RIP Treasury’s frank and fearless advice

 

One of our best climate scientists once told me there is a scientific basis to the two per cent of scientists who disagree with the other 98 per cent and the evidence on the impact of greenhouse gases on climate change. However, the scientific bit isn’t in the beliefs of the two per cent, it’s that on any such issue in a community there will be roughly two per cent of people who disagree.

Danger can arise if that two per cent finds fertile ground among the broader, easily-impressionable population for their strange views – if a powerful demagogue takes them up or if they are promoted for other ideological or mercenary purposes.

Thus our federal Treasury Department is flirting with becoming to fiscal policy what One Nation is to climate change – the purveyor of oddball, two-percent views that are a danger to society. While One Nation plays host to the strange little Senator Malcolm Roberts, Treasury has its secretary, John Fraser, hosting a decidedly odd dogma of a fringe economist who thinks fiscal stimulus when recession threatens is a bad thing. Yes, Treasury is holding hands with the Tea Party.

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It has been a source of comfort over recent decades to know that, whatever politicians come and go, Australia has had the benefit of very fine institutions in its Reserve Bank and Federal Treasury. The pollies of both parties could swing a bit this way with their pork barrels or a bit that way with doctrinaire predilections or be all over the place looking after their mates, but you could tell yourself the institutions that really ran and protected our core economic policy remained in place. Not any more.

The Reserve Bank is intact, though that was a close-run thing. If Abbott had remained Prime Minister, the drums were beating that Philip Lowe would not have taken over from Glenn Stevens as Governor, that some ideological fellow traveller would have been parachuted in.

But Treasury has gone. It’s no longer a strong institution capable of frank and fearless independent advice. Instead running with the politics of a government that is itself rolling with the pork barrels and veering further right than the successful centrist Australia we tend to come back to. We have a Treasury looking to be at home with and a party to the increasingly bizarre propaganda sheets of Rupert Murdoch’s empire.

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If the rot started with Tony Abbott’s vindictive and petty sacking of the incumbent Treasury chief, Martin Parkinson, against the advice of the Howard, Costello and even Hockey, its decay has become terminal with a simply weird decision to promote the rehashing of an old and debunked theory by a fringe economist in an effort to further blacken Labor’s fiscal record and provide an excuse for the government’s blinkered political agenda.

A Griffith University economist, Professor Tony Makin, has long considered himself about the only one in step on the fiscal policy parade ground. Basically, he seems to think Keynesian stimulus is rubbish, that it damages rather than helps the economy. He featured regularly in the pages of the Australian newspaper in 2009 attacking the government’s fiscal stimulus package which just about everyone else thinks played a significant role in avoiding a recession here as the GFC struck. He attached those articles to his submission to Senate inquiry into fiscal stimulus seven years ago.

In 2014, the Minerals Council of Australia – perhaps keen to portray mining as Australia’s economic saviour – commissioned Makin write a paper on competitiveness which included pretty much the same arguments against fiscal stimulus. The Treasury made short work of debunking Makin’s key criticism.

How very strange indeed then that the Treasury of Scott Morrison and secretary John Fraser commissioned Makin to effectively rehash the same criticisms of Australia’s fiscal stimulus. If nothing else it was a waste of taxpayer money – they could have just done a cut-and-paste of the Australian. No surprise that the increasingly propaganda-prone Australian gave the same old material a big run last week.

The totally odd thing is that Australia’s response to the GFC threat is arguably the most successful example of Keynesian stimulus the world has seen. Yes, there was some excess and the Pink Batts thing was always stupid and you shouldn’t trust the NSW public service to supervise the spending of money, but overall the policy was brilliant.

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We avoided a recession thanks to multiple factors, including the fiscal stimulus applied by foreign governments, but those criticised-in-retrospect $900 cheques were gold. They kept retail – our biggest employer at the time – buoyant just when it could easily have fallen off a confidence cliff. There was simplistic criticism at the time that the money was being wasted on beer and flat-screen TVs but that was exactly the idea – to keep people spending, employing shop assistants and bar attendants and the massive supply chains behind retail. It worked a treat.

If unemployment had taken off in retail, the snowballing effect would have taken many years to undo and at a greater cost. And you know what? If Peter Costello had been Prime Minister or Treasurer at the time, he would have signed the cheques, too. It was the right thing to do.

Yes, it would have been nice if it had been possible to spend more money on lasting infrastructure – it still would be – but spending on infrastructure takes a long time to get going. As an immediate stimulus tool, it doesn’t work. As Glenn Stevens once observed, it tends to be too slow to start and too slow to stop.

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But don’t try telling that to the strange forces keen to re-write history, to build a narrative that might support a doctrinaire commitment to smaller government and bigger tax cuts. We now have Finance Minister Mathais Cormann ruling out “so-called stimulus spending”. The national tragedy is that the September quarter GDP fall dramatically demonstrated the problem we have because the government has let infrastructure investment fall while the resources investment boom has come to an end.

The Reserve Bank and just about every economist in the land except Tony Makin has been calling for the government to invest more in the nation’s future. Alas, Treasury seems to be silent, debased by its politicisation. And when an institution loses leadership and starts decaying, good people leave, hastening the decay. Treasury is not what it used to be.

Michael Pascoe is one of Australia's most respected finance and economics commentators with over four decades in newspaper, radio, television and online journalism. He regularly appears on Channel 7's Sunrise and news programs and is a regular conference speaker, MC and facilitator.