The barrenness of the Coalition commentary on economic issues has again been on display since the RBA lifted interest rates by 25 basis points to 3.25% yesterday. Joe Hockey was first cab off the rank with his bold assertion that the rise was the result of the Government’s reckless stimulus spending and that this was just the first instalment of many rises that will place a heavy strain on families with a house mortgage and on small businesses with loans. He asserted “...it is clear the Government's continued spending is pushing up rates”. [more]
On the 7.30 Report last night, asked by Kerry O'Brien about the interest rate rise, Malcolm Turnbull echoed Hockey’s words "...well certainly it bears out the criticism we made at the beginning of the year that the Government's fiscal stimulus, its borrowing and spending, was too big and poorly targeted and that it would inevitably result in interest rates being higher than they otherwise would be...I don't think there's any doubt that the criticisms...have been borne out by the rise in rates today. Because there's the Reserve Bank saying it's got to withdraw the monetary stimulus, it's got to start tightening monetary policy, and of course the problem is that the Government is still expanding fiscal policy. So what the Government's doing is working against the Reserve Bank.”
So the Coalition argument is that the stimulus package has overheated the economy and forced the RBA to cool it with a rate rise. This same stimulus package is the one the Coalition insisted would not create one job, or be of any value. Even when the economy began to recover, which was widely attributed, among other things, to the stimulus, Hockey, Turnbull and Coalition members steadfastly refused to acknowledge its benefit. Recovery was due to the Howard legacy, the great state of the banks and their regulation, the interest rate cuts, the recovery in China’s economy, anything but the stimulus. But today Helen Coonan, in an unusual fit of candour, said the stimulus had done its job and now needed to be withdrawn.
So what is the Coalition’s position? Did the stimulus do any good at all? Did it just overheat the economy without doing any good? Did it just rack up deficit and debt while doing nothing for the economy and jobs? Did it do just enough to force the RBA into raising rates? Or did it actually save Australia from recession? And was the rate rise a consequence of Australia's economy recovering as Wayne Swan insists? The Coalition certainly contends it was not either of the latter. As is usual it is confused about its position; it has not managed to harmonize its song.
It’s hard to see how monetary policy and fiscal policy are now working against each other as Turnbull insists. Although the stimulus of monetary policy has been wound back a little with the interest rate cut, it is still at an emergency level, and the fiscal stimulus is still in place, as are the wind-back plans. The two are still working in harmony.
If there was any need to argue the value of the stimulus, perhaps what Glenn Stevens said at the Senate enquiry is germane. He credited the Government's stimulus effort for keeping the country out of recession, but made it clear he was uncomfortable with the current low level of interest rates, and in fact suggested that interest rates that were too low were not good for the country. Asked was the billions of stimulus dollars an overreaction by a nervous Prime Minister, Stevens’ answer was no, adding “I haven't really had a serious problem with what's occurred on the fiscal front thus far.”
Kerry O’Brien confronted Turnbull with Stevens’ comments. “He's comfortable with the Government's stimulus spending, he's comfortable with Mr Rudd's timetable to repay Government debt and he has said quite clearly that interest rates are at unnatural lows in order to deal with the Australian response to the global crisis and were always going to go back up. Is there anything in his statement today where he says, ‘We are putting rates up because the Government has spent and will continue to spend too much’?”
Turnbull responded with his well-worn mantra: “They panicked about the global financial crisis. They said they thought they were on the edge of an abyss. They spent far too much money in a very poorly targeted way, instead of being more judicious. As a result, the economy - they've spent more than they needed to, the economy is much stronger than they expected and the Reserve Bank is having to crank up interest rates while the Government is still spending money hand over fist.”
So despite Stevens’ testimony, Turnbull still insists that the stimulus is putting upward pressure on interest rates. Facts and expert opinion are irrelevant. The only one Turnbull quoted to support his argument was the opinion of Warwick McKibbin who has never been a supporter of the stimulus.
Turnbull is isolated in his opinion with few able to even partly support his assertions. It is doing nothing for his economic credibility. The latest Newspoll points to the confidence those polled have in the Government’s actions and in Rudd and Turnbull. Asked ‘Do you think the amount of money spent on the federal government’s economic stimulus package has been too much, too little, or about right’, 52% said about right, 4% too little and 37% too much – only a little over one third thought the Government had overdone the stimulus, and even 26% of Coalition supporters felt the stimulus was about right. 48% said the stimulus had made them better off, 27% saw no difference, and only 17% felt worse off. On the question of national debt, 53% expressed concern and 43% no concern, a majority for the former, but hardly a ringing endorsement for the debt and deficit mantra. Most worrisome for Turnbull though were the answers to the question, ‘Which of Kevin Rudd and Malcolm Turnbull do you think is more capable of managing Australia’s economy.’ 58% said Rudd, 25% Turnbull. Even 25% of Coalition supporters rated Rudd as more capable.
So the people support the Government’s actions on the GFC and more than twice the people polled regard Rudd more capable of managing the economy than Turnbull. And this is despite the debt and deficit mantra and the negative talk about the stimulus that the Opposition has been peddling for months. Clearly the public is unimpressed.
In the face of this expression of public opinion and the opinion of most financial experts, why do Turnbull and his finance ministers still stick with the disingenuous mantra that the Rudd Government has badly mismanaged the GFC and the stimulus is forcing up interest rates? Surely this strategy will further diminish the economic credibility of Turnbull and Hockey and indeed the Coalition as a whole. It has spectacularly surrendered economic credibility to the Government and persistence with its current strategy can only diminish it further.
Talking about the interest rate rise, Wayne Swan said "Australians are smart enough to know interest rates can't stay at emergency levels forever." One could add: 'Australians are clearly smart enough to know that the Government is managing the economy well'.
The tangled mess over the ETS that has now entrapped the Coalition and the leadership uncertainty that has resulted is enough to manage right now. Surely it would be prudent for it to try to reduce the economic credibility deficit it suffers and take the sting out of the economic debate by acknowledging ever so gently the value of the stimulus and the reasonableness of raising interest rates from the current emergency levels, and desist from its unconvincing mantras that clearly are having no influence on any other than its rusted-on supporters.
Disingenuousness always backfires eventually. ‘Debt and deficit’ and ‘the stimulus was useless and is pushing up interest rates’, so lacking credibility with the majority of people, have already backfired. The new outbreak of disingenuousness will only make matters worse. Only a fool bent on self-destruction would continue down that track.
What do you think?