here we have a Treasurer muscling-up against fiscal stimulus.
Give us all a break Scott, you’re refusing to stimulate to offset your own hapless policy errors, not to manage some dire global shock.
What’s really going on here is made plain at the AFR:
Treasurer Scott Morrison will issue an appeal for Australia’s AAA credit rating by telling restive agencies the government is exceeding their demands on budget repair.
And he will urge them to consider that a significant amount of foreign debt is “vital” for Australia’s prosperity.
In a speech ahead of next week’s mid-year budget update, which could see Australia lose its AAA credit rating, the Treasurer will also flag increasing foreign debt by borrowing for infrastructure and other productivity-enhancing investment but only after so-called bad debt is under control.
The ratings agencies have effectively warned the government that it needs to meet its 2020-21 objective of returning the budget to balance and that the path to get there had to be credible.
…In his speech, Mr Morrison will accuse Labor of sabotaging the budget in order to crash the credit rating so the government suffers politically.
The real estate Treasurer has no ideas beyond funding more house price rises and blaming Labor for the consequent downgrade.
It’s not all this government’s fault by any means. Successive administrations have failed since 2011 to recognise that what Australia needed was structural change to boost competitiveness and shift the economy towards productivity and tradables growth.
Even so, for Morrison to belittle what good policy Australia has had in the post-GFC period to save his own skin is a measure of the man.
