Finance Minister Matthias Cormann is wrong to claim Kevin Rudd wasted a “crazy” amount of money in the wake of the GFC, according to prominent economists.
Senator Cormann told Sky News the government was prepared to stimulate the economy but would never indulge in the level of spending overseen by former prime minister Kevin Rudd.
Labor’s school halls and “pink batts” programs stimulated the economy but were a “crazy waste of money,” he said.
Economists told The New Daily Senator Cormann’s appraisal missed the point.
“When Lehmann [Brothers] went bankrupt … there was a very real chance that the entire world financial system was going to completely freeze up,” University of New Soul Wales economics professor Richard Holden told The New Daily.
“It was only a great deal of good management from people like (US Federal Reserve Chairman) Ben Bernanke and (US Treasury Secretary) Hank Paulson – and some measure of good luck – that helped avoid that.
“Australia avoided it uniquely better than anyone else – and I think what Kevin Rudd and Ken Henry did to stimulate the Australian economy was completely crucial.”
Dr Holden was living in the US when Lehman Brothers went bust. He said the only way to respond to a global crisis of that magnitude was to meet it with “overwhelming force”.
“You can look back and say the school halls thing, maybe we didn’t get great value for money for that, or the ‘pink batts’ scheme had some problems, including, of course, some people tragically losing their lives installing it, which shouldn’t be taken lightly,” Dr Holden said.
“But talking about [the overall stimulus package] as if it was a home renovation, like, ‘Did we overpay for the tiles?’ That just misses the point.”
Independent economist Stephen Koukoulas offered a similar view.
The former advisor to the Rudd and Gillard governments said Senator Cormann’s comments betrayed a misunderstanding of how close the Australian economy had come to experiencing a major recession.
“If we look at what happened in other countries that didn’t have a fiscal stimulus – like the US, UK, the bulk of Europe – they had unemployment rates in, or close to, double digits, and recessions that were deep and lasted for many years,” Mr Koukoulas told The New Daily.
“Had the Rudd stimulus measures not been to the extent they were, then we might have experienced exactly the same outcome.
“You don’t worry about how much water you’re using when you’re putting out a fire.”
Australia’s unemployment peaked at 5.75 per cent in the wake of the GFC – the UK’s and US’s peaked at 8.1 and 9.9 per cent respectively.
Fast forward to today and the IMF has just downgraded its estimate of Australia’s economic growth this calendar year from 2.7 per cent to 1.7 per cent.
The downgrade comes at a time of growing global uncertainty and persistent weakness in the domestic economy – prompting RBA governor Philip Lowe to call for productivity-enhancing reforms and greater infrastructure spending.
Despite several RBA rate cuts and more than $15.7 billion in tax refunds, retail spending grew by just 0.4 per cent in August, following a 0.1 per cent fall in July.
Meanwhile, wages lifted just 2.3 per cent in the 12 months to June 30, well below the historical average of 3 to 4 per cent.
It’s far from an emergency, Mr Koukoulas said. But that doesn’t mean the government is right to prioritise a budget surplus.
“What we’re seeing now is nothing like the GFC, but we’ve got a slow patch in the economy,” he said.
“We’ve obviously had the RBA trimming rates, but there’s a requirement, I think, for government to roll out a bit of extra spending – just to make sure next year is a better year for the economy.”