It is difficult to have any confidence in the ability of the federal government or its advisers to mitigate, much less neutralise, the effects of the global financial crisis.
When Peter Costello warned of its advent in late 2004, his prediction was dismissed by the present federal government. They and the Reserve Bank said the real problem was inflation.
Now we are being told that the recession is the worst since the depression, that it will be much more than the normal low point in the business cycle. How they know this is not clear. We are told that the cause is unbridled capitalism. So why is it referred to as a subprime crisis, the cause of which was political correctness imposed by the US Democrat Party on a vast scale?
In any event the record of both the government and its expert advisors indicates not only an inability to recognize trends, but also a failure to take reasonably sensible decisions which are in the interest of the Australian people.
Take one example. To make the credit card market “more competitive” the Reserve Bank allowed all the usual suspects – for example power and phone providers – to charge the consumer, rather than the merchant for the privilege of paying their bills by phone or on the internet. These charges turned out to be completely unrelated to the cost of the service. Instead they were to be a flat and an exorbitant percentage of the sum charged. Some competition.
On this the ACCC maintained the same sort of silence as it has about those remaining independent retailers who are slowly being strangled out of existence, and the supermarket suppliers who are being reduced to serfdom.
This credit card charge is akin to a surreptitiously levied tax on the vast number of electricity, water, and telephone and airline accounts which are paid by credit card. We could call this a RBT, a Reserve Bank Tax. And rather than going to the state it goes to that most deserving class, the nation’s oligopolists.
Earlier this year the government and Treasury, for no good purpose, made an appalling mess of the bank deposit guarantee. For no good reason, vast numbers of Australians, even now, cannot access their quite sound investments. Many of them made these investments at the invitation of the government which had held out the benefits of superannuation.
From late last year, the Prime Minister emerged from the fiscal conservative pose he adopted for the election to go on the biggest deficit spending binge since Whitlam.
Curiously for a nation with a high credit rating, the Whitlam government had appointed a shady Pakistani broker, Tirath Khemlani, to act on its behalf. But at least the massive foreign loans it craved were to “buy back the farm.” However misguided that was, the taxpayers’ money would have been secure provided fair prices were paid. The purpose was not as it is today – to buy votes or favourable opinion polling results with bread and circuses. Nor was it to fund incompetent state governments to do the work they had long been generously funded through the GST and other taxes to do.
The Rudd government has decided that it can soften the recession through handouts to those more likely to spend. Accordingly, the late 2008 stimulus package cost about half the surplus with apparently minimal effect. It certainly did not create the 75,000 jobs the Prime Minister promised but soon forgot.
If this is good policy, are we to assume that it will be repeated every quarter – perhaps every month - just to push retail sales up a notch or two? To do this the government would have to spend something between $36 billion to $ 108 billion annually. This is madness; it is not the action of a government of even elementary competence.
A sensible and mature government should be doing two things in the depths of the economic cycle. First, they should be developing our infrastructure – our ports, transport, water, power and other fundamentals – to ensure future growth. Second, they should impose some decently rigorous restraints on government expenditure. Instead Messrs. Rudd and Swan have just poured our money down the drain. Worse, they are borrowing to continue this folly.
Spending up to $43 billion in an apparently back-of-the-envelope scheme to provide high speed broadband is likley to be even more money down the drain. Would anyone trust a government to run, say a car factory or even a shoe factory? Can you imagine the product and can you imagine the cost? If you have difficulty imagining this, we have an example within living memory. It was called the Union of Soviet Socialist Republics. It was a failure, and at terrible cost.
The government’s function is to see that private industry, free from monopoly and oligopoly, provide modern broadband in a way the consumer wants. The extraordinary thing is that the decision to spend up to $43 billion has been taken without any proper investigation, with instructions to develop the economic case afterwards.
The average voter does not understand economics, and having studied the subject at school and in universities, I have to confess neither do I. But what we all understand is commonsense. Going into debt to pay for handouts to buy consumer items or subsidise incompetent state governments is hardly wise, especially when times are tough.
What you do in tough times is you shrug your shoulders, you tighten your belt, and you reduce your costs. This good sense recipe applies to governments as much to individuals. Since my parents’ generation there has been an aversion by governments to investing at the necessary level in ports, public transport, water and so on. Rather, the rivers of gold which flowed from the GST and income tax were allocated to two ends. First they created a new class of dependents, and second they established a vast overpaid and inefficient bureaucracy, the best example of which can be seen in the area health services of New South Wales.
One thing is clear. Neither our government nor its expert advisers knows what to do about the recession. But the government knows one thing – how to buy votes.
They will keep on doing this until the rest of us wake up to what a tremendous mess they are making and how it will burden the present and future generations.
If anyone doubts that, consider how long it took just to excise Whitlamite inflation from our economy, how long it took to pay back the $96 billion the last government inherited, and how long it took for Victoria to recover from the Cain-Kirner excesses. And how many people lost a vast part of their hard earned savings in the process?