Dennis Shanahan was the first to use the term ‘benchmark’ in his 27 November piece in The Australian Rudd sails on perilous waters to identify the criteria of success, or failure, of the Rudd Government’s budget strategy according to the economic oracle, Malcolm Turnbull.
Leaving aside Shanahan’s applause for Turnbull’s tactical moves, he identified three benchmarks that to Turnbull would denote failure of economic management.
First benchmark, going into a deficit. As Shanahan put it, “Malcolm Turnbull had cornered Rudd and Wayne Swan over the deficit by establishing a budget surplus as a benchmark for economic success.” So by corollary, a budget deficit would be a benchmark for failure. And the longer the deficit lasts, the greater the failure, according to Turnbull: "Experience and history tell us that Labor deficits are never temporary. The last Labor deficit lasted for six years. It only came to an end with the election of a Coalition government."
Next benchmark, rising unemployment. Shanahan’s take is “...Turnbull and the Liberals are starting to frame the argument that any rise above the current 4.3 per cent unemployment rate is another benchmark for economic failure.”
Third benchmark – recession. Shanahan ends with a prediction: “The next challenge for the Government will come as Turnbull begins to demand it keeps the nation out of recession.”
So here we have the setting of benchmarks for failure of the Rudd Government, two of which cannot be avoided, and a third that also might be unavoidable.
Turnbull knows full well that Australia has been hit by an extreme economic storm not of its own making, that if the nation is to avoid a severe economic downturn and loss of jobs, radical fiscal measures will be needed which will likely create a budget deficit. To not take these measures would be economically irresponsible, so knowing the Government will take them Turnbull is setting it up for economic failure by his own definition.
Regarding unemployment, last month’s forecasts for unemployment of more than 100,000 have worsened over the past three weeks. So rising unemployment is an unavoidable given. The Government cannot meet Turnbull’s benchmark.
Finally, since ‘recession’ is an academic term for two successive quarters of negative growth, a product of the economic circumstances, over which the Government has limited control, another benchmark is looming on the horizon, one the Government would find it difficult to avoid unless it took extreme fiscal measures which in itself would create a deficit, another benchmark of failure.
So Turnbull is trying to establish a lose-lose-lose situation for the Government, a win-win-win for the Coalition and of course himself, and seems prepared in the process to accept a lose-lose-lose situation for the nation and its people. [more]
A measure of how unreasonable and irresponsible Turnbull’s tactics are might be best illustrated by an analogy – the extreme storm that hit the suburb of The Gap in Queensland earlier this month.
Imagine you’re a home-owner in that suburb. Your house is well-constructed, fully paid-for and adequately insured. For all the years you’ve owned it you have maintained it well, it has stood up to all weather conditions, and has not been the subject of an insurance claim. Then one awful day it is hit by extreme weather conditions - cyclonic winds, persistent heavy rain, lightning strikes and landslides. They were forecast just a short time before. You had time to check that all leaves had been removed from gutters, that loose objects had been secured, and you stayed indoors. But sadly a large tree on the roadside was uprooted and fell across your house. Being on a slope, a mudslide hit the back of the house. Tiles were ripped from your roof and much of your ceiling collapsed under the weight of the water that poured in. In the small section of roof that remained intact the strong winds pushed water in under the tiles and the eaves, leaving extensive water damage to the house contents so that it was barely habitable. Electricity lines were torn down and lay across your lawn. You lost power. The emergency services restored electricity in a short time and secured a tarpaulin across your roof. You did everything you could to minimize the damage to your house and contents.
Then you contacted your insurer. An arrogant young assessor visited you. He indicated that as a householder you had failed badly. Many benchmarks of failure were evident. You had allowed a tree to fall onto your house; despite a stone retaining wall he insisted you had not properly buttressed the soil at the back of your house; you had not secured your tiles properly; measures you had taken to minimize damage had made matters worse; and the tarpaulin had caused further damage. As it was the insurer’s policy to refuse to pay householders who had failed so badly, your claim for damages would not be honoured. You would need to vacate your house and pay for its restoration yourself. The extreme and unexpected weather conditions and the short warning were no excuse.
Not a good parallel? Possibly not. Silly analogy? Maybe, but the benchmarks for householder failure are no less grotesque than the Turnbull benchmarks for failure of the Rudd Government as it strives to weather the no-less-severe economic storm lashing the nation, one that is rapidly worsening, and Turnbull is no less arrogant, unfair and irresponsible than the young insurance assessor.
Economist after economist, commentator upon commentator agree that under the current economic circumstances a deficit occasioned by a well-targeted fiscal stimulus is necessary to limit the risk of recession. They agree with Rudd and Swan, not with Turnbull. His demand that the Government avoid a deficit, although this would be detrimental to the economy, to jobs, and to the nation, is irresponsible. But will contrary opinion be enough to stop him? Laurie Oakes doesn’t think so. Writing in the 29 November issue of the Daily Telegraph Turnbull falls into deficit he suggests that even if he is wrong, Turnbull is never in doubt about the correctness of his position.
So it’s unlikely Turnbull will change tack – no price is too high for him to achieve political traction. If one can judge from the opinion polls, the latest this week’s Morgan 59.5/40.5, Turnbull is spinning his wheels. He desperately needs traction. But his strategy is risky. The people are watching. When they see though his glib talk, he will be the one who fails.