Treasurer Scott Morrison has delivered a rousing and long speech to the National Press Club where he outlined no policy proposals for budget repair, no policy commitments to reform the tax system, no concrete or specific ideas for government spending, no discussion of infrastructure and no outline on any area of microeconomic reform.
This is odd for a Treasurer just 10 weeks from the budget and a few months from an election, where economic policy reform will be vital to lock in optimism about Australia’s economic growth prospects.
One lesson from recent economic history is that policy uncertainty is more damaging to business and consumer confidence than a policy announcement that may be vital long run reform but is restrictive for growth, at least in the short term.
Recall the performance of the economy when the GST was introduced n 2000, or when the price on carbon began in 2012?
There was some grief in the transition to the reforms but an acknowledgement from the electorate, often begrudgingly, that these changes were necessary and sensible.
Treasurer Morrison’s speech was like a race call on the economy, a superficial analysis of economic growth, the risks from the Chinese economic slowdown with some discussion of the latest economic indicators.
It contained the material material that any half-decent junior market economist gives every day of the week to a bunch of unsophisticated investors.
Morrison’s speech touched on the need to more to move the budget towards surplus, the focus being cutting spending and not hiking taxes, a comment which should frighten anyone interested in seeing the economy continue to grow.
According to Morrison’s own numbers, total government revenue will be $33.7 billion below spending in 2016-17. This gap is 2 per cent of GDP, which is a significant amount.
If Morrison is to follow up on his agenda and move to surplus via spending cuts, by definition he will need to cut spending dramatically, in the order of many tens of billions of dollar per year.
Not a good idea when Morrison himself acknowledged to headwinds facing Australia from the Chinese slowdown and recent market ructions.
It is difficult, if not impossible, to see how or where these cuts can be achieved without significant disruption to the economy.
It is likely, therefore, when we see the budget in May, there will be no such measures to cut spending and it will, in fact, be tax and revenue growth that drives the narrowing of the deficit.
Mr Morrison had a wonderful opportunity to outline some hard and fast policy proposals for consideration over the next few months.
Hints on where spending would be cut would help progress the debate on economic policy, in much the same way he suggested the discussion of the GST evolved as interested parties discussed the pros and cons of such a change.
At a time when the economy is looking for a serious and well-founded economic reform agenda, Morrison squibbed his chance.
Instead, he left a policy vacuum in which there will be another 10 weeks of uncertainty, confusion and speculation about where policy might be changed when the budget is handed down.
Business and consumers and unlikely to take too kindly to this.
Stephen Koukoulas is a Yahoo7 Finance expert with
more than 25 years experience as an economist in government, as Global Head of economic and market research, as Chief Economist for two major banks, and as economic advisor to the Prime Minister of Australia.