Saturday, November 01, 2008

Rudd's questionable call

Maybe Kevin Rudd has a sense of humour after all.  Or maybe events are getting to him.  Or maybe he genuinely believes that he should be left alone to run the country.

In a speech in Melbourne on Tuesday night, the Prime Minister spoke about the importance of maintaining business and public confidence during these "unprecedented times".  He went on to say:  "It is incumbent upon all of us in political leadership to be very careful about what we say.  Now is not the time to be questioning the head of the commonwealth Treasury.  Now is not the time to be attacking the head of the Reserve Bank."

If Rudd is serious, and as yet there's no evidence he was joking, the consequences of his statement are breathtaking.  The Prime Minister is in effect demanding a gag on public debate of his government's economic policies.  Yes, the condition of the world economy is serious.  But is it so serious to justify the suspension of the practices of liberal democracy?

The cause of good governance in these "unprecedented times" is best served by having more debate, not less.

No one is arguing against the notion that politicians and commentators should be careful discussing economic issues and that such discussion should be within the bounds of what's reasonable in the circumstances.  It would obviously be irresponsible for a politician to claim falsely that a particular bank was about to go broke.  But what the Prime Minister said goes far beyond this.

If now is not the time to be questioning the head of the Treasury, the Prime Minister could tell us when is a good time.  During the boom years Treasury's mistakes mattered less.  It was verging on a scandal that for year after year Treasury could get its projections for taxation revenue so completely wrong.

But in the 1990s no one seemed to mind too much.  In the current financial circumstances, if Treasury gets its revenue projections wrong, the consequences will be far more dramatic and serious than they were a decade ago.  In the midst of a crisis government decisions need to be especially scrutinised.

Likewise with the Reserve Bank.  During last year the RBA made its decisions to keep lifting interest rates according to the evidence available to it at the time.  In hindsight the RBA was wrong.  Is someone who says the RBA got it wrong therefore "attacking" the head of the Reserve Bank?

In his speech Rudd talked about the need to maintain "support for the independence and integrity of our national institutions".

It's fine for the Reserve Bank to be independent, but to whom is it accountable?  The Prime Minister appears to be coming perilously close to claiming that to criticise the Reserve Bank is to be "unAustralian".

The Prime Minister would like us to suffer in silence as he and his ministers spend half the budget surplus without the Treasury predicting what the outcomes of such spending might be.  This is hardly a model of accountable and transparent public administration.

Last year, while in opposition, Labor attacked the then Howard government for promising a $10 billion water plan without receiving departmental analysis of the plan.  Labor's criticisms were valid.

Yet Labor, now in office, is doing exactly what it attacked the coalition for.  No one should be surprised when a politician says one thing and then does something else, but Rudd said he'd be different.

The Prime Minister has two reasons why he thinks Australians should just sit down and shut up while he makes financial policy on the run.  First, he says we must get economic policies "right" and this is a process best undertaken without having an argument about them.  Second, he argues that the lesson of the bank deposit guarantee saga is that "politicising" such issues is "unhelpful in the markets".

The reply is simple.  Making policy in the glare of public scrutiny doesn't guarantee that the policy will be right, but there's a greater chance of it being right compared to having the policy made in secret.

Rudd is rewriting history if he believes it was the "politics" of the bank deposit guarantee that was unhelpful in the markets.

It's not politics that is stopping thousands of people from redeeming their funds held in cash management trusts.  The shemozzle over what deposits are -- or are not -- guaranteed is entirely a problem of the government's own making.

What's unhelpful in the markets is bad policy.


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