It has been a very long time since politicians in Australia were rewarded for promising to increase government spending – since the Whitlam era, really.
Yet it was two big government splurges during the global financial crisis that boosted demand within Australia’s economy and, uniquely, allowed the nation to escape recession.
Rather than being praised for those actions, the Rudd, Gillard, and second Rudd governments were roasted daily at the despatch box in parliament, for ‘wasteful spending’ and the ‘debt and deficit’ such spending produced.
What many voters have not grasped to this day, is that those stories were being told by deeply ideological elements within the national media.
News Corp in particular, which prints around two-thirds of the daily papers sold in Australia, gave daily headline support to the debt-and-deficit campaign being waged by then-opposition leader Tony Abbott. That was despite many economists at home and abroad praising the Rudd government’s handling of the crisis.
While searing criticism of ‘pink batts’ and ‘school halls’ spending flew about in Canberra, tens of thousands of jobs were created or maintained by public spending – they took up much of the slack created by a panicked private-sector.
There are moral arguments to be made against “my money” funding such schemes, and they were made.
However, there was never a credible argument made as to why counter-cyclical (or in this case counter-collapse) spending did not leave most Australians better off overall when ‘free market’ spending and investment began to grow again.
The one-sidedness of the debate in those years has left a perverse political situation – people whose jobs, businesses, net wealth and general wellbeing were saved by stimulus spending are nonetheless walking around today grumbling about what a terrible mistake it all was.
Don’t mention the stimulus!
In such an environment, it is very difficult for pollies on either side of the parliament to mention the ‘s’ word.
And yet both sides of parliament have found ways to sneak through increases to the government component of final demand.
Before the last election, for instance, Labor announced a raft of measures – particularly tax hand-backs – to boost the small-business sector.
The Abbott government pooh-poohed those SME perks … and then re-announced a very similar package in the 2015 budget. Sneaky, but sound economic thinking, as I wrote at the time.
The latest under-the-radar stimulus came with last week’s Defence White Paper in which armed forces personnel would swell to numbers not seen since 1993, Australian ship building would receive a life-saving boost via the frigate and submarine programs, and advanced manufacturing would get a leg up by producing things like a new generation of armoured vehicles.
While such spending decisions are not taken primarily to boost growth, the do have a stimulatory effect – they are mandated demand at a time when private-sector demand is being crimped by fear and uncertainty.
In the latest National Accounts, for instance, private sector investment is going backwards at a rate of knots, but public sector investment was the second largest contributor to GDP growth for the final quarter of 2015.
That’s not a good thing in itself, but it is a necessary thing. It is helping reduce job losses and hold up consumer confidence during a very shaky transition away from relying on mining boom-related growth.
In the eye of a storm
The National Accounts reveal that in the last quarter of 2015 consumers had a spring in their collective step.
Household spending was the largest contributor to GDP growth in that quarter, and the savings rate dropped from 8.7 to 7.6 per cent as householders splashed their cash around.
That won’t last. The share market shocks of the first two months of 2016 are almost certain to make householders more cautious over the first quarter of the year.
Moreover, in light of warnings of a global industrial recession, many governments will be giving serious consideration to the OECD’s call for its member nations to splurge an extra 0.5 per cent of GDP for the next two years.
As covered previously, the calls for fiscal stimulus are part of a growing awareness that monetary stimulus through ultra-low or negative interest rates, or the ‘money printing’ known as quantitative easing, have failed.
Unsurprisingly, such calls can be debated more openly on the side of politics that oversaw the 2009 stimulus package.
When I met with shadow Treasurer Chris Bowen last week, he did not rule out the kind of spending currently being called for by the OECD.
“Well if it’s required,” he said. “That’s not to say it necessarily will be… but I’ve said previously I’m a Keynesian.
“The world economy is about as uncertain as it has been, putting aside the GFC, over the last 20 years. There is a reasonable chance a Treasurer will be called upon to stimulate at some point in the next 10 to 15 years. It would be irresponsible to rule it out.”