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Posts Tagged ‘Fiscal policy’

2013 budget reply speech

June 5, 2013 1 comment

I don’t normally get the opportunity to give a budget reply speech, but this year the ALSF invited the Australian Taxpayers Alliance to address their annual budget seminar, so I was given the chance to rant to some eager young politicians of the future. This is what I prepared for the talk…

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The choice

In the coming decades, policy makers will need to make a choice between embracing the green-left policy of higher taxes, allow our country to slowly go bankrupt, or undertake difficult reforms to health and pensions that are politically unpopular. Those are the only choices. Few people on the centre-right will admit it now, but the truth is that most politicians (including the “good” ones) are probably going to choose a mix of higher taxes and eventual bankruptcy.

For political wannabes, this is a killer question. It goes straight to the issue of why you want to be involved in politics.

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Treasury’s non-modelling of the stimulus

February 1, 2013 Comments off

Late last year I published an article with Agenda (the public policy journal of ANU) that critiqued the Treasury “modelling” (sic) of the Rudd government stimulus that followed the global financial crisis. It is an article that I started writing a long time ago, but sat in the “to do” pile for too long.

My main point was that the Treasury approach was hopelessly inadequate, a point that is abundantly clear to any economist who glances at their attempt, and has been readily admitted by some Treasury friends. As I wrote in the article:

“The biggest problem with the Treasury model is that because it misunderstands the issue of international crowding out, it drastically underestimates the impact on net exports. In addition, it entirely ignores the issues of domestic crowding out, monetary policy responses, and the costs of repaying the debt. While its estimate for the private savings response to the stimulus is at the low end of the range, this is the least of the problems.

“The ignorance of open-economy macroeconomics suggests that Treasury has neglected much of the advances made in macroeconomics over recent decades, and its strange assumptions on domestic crowding out and private savings response show that it has forgotten much of its own research. As Harvard economics professor Robert Barro said in 2009 when the US was debating its own stimulus policies, ‘The financial crisis and possible depression do not invalidate everything we have learned about macroeconomics since 1936’ (Barro 2009).”

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Ruddonomics: the “crisis”

February 21, 2010 1 comment

In his infamous Monthly essay “The Global Financial Crisis“, Andrew Charlton Kevin Rudd uses the word “crisis” 14 times within three paragraphs. Scary stuff.

But my complaint about the essay is not the fear-mongering. That’s fairly standard in politics. My complaint is that Rudd simply gets the economics wrong, time and time again, starting with the second paragraph reference to “fundamentalism”.

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Our fiscal future

February 10, 2010 1 comment

The government has released an updated Intergenerational Report (IGR) which gives us a glimpse into our fiscal future. Too often economic decisions are made with a view to the short-term political cycle and not the long-term sustainability of the policy. The IGR is a useful tool to help us assess whether current policy is sustainable into the future. The short answer is “no”.

As the population ages and as people demand ever-more complex health services, government spending will continue to increase. This will result in sustained budget deficits, leading to growing government debt. While a small amount of government debt is manageable, the debt cannot increase forever. When the debt gets too big then the interest on the debt becomes unaffordable, and the government faces a financial crisis… with any number of potential bad outcomes.

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Why the stimulus was bad policy

January 19, 2010 Comments off

There is a general perception that the economic stimulus package was good public policy and saved the Australian economy from recession. It wasn’t, and it didn’t.

Most of the economic commentary in Australia has been fairly simplistic. The standard story goes that the economy was heading for recession, so the government spent lots of money, and that made the economy stronger so we avoided recession. This is the line repeated by the Rudd government and some of the media.

But this story is wrong on several levels.

First, in any meaningful sense Australia did go into recession, and by some accounts we still are in recession. The government is quite right to claim that total GDP growth has remained mostly positive: for the last five quarters it has been +0.1%, -0.9%, +0.5%, +0.6%, +0.2%, with a total of +0.5%. However, the more useful measure of wellbeing is GDP per person, and that measures has been mostly negative: for the last five quarters it has been -0.4%, -1.4%, 0%, 0%, -0.4% with a total of -2.2%.

In short, since the GFC started Australians have become on average 2.2% poorer.

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