Friday, August 09, 2013

The blame lies with past policies

This week, after the Reserve Bank cut interest rates to their lowest level in half a century, Treasurer Chris Bowen welcomed the decision and said lower interest rates were a ''good thing'' for Australian families and businesses.

On that reasoning, if Australia's official interest rate of 2.5 per cent is a good thing, then the European Central Bank's interest rate of 0.50 per cent must be a great thing.

In 2009, in the midst of the global financial crisis, Kevin Rudd said the cash rate then of 3 per cent was at ''emergency levels''.

The point is it's all about the context.  Which is exactly what shadow treasurer Joe Hockey highlighted in the wake of the Reserve Bank decision.

He simply said that if the performance of the economy was as good as the federal government claimed, interest rates would not be at record low levels.

(In typical fashion, Hockey's statement of the blindingly obvious was portrayed by the ABC as a gaffe.) Hockey understands what the Labor government (and the ABC) do not.  Low interest rates are not an unalloyed good for households with mortgages if one of the reasons that interest rates are low is because economic growth is slowing and workers are less confident about keeping their jobs.

On Thursday, the unemployment rate remained at 5.7 per cent, but only because the number of people looking for work declined.  Treasury predicts unemployment will rise to 6.25 per cent.


The governor of the Reserve Bank, Glenn Stevens, talked about confidence, and in particular confidence in the business community, in an important speech in Sydney last week.  He listed the four ingredients he believed necessary for Australia to make a successful transition to a ''post-boom economy.  They are:  a degree of global growth;  appropriate domestic fiscal and monetary policy;  Australian companies being internationally competitive;  and finally, confidence.

The global economy is out of our control.  But the other three ingredients are not;  they are the result of decisions made in this country.  Stevens was correct when he said it is ''somewhat concerning that the business community's confidence has been quite subdued in recent times''.  That's a statement of fact.

However, Stevens was not right when he said something else, and any person running a business and employing staff would have been able to correct him.  Stevens said:  ''Unfortunately, it is not a straightforward thing to turn sentiment around.  There's no such thing as the ‘confidence policy lever'.''  He's wrong — there is, actually.  The confidence policy lever is called the government.  It's impossible to discuss business confidence (or the lack thereof) without talking about the host of rushed, ill-considered and dangerous decisions the federal government has made over the past few years.  In the past two weeks alone we've had tax changes affecting the banks and car companies.  To go through the details of all the taxes and all the regulations Labor has imposed since 2007 that have hurt business confidence would take weeks.


Stevens gives every indication of being knowledgeable and smart.  He would understand what the federal government has done to business confidence as well as anyone.  He even acknowledged in his speech the importance of having a regulatory framework that didn't ''inadvertently make it harder for businesses ... to take a chance on a new product, a new investment or a new worker''.  Yet he spoke in the future tense and in hypothetical terms.  Nowhere did he make the connection between why business confidence is ''subdued'' and what's happened since 2007.

The governor of the Reserve Bank might be on a seven-year contract and be paid a million dollars a year, but ultimately he's still a public servant — so what he can say is limited.  Nonetheless, his words and actions carry weight, which is why it's so important that when he talks of business confidence he should either be honest or not say anything at all.  Business confidence in Australia is not some ethereal and magical concept beyond the realm of domestic politics and policy.  The decisions governments make have a direct and immediate impact on business confidence — and we should never forget that.

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