The managing director of the IMF, Dominique Strauss-Kahn, might come to regret letting the political big spenders off the leash when he said in December that fiscal stimulus of at least 2% of global GDP was justified.
He also said “not all countries can undertake fiscal stimulus”, and added; “some will need to contract their budgets rather than expand them”.
But of course no one believes that applies to them, so we are now witnessing the most colossal expansion of government debt in history, with no strategy for returning to surplus.
In fact, although Australia begins its fiscal expansion with no debt and a healthy surplus – thanks to the “neoliberal” disciplines and privatisations of the past two decades – it is difficult to see how the debt now being taken on will be repaid.
I’m as gloomy as anyone about the economy, but it’s bemusing to see a government bang out two fiscal stimulus packages in two months, worth $53 billion, even though unemployment is still at generational lows well below 5%.
With its eye, perhaps, on the collapsing, deflating US, Japanese and British economies, the IMF called for large and “timely” fiscal support. But in Australia there is simply not yet the sort of employment crisis or deflation fear that requires big debt-funded cash handouts.
Kevin Rudd and Wayne Swan have apparently switched from insouciance to panic in the course of a month or two, and have gone for Strauss-Kahn’s entire 2%, and a bit more, in one hit.
And when the Opposition leader, Malcolm Turnbull, demurs, the response is: “Well, YOU tell the primary school kiddies they can’t have a new library.”
But Turnbull’s fiscal rectitude is now wilting under the pressure, and yesterday he plaintively demanded that the Prime Minister “get down off his bulldozer” and negotiate with him, even though he had previously said he simply wouldn’t vote for the fiscal stimulus, which took him out of the game. (In the US, the Republicans, meanwhile, have been negotiating hard, and successfully, with Barack Obama).
That leaves the Greens and the independents to negotiate for their favourite bits of pork to go in the package before they let it through.
None of which is remotely to do with what is actually needed by the economy.
Fiscal credibility is hard won and easily lost. It’s true that Australia’s budget and government balance sheet is in far better shape than most to begin with, but it won’t take much for that to be blown up.
Specifically it is hard to see how the budget will return to surplus and/or which assets can be sold to repay the debt.
Meanwhile Infrastructure Australia, chaired by Sir Rod Eddington, is due to report in March on the national priorities for spending on transport and other infrastructure projects.
But Eddington and his colleagues will be like Old Mother Hubbard – the money’s all gone; the cupboard is bare.
This article first appeared on Business Spectator
Patrick Stafford is a freelance journalist and a former deputy editor of SmartCompany.
