It some I have argued all the time. The ALP spending binge during the GFC has wrecked our economy and is the PRIME reason we are in the predicament we are in at the present moment.
It is simply a fact that that the ALP/Green alliance should not be let near the treasury seats. It is innate that they cannot handle an economy.
That is not just my opinion any more.....IT IS NOW THE OFFICIAL TREASURY VIEW...............
Labor spending was a blow to economy after GFC, says report
Former Labor treasurer Wayne Swan.
- SIMON BENSON
- The Australian
- 12:00AM December 9, 2016
- Save
- 295
A damning Treasury-commissioned independent review of the former Labor government’s unprecedented spending response to the global financial crisis has found it was a “misconceived” waste of money, fundamentally weakened Australia’s economy, almost destroyed parts of the manufacturing sector and inflicted more long-term harm than good.
The review is also scathing of government failure on both sides of politics to address the budget crisis triggered by the $100 billion fiscal stimulus project, which has saddled the nation with the fastest-growing public debt in the world. “There is no evidence fiscal stimulus benefited the economy over the medium term,” says the paper, to be released today.
It says the stimulus was “misconceived”, with an emphasis on transfer payments and “unproductive expenditure such as school halls and pink batts”.
The study comes on the back of Wednesday’s national accounts figures, which revealed a shock contraction in real GDP for the September quarter of 0.5 per cent, leading Scott Morrison to argue that the unexpected fall in growth put new urgency into the government’s policy to cut company tax.
Hopes that surging resource exports would bring a quick turnaround in Australia’s economic performance were dealt a blow yesterday, with the trade deficit blowing out to $1.5bn in October, more than double the predictions of market economists.
Revenue from iron ore exports fell, despite the strong market prices, while there was only a small lift from coal exports.
Exports rose $388m in the month, with imports up $659m.
UBS chief economist Scott Haslem said there would have to be a strong rebound in exports over the final two months of the year for trade to bring the needed boost to GDP in the December quarter after the contraction in the September quarter.
The first economic study of its kind into government fiscal stimulus policy, commissioned by Treasury secretary John Fraser and conducted by economist Tony Makin, argues that the stimulus rolled out by then prime minister Kevin Rudd and his treasurer, Wayne Swan, from late 2008 ultimately damaged the country’s competitiveness.
“The government’s fiscal response to the GFC subsequently weakened the economy by contributing to the dollar’s strength, and by creating pervasive policy uncertainty about how the budget would be repaired,” the paper says. “In sum, the nature of Australia’s fiscal stimulus was misconceived because it emphasised transfers, unproductive expenditure such as school halls and pink batts, rather than tax relief and/or supply side reform, as occurred, for instance, in New Zealand, where marginal income tax rates were reduced, infrastructure was improved and the regulatory burden on business was lowered.
“The scale of spending was unnecessarily large and subsequently proved counter-productive by working against keeping interest rates and the exchange rate lower for considerably longer, as occurred during the Asian crisis.
“The damage done by the stimulus program also led to a decline in the viability of parts of the manufacturing sector, including the motor vehicle industry.”
Professor Makin, director of the APEC Study Centre at Griffith University, told
The Australian budget repair should have started five years ago — when Labor was still in power — as the task was now “massive”.
He acknowledged that the Coalition had attempted to undertake some budget repair — with the politically toxic 2014 budget — but had gone nowhere near the fiscal consolidation under the Keating and Costello periods in the 1980s and 90s and fell short of what had been achieved in the US, Britain and New Zealand, largely because of Labor and Senate crossbench opposition to savings measures.
In a previous paper, Professor Makin modelled a scenario that would require budget turnaround twice the size being projected to get debt under control.
He warned that using any form of fiscal stimulus again could be catastrophic for the economy and the budget.
The Treasurer has argued that Labor’s “tax and spend” policy would amount to a repeat of the worst excesses during the GFC, maintaining the government’s business tax relief plan is the only option to reignite receding investment.
Bill Shorten continued his attack on the Coalition’s company tax plan yesterday: “One thing we won’t do is take $50bn out of the budget, which this nation can’t afford, and just hand it back to large companies.”
The paper supports the government position and concludes that a tax-neutral policy, which includes company tax cuts combined with fiscal consolidation, is the only prescription before emergency measures would need to be sought. Professor Makin argues that any policy that would add to spending more on unproductive outlays such as welfare “could spark a vicious circle of deficits and debt requiring emergency fiscal remedies if higher world interest rates combine with an interest risk premium arising from a credit rating downgrade”.
Successive Labor leaders have argued that the Rudd-Swan fiscal stimulus inoculated Australia from the worst of the GFC and prevented a technical recession.
The Makin paper disputes this. “In sum, fiscal stimulus was not primarily responsible for saving the Australian economy from a narrowly defined recession in the March quarter of 2009 …” it says. “What prevented Australia from experiencing a technical recession at the critical juncture in 2008-09 was a combination of lower interest rates, a major exchange rate depreciation, strong foreign demand for mining exports, especially from China, and a then more flexible labour market. Fiscal stimulus later weakened the economy by strengthening the exchange rate and reversing the contribution net exports made to aggregate demand. Largely implemented after the worst of the GFC had passed, fiscal stimulus countered the effectiveness of monetary policy by keeping market interest rates higher than otherwise and contributed to a strong exchange rate.”
