By now it’s becoming clear that the Prime Minister and the Treasurer are having a better financial crisis than the Opposition.
Rudd and Swan are playing a conservative, percentage game. Deferring to the regulators, avoiding populism, calmly emphasising the strength of the economy and the financial sector. Even if the stability of the Australian economy is nothing much to do with them, they’ll benefit from the impression that we’re on top of things while the rest of the world goes to hell in a financially-innovative but heavily-leveraged handcart.
The only choice for Turnbull and Bishop — who still doesn’t look convincing in the job — is to fall into line or quibble round the edges. The debate over how much of the interest rate cut banks pass on will provide some easy points, but they’ll be cancelled out if — and likely when — the banks pass on falling costs outside the RBA cycle. You can bet Wayne Swan will be in their faces about that until they do.
But the stability of the Australian economy does have a bit to do with Rudd and Swan.
The big debate in the lead-up to the Budget was how much the government should slash spending. To be fair, it was initiated by the Government itself, with Rudd talking about meat axes, Lindsay Tanner decrying waste and Swan talking about the need to curb the profligacy of the Howard-Costello years. Rugged small government types (like me) were demanding real reductions in outlays. Access Economics was calling for a fiscal bloodbath, with Chris Richardson claiming every $3b equating to a 0.25 interest rate cut. Others thought the tax cuts were the height of irresponsibility and that the government should accept whatever political pain was necessary to ditch them.
Swan kept the tax cuts and reduced outlays, but they still grew in real terms at 1.1%. When challenged on why he had not lived up to the meat axe rhetoric in his Budget press conference, he said “if we’d cut them any further, we’d have run the economy into a wall.” Malcolm Turnbull, wrong-footed, had to inelegantly change his rhetoric about the Budget and was caught out.
It turns out Swan and Rudd had done their job well. They’d consulted in detail with Australian and overseas regulators and economists about what was going to happen across the global economy. While most of us were worrying about the economy growing too fast, they were worrying about a global recession.
Turns out they were right, and their good judgement about the Budget — simultaneously increasing the surplus significantly while not slashing and burning outlays — is now standing us in good stead. Some recognition, then, is due to Wayne Swan. There’s a constant complaint about this government doing nothing and being obsessed with spin. Well, Swan avoided both pitfalls with the Budget.
As Laurie Oakes noted, the crisis has also cleared up the Prime Minister’s rhetoric. His speech to the Federal Labor Business Forum last Friday was a clear, engaging analysis of the origins of the crisis and what should be done to address the systemic faults behind it when the emergency has passed. The Australian wisely reprinted excerpts from it today. Rudd’s wonkish persona, which was starting to look like a liability when dealing with bread-and-butter issues like groceries and petrol, suddenly seems to be just what is required while the rest of the world panics about bank failures and credit crises.
A fine article, Bernard. It’s good to see one commentator recognise that the government is not inept.
They seem to have gotten the settings right and have not gone into panic mode over the ‘economic meltdown’
happening in the US and elsewhere. I am encouraged by their performance.
Borrowers had years of low interest rates and speculated on asset prices always rising. They didn’t think about how they were going to pay back the capital they had borrowed. It is now the turn of savers to reap the reward of high interest rates. If asset prices fall, savers can buy at realistic value. Bad luck for borrowers who can’t hang on. If house prices fall 30%, first buyers won’t have an affordability problem any longer. If unit prices fall 30%, new investors will earn appropriate yields. That should produce some affordable rentals.
The only problem with the so-called settings that Peter Roberts refers to is that when Swan brought down a “responsible” budget surplus of $22billion just last May, and big-noted his Govt by setting it aside in various “funds for later,” that was about battling inflation and “keeping downward pressure on interest rates to help working families.”
But now, just a short four months later, with inflation no longer something to worry about because other factors have emerged to put downward pressure on interest rates, surprise surprise, Rudd and Swan will now big-note themselves with their profligate State Govt. mates by breaking open the “funds,” and immediately start to spend the surplus, as Rudd himself said, not with undue haste, but to get the money out as soon as “practicable.” So much for responsible budgetting!!
Well, Graeme Lewis, I think the govt has shown responsibility to date and that ,just maybe they can use the surplus to positive ends. I certainly hope they will resist the urge to ‘slush fund’ the infrastructure money and if they do I would be disappointed. There is no doubt that the country (not the state govts) need to invest in major infrastructure programs that will benefit the generations to come. As far a ‘working families’ are concerned I believe that restructuring the taxation system is a better option a than the previous govts so called ‘handouts’.
This has been set in train and I look forward to the results.
There is another way for banks to pass through the full rate cut and protect their solvency level – it’s called an executive wage cut. Funny how no one in the Big Media bothers to put that question.
Government of the Rich by the Rich for the Rich? http://en.wikipedia.org/wiki/Bulworth