Coalition’s rewriting of economic history is a masterclass in obfuscation
During the Senate estimates hearings this week, the main tactic government senators employed to obfuscate and delay answers has been to play dumb. And it should be said that they are very good in the role. Very, very good.
They are so good that at times you can scarcely see the acting involved. I guess it is that “invisible school” of acting where the aim is for viewers to think we are seeing the real person and not an act.
Among the masters of obfuscation and pointless diversion is the finance minister, Mathias Cormann, who in the midst of the treasury secretary’s testimony on Wednesday had a bit of a drive-by about spending by the ALP government during the GFC.
Now it has been long known that the LNP is mostly GFC truthers – it was an event that happened elsewhere and thus there was no need for any stimulus spending. At this point in time they barely see any reason even for the stimulus they supported.
As Katharine Murphy has noted, the current criticism of the GFC stimulus is out of a desire not to champion any fiscal stimulus given the calls for such measures now.
Cormann brought a new twist to his criticism of the GFC stimulus when he suggested that it drove up interest rates and the value of our dollar.
And he was very passionate about it – going full method-acting by taking the play out of estimates and onto Twitter, where he replied to Nine journalist Shane Wright’s criticism, suggesting, “You have obviously forgotten what happened to the cash rate post Labor’s reckless spending spree (pink batts, overpriced school halls etc). Or impact on exchange rate given very low cash rates and quantitative easing elsewhere after excessive Labor stimulus forced our rates up.”
Yep, it’s 2019 and the Liberal party still wants to blame the ALP for high interest rates.
It is instructive as to how much the Liberal party detests the thought of fiscal stimulus that Cormann was taking issue with the situation a decade ago where the cash rate fell from 7.25% to 3% in eight months and then took 19 months to rise to 4.75% – a rate lower than had existed throughout the final four years of the Howard government.
And it is also instructive how lacking in logic the finance minister had to be to make such an argument. If interest rates went up due to the stimulus then that meant it had helped improve demand in the economy, which was the whole point.
So yeah, it worked. Thanks for confirming that, Mathias.
But of course things were more complex. The notes from the RBA’s meetings at the time show more was at play – namely that the RBA did not want to keep interest rates at emergency levels for longer than was needed.
The RBA noted as it increased rates that “public spending was prominent in driving aggregate demand for several quarters but this impact is now lessening”. It also noted that “the cash rate was lowered quickly, to a very low level, in expectation of very weak economic conditions and a recognition that considerable downside risks existed. That basis for such a low interest rate setting has now passed.”
Would Cormann have wished those conditions did not pass?
The RBA also continually noted “interest rates to most borrowers nonetheless remain lower than average.”
And as for the stimulus being the reason for the exchange rate going up, at that time our terms of trade (the price of our exports compared with our imports) rose 30% – the biggest increase ever recorded over such a period.
You would hope Cormann might have remembered that.
As the RBA noted when it increased the cash rate to 4.75%, “the exchange rate has risen significantly this year, reflecting the high level of commodity prices” and “the economy is now subject to a large expansionary shock from the high terms of trade”.
In 2013, the RBA estimated that the mining boom caused the real exchange rate to be 44 per cent higher in 2013 than it otherwise would have been.
One might have thought that would be where the economic idiocy would end, but no. Liberal senator Andrew Bragg got in on the act, tweeting, “Short memories indeed. Labor overreacted & wasted billions of taxpayers’ money during the GFC. Worse still, the budget was structurally put into deficit with unfunded promises & disastrous taxes (some which raised no money)”.
Well now. That is just flat out wrong.
The Parliamentary Budget Office looked extensively into the structural position of the budget and determined that “over two thirds” of the decline in the structural budget position was due to the “cumulative effect of the successive personal income tax cuts granted between 2003-04 and 2008-09” and a further quarter of the fall was due to “a decline in excise and customs duties” because of “the abolition of petroleum fuels excise indexation in the 2001-02 budget and the decline in the consumption of cigarettes and tobacco over the period.”
It also noted that the “temporary fiscal stimulus spending in response to the GFC” did not directly affect the structural position of the budget because, well, it was temporary.
I realise this debate will never end. Reality, facts, truth are just flexible concepts now in political debate. But I would at least counsel the members of the government to stop playing the role of the fool so well.
People might begin to wonder whether it really is an act.
• Greg Jericho writes on economics for Guardian Australia