This opinion piece appeared in the Australian Financial Review on 11 March 2020.
In his belated response to the coronavirus crisis, Prime Minister Scott Morrison’s stated strategy to date seems clear. It’s that “he is not me”. Indeed, whenever he’s asked why he suddenly seems so interested in the dreaded “S” word – stimulus – he protests “it’s not a Rudd stimulus”. Methinks he doth protest too much.
I must confess I’m pleased about the distinction. That’s because I have no interest in being associated with Morrison’s tardy response to the public health and economic impact of the current crisis. Nor his failure to work with G20 counterparts, starting with the US where Morrison boasts unique access, to bring about a substantive global response to a crisis way beyond any single nation’s capacity to handle. Nor his handling of the recent fires that ravaged a continent. Nor the rank corruption of a $100 million “sports rorts” by pilfering the nation’s public finance.
I must confess, however, that I also have some sympathy for Morrison. None of us in government get to choose the crises that you get served up with. The question is how you handle them. In our case we had an attempted coup in East Timor. We had the Global Financial Crisis which produced the worst global recession since the Great Depression. And we had the Victorian bushfires where 200 people lost their lives.
As Morrison seems to be discovering, being in government is harder than it looks. We had a large pre-election mandate for reform, albeit a policy program much less expensive than Mr Howard’s. Then we were hit with an economic Exocet amidships with the GFC. Then it was like “peering through a glass dimly” as the fog of economic war descended.
Our response to the GFC wasn’t perfect. Public policy isn’t like that. But our objectives were crystal clear: avoid recession, mass unemployment and large-scale small business collapse; second, prevent any financial institution collapse because of the impact on confidence; third, protect every Australian’s savings deposits.
Based on Treasury advice, we deployed short, medium and longer-term programs because nobody could tell how long what the rest of the world calls the Great Recession would last. Among developed economies, growth collapsed from +2.6 per cent to -3.4 per cent between 2007 and 2009.
That’s why we adopted an immediate $10.4 billion Economic Security Strategy: cash payments for households; a temporary investment allowance (worth an additional 10 per cent of the value of the asset) for businesses to bring forward capital investments; trebling the first-home owners’ allowance for new homes.
Each was part of an integrated strategy targeted on different elements of total final demand: private consumption representing 60 per cent of GDP, as well as private fixed capital investment and private residential construction. We later added a 20 per cent “carry over” for small businesses meeting their “pay as you go” tax obligations.
Phase two targeted public expenditure – a $4.7 billion Nation Building Plan including critical TAFE, university and rail projects which we announced two months later once Minister Albanese had done the preparatory work with the states.
Phase three was released in January 2009 – the year when most of the developed world would remain in recession. This was a $42 billion national building plan including a school modernisation program (which would end up building 3000 new classrooms, 3000 new school libraries and 3000 new multi-purpose facilities); a social housing program to build or renovate 100,000 units of affordable housing; an Energy Efficient Homes Program (including the insulation of 1.1 million homes); a new program for local roads, rural black spots and level crossings. And an increase in the temporary business investment allowance from 10 per cent to 30 per cent.
Morrison and Murdoch say this was too large. The truth is we calculated the quantum based on the estimated size of the contraction in GDP and we barely came through 2009 by the skin of our teeth. They also say it went too long. But in 2009-10 most developed countries were still languishing in recession.
Then there is old faithful: waste. Mind you, after sports rorts, a bit rich. But the implementation taskforce of the school modernisation program concluded it was well targeted. And Abbott’s royal commission into the insulation program found that four tragic deaths were the responsibility of subcontractors who failed to adhere to the law, for which they were prosecuted. It also found the rate of ceiling fires was no higher than had previously been the case.
But the proof of the pudding, as Morrison is about to discover, lies in the eating. Uniquely among major developed economies, we avoided recession; unemployment remained just over 5 per cent; no banks went under; no depositors lost their savings; and debt and deficit levels were among the lowest in the OECD as evidenced by the AAA ratings secured from all three ratings agencies.
As the OECD noted: ‘The effectiveness of the stimulus stemmed from the speed with which it was introduced. This limited the weakening of demand in late 2008 and 2009.”
But Morrison, like his predecessors, has always depicted the stimulus strategy as the anti-Christ. It’s a mantra. They’ve never had the intellectual honesty to concede it actually worked. Had we not done it, the price of recession under them would have been a bigger collapse in revenues because of lower growth, a greater call on unemployment benefits, and still a big budget deficit and increased public debt. The truth, however, has never fitted the political script.
Despite the long-time urgings of the RBA, Morrison painted himself into a political corner of his own making by ruling out fiscal stimulus altogether. Then he ruled out cash payments. And now he has had to crab-walk away from both.
I fully accept it’s hard to see where this new crisis will end. Particularly its impact on cash flow in the most exposed industries. Multiple variables are at play. But wisdom lies in preserving all your policy options to deal with a crisis. Not to tie your policy hands because of what has always been nothing more than a political marketing ploy – the demonisation of stimulus. And Scotty from Marketing knows it.