I’m a politically unaligned economist, and I’m measuring up the two main political parties just as you are before the federal election on May 21. To my eyes, at least on the economics, the contest really boils down to a record of past performance versus a plan for the future. And I reckon that’s exactly how millions of undecided voters will see the two sides as they enter polling booths in a few weeks’ time.
Setting aside their (significant) failings on vaccines and rapid antigen tests, the narrowly economic side of the government’s management of the pandemic was exemplary. It wasn’t perfect some people fell through the cracks while others were allowed to profiteer. But ultimately Treasurer Josh Frydenberg has reason to be proud.
Josh Frydenberg should be proud of his economic stimulus at the start of the pandemic.Credit:Wayne Taylor
I was impressed by the eagerness with which the treasurer jettisoned some of the Liberals’ old sacred cows, opting sacrilegiously for massive fiscal support. It was no doubt galling for Labor supporters to watch the Liberals do all the things they had relentlessly criticised Labor for, but the country was far the better for it.
We avoided the labour-market scarring experienced in other places and at other times, where large swathes of workers have been locked out of the job market for good. Worker-firm links were maintained. Hundreds of thousands of workers transitioned off JobSeeker and back into work. And we have been left with the lowest unemployment in half a century.
And I was impressed by the treasurer’s prudence in resisting calls to ramp up or extend stimulus even further. This discipline was vindicated by explosive inflation in the United States, partly driven by excessive stimulus. But then, sadly, in last year’s budget he erred, rolling over additional stimulus into this year and then boosting it by half in this year’s budget.
There’s no doubt the Reserve Bank board will, when it meets on Tuesday, take into account the anticipated impact on spending and inflation of $12 billion in stimulus that will arrive in tax returns from July. If the RBA raises rates for the first time during an election campaign in 15 years, part of the blame should sit at the government’s feet.
The Reserve Bank of Australia will likely raise rates this week.Credit:Bloomberg
And when I look forward, despite Prime Minister Scott Morrison’s mindless repetition that they are the ones with the economic plan, I don’t see any evidence of one whatsoever. A bit like their net-zero commitment – indeed, the two are inextricably linked – there are vague platitudes but nothing in the way of concrete policy to achieve them.
For a government asking for a fourth term, with the might of the entire public service at its disposal, including hundreds of economists in Treasury, their economic policy agenda is shockingly threadbare. You hear a lot of criticism of our small-target opposition, but a small-target government is something else entirely.
So what about that opposition? Their childcare policy – while not my preferred mechanism – is credible and endorsed by the Grattan Institute, improving work incentives for mothers in particular. And their climate policy – while I take issue with some of it – includes a market mechanism to reduce industry emissions at minimum economic cost.
They have even made an attempt to fund some of their promises, proposing a decent plan to raise taxes on multinationals and to cut spending on contractors and consultants, which combined roughly offsets the cost of their aged care policy. And their promise to conduct a waste audit is sorely needed given the proliferation of rats and mice under this government.
Labor’s childcare policy is credible.Credit:Michael O’Sullivan
There’s plenty about their program I don’t like. They’re obsessed with “off-budget” spending, splashing around huge numbers without any of it hitting the bottom line. But there’s no magic pudding here – the real impact of such spending in terms of dollars and behavioural change is usually pretty modest. I’m no fan of their protectionist bias towards local manufacturing either. And their plan to invest in houses seems an inappropriate risk for taxpayers to assume and yet another pressure on prices.
There are all sorts of things they should be promising but aren’t. At some point someone has to give people on the dole enough money to live on. They’re offering nothing beyond multinationals to fix our broken tax system. Nothing substantive on electric vehicles. Nothing major on university funding. Nothing on our looming intergenerational inequality.
Focusing in, I see three key challenges awaiting the victor in the coming term. First, we must sort out the economic disaster that is defence, and Labor promises the defence force posture review we sorely need. Good. Second, as rates rise and stimulus recedes, we must maintain full employment, and Labor promises a white paper to investigate how. Good.
And, third, we have to do something about the budget. The current long-run productivity forecast is too optimistic about economic growth shrinking net debt. Under realistic assumptions, we have big structural deficits forever. This isn’t the pandemic – we have simply promised to do new things without higher taxes to pay for them. Nobody has a plan for that. Not good.
So, we have a government that did a very good job getting us through the pandemic, but offers us no real plan beyond it. And we have an opposition actually offering up a range of new policies to tackle some important problems, but they’re a bit of a mixed bag. That’s your choice. And whoever wins will need to do a hell of a lot more than they’re promising.
Steven Hamilton is assistant professor of economics at George Washington University and visiting fellow at the Tax and Transfer Policy Institute at the Australian National University.
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