Sunday, May 19, 2013

If by a miracle Labor wins the poll, it must deal with the Treasurer

They say every political career ends in failure.  But some more than others.  All the evidence suggests Wayne Swan's sixth budget, released last Tuesday, will be his last.

In recent years the Treasurer has been confidently promising he would bring the budget back into surplus.  This promise was central to the government's economic story.

And for good reason, too.  The promise implied that the budget's drop into deficit was a co-ordinated dive, rather than an irresponsible free-fall.  It implied Swan was in control all along.  When he broke the surplus promise it completely shattered that illusion.  Indeed, almost every major problem of the Gillard government can be traced back to the Treasury and its Treasurer.

Take the mining tax — one of the few proposals in the thousand-page Henry Review of taxation Labor bothered pursuing.  The mining tax was Swan's tax.  It was his job to explain it, campaign for it, and push it through.  But in the end Swan's campaign for the mining tax resulted in Kevin Rudd losing the Labor leadership.

We often forget that the biggest mistake this government ever made — the spill in 2010 — was a direct result of the mining tax debacle.

The role of the Treasurer has an oversized place in Australia's political culture.  Australia is obsessed with its economy.  In no other country do minor shifts in interest rates dominate the political conversation as they do here.  For the past few decades budget surpluses and deficits have been the measure by which we judge our governments.

Perhaps we're too obsessed with the economy.  But the obsession serves us well.  If you want to see what a lack of interest in public finance fundamentals leads to, then have a look at the United States ... or Greece.

So no surprise the roll-call of prime ministers is filled with former treasurers.  John Howard, Paul Keating, Billy McMahon, Harold Holt, Ben Chifley and Joseph Lyons have all occupied the post.  Other long-serving treasurers (read Peter Costello) have been prime contenders for leadership.

Then there's Swan.  Among all Labor's leadership buffoonery, Swan's name has been missing.  He is not just Treasurer but Deputy Prime Minister.  He ought to be at the front of the queue.  Wayne Swan is the only long-serving Treasurer in living memory who has been diminished, rather than enhanced, by his job.

As usual, it all started with the global financial crisis.

Labor apologists say the government's hasty actions between October 2008 and May 2009 kept Australia from recession.  Let's call this the hero story of the Swan years.  It's pretty simple.  The kitchen cabinet of Rudd, Swan, Julia Gillard and then-finance minister Lindsay Tanner pumped an unprecedented amount of money into the economy in the form of $900 cheques, school halls, and pink batts.  Then:  boom!  Recovery was had.

That's about as concrete as this argument gets.  The government spent lots of money on stuff, therefore the economy survived.

But just because one thing comes after another thing doesn't mean it was caused by it.  It's nice to imagine recessions can be avoided simply by pushing down on the spending throttle.  But the world is more complicated than that.

Many countries spent more than Australia, yet their economies did worse.  Many countries spent less and recovered quicker.  As the blogger Ricardian Ambivalence has demonstrated, a statistical test devised by the Treasury shows there is no relationship between a country's stimulus spending and its performance in the recent crisis.

If Wayne Swan has any evidence that he saved all our jobs, he hasn't shared it.  And without his crutch — his bold and exciting hero story — the Swan legacy is much less impressive, characterised solely by a rolling series of deficits and a futile optimism that the economy will just grow the debt away.  That's the real story of this year's budget.  It's a final demonstration that the government's grand plan didn't work.

Yes, we have low unemployment, at least by global standards.  Yes, international credit ratings agencies don't think the Commonwealth government is going to default on its debt any time soon.  Yet Swan's entire economic strategy has been predicated on the idea that we would enjoy a sharp burst of growth after the lows of 2008 and 2009.

Instead, our economic growth has been sluggish.  The flood of tax revenue Treasury was hoping would pay for those school halls and insulation hasn't arrived.

Rudd declared in 2007 that Howard's reckless spending must stop.  But it has taken Labor half a decade to axe the baby bonus — the classic example of Howard-era waste.  In the meantime Swan has busily increased taxes.  We've had a mining tax, a carbon tax, an alcopops tax and a flood levy.  Now we're getting a tax for the national disability insurance scheme.

Perhaps Julia Gillard's government will win the next election.  There's a chance Labor could survive, even if that chance is extremely remote.  But if Labor does win, its first priority must be to deal with the problem of the Treasurer.

No comments: