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An open letter to Treasurer Josh Frydenberg

Left: Treasurer Josh Frydenberg; Right: Independent economist Stephen Koukoulas. (Source: AAP, Yahoo Finance)
Left: Treasurer Josh Frydenberg; Right: Independent economist Stephen Koukoulas. (Source: AAP, Yahoo Finance)

Dear Josh,

On a range of policy issues, we do not see eye-to-eye.

But on the big picture view of the economy, I am sure we at one that the best thing policy can achieve for the Australian economy is sustained, strong economic growth.

This means a growth rate that is sufficient to give a job to everyone who wants one, where real wages are rising and where there are improvements in the well-being of every day Australians.

As I look at the economic scorecard since you have been Treasurer, I am bitterly disappointed to see that economic growth has slumped and is no better than during the depths of the global financial crisis.


I see the unemployment not only heading higher, but the level of underemployment rising to a point where one in 12 people with a job are not working the number of hours they would like.

I look at wages growth and see stagnation, and in per capita terms, the thing that best measures true economic progress, the economy is going backwards. A per capita recession, if you like.

Then I look at what is being done about this fragile state of affairs.

To its credit, the Reserve Bank is easing monetary policy but as I am sure you are aware, the cash rate is getting close to zero which could create policy concerns for the Bank if the economy remains in the doldrums.

Sure, it could implement negative interest rates or embark on a program of quantitative easing, but the impact of these policies on growth and jobs is unpredictable and may be hard to unwind, even if they work.

Which brings me to the crux of my letter to you.

You are in charge of Commonwealth government spending and taxing policies which together amount to around $1 trillion per annum.

Last financial year, as you recently noted, there was an unexpected narrowing of the budget deficit from the time of the May 2018 budget.

The balanced budget you delivered occurred with the Government’s tax take for 2018-19 a remarkable $11 billion higher than forecast, while government spending was over $6 billion lower than forecast.

These differences totalled nearly $18 billion, or 0.9 per cent of GDP. That’s the difference between 2018-19 GDP growth of the actual 1.9 per cent and something closer to trend at 2.8 per cent. This money was withdrawn from the economy by your government and it is a critical reason why GDP growth has collapsed so disconcertingly.

If you are fair dinkum about being a Treasurer that wants to preside over a strong economy, where there is full employment, rising real wages and improvements in individual well-being, how about using your policy powers and prowess to get a bit of extra cash into the economy?

Don’t take my word for it.

I speak to a lot of business people around Australia and no one – yes no one - I have met in the past few months disagrees about the need for the government to do something immediate to get the economy back on track.

In the mean time, their businesses are suffering and their willingness to hire and invest is severely constrained.

There is unanimity from financial market economists that fiscal policy needs to be eased to get the economy back to full health. These are not the loonie left types – they are arguably some of the best practical economic types in Australia.

In simple terms, there is an urgent need for the government, your government, to pump some money into the economy via the tax system and spending if you want to not only avoid higher unemployment, but to actually get the economy back to full employment.

You are the Federal Treasurer in a Liberal Party government. The Liberal Party claims that “low taxes” are in its DNA, yet your own budget documents show you will be one of the highest taxing Treasurers in Australia’s history.

How about giving back a bit of the tax and unspent funds sitting the government’s coffers to the private sector so that they can be the driver of growth and job creation and complement the policies of the RBA in getting wages growth and inflation back to a decent level?

It is easy to do.

A few strokes of a pen and a fast track of the required legislation through the Parliament and before year-end, some extra cash can be in the hands of those who will spend, invest and employ.

I would welcome any opportunity to meet with you to further discuss these matters and to outline some key areas where pro-active fiscal policy can help deliver growth.

I cannot recall who said it, but if the government of the day gets policy and economics right, they get the politics right.

Just think, going to the election in 2022 with the economy going strongly, with the unemployment rate in the low to mid 4 per cent region and with wages growth accelerating?

You’d be Winx-like odds to win.

I look forward to hearing from you and trust you can deliver a policy framework that lifts economic growth, lowers unemployment, increases real wages and bring better times for all Australians.

Yours sincerely

Stephen Koukoulas

Managing director, Market Economics

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