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May 15th 2009 print

David Flint

Towards a banana republic

A model in economic management eighteen months ago, Australia seems to be on the way to becoming a banana republic.  What went wrong?

Eighteen months ago we led the world, but today Australia is beginning to resemble a banana republic. Governments at all levels are handing out spin which they know to be untrue or unachievable. Worse, they are doing this with the apparent complicity of the bureaucracy and, with some notable exceptions, the uncritical way the media report these.  

On Monday thousands of bus passengers in parts of Sydney realised they had been kept in the dark about massive timetable changes which have led to a diminution of services. The official spin still talked about wide consultation, and everyone being informed about improved services.

This was not an isolated incident.

Every few months the NSW government announces plans for some major new train line. There are headlines in the Sydney press, and the Premier is on the TV evening news. And just as in 1984, these plans are quietly abandoned.

New South Wales is not the exception. The federal government was elected on the basis that Kevin Rudd was a fiscal conservative, a badge he said he wore with pride.

I would have said that I have not seen such profligacy from the Rudd government since  EG Whitlam  until I saw a table on the Australian Conservative site. That dramatically shows Kevin Rudd’s likely deficit and debt this year and for the foreseeable future are at a record level.

The deficit and debt projections not mentioned in the budget speech are frightening. Going on past performance these projections will no doubt be under estimates. We are told the deficit is temporary and will be turned around in 2015. This is on a prediction that nominal growth in the GDP will be about 6%.

Before the budget the government threw away $52 billion  on handouts, including handouts to welfare dependents who do not live permanently overseas, subsidies to state governments to perform functions for which taxes have already been paid, and to taxpayers subsiding such things as roof insulation. The government claims this has supported 210,000 jobs and kept unemployment down by 1.5%.

The Treasury apparently supports this, which only shows how much that once staunchly independent institution has been compromised. We were earlier told the pre Christmas hand out would create 75,000 jobs. Of course it did not, and that promise was soon forgotten.

In the meantime the government has targeted small business in turning back our industrial law to pre-Keating times. A proposed award will be so bad for restaurants that sources not hostile to the government calculate that 8000 jobs will be lost and 1000 restaurants forced to close.  

The proposed ETS should be called the Energy Tax Swindle, as it will achieve nothing other than moving vast numbers of jobs offshore.  Assume for a moment that man is the principal cause of global warming (now termed “climate change” as the factually correct “global cooling” would be too much of an admission of error).  The only way the ETS will have any effect on climate is if the Chinese, the Indian and the American governments see Senator Wong as some sort of earth goddess who will save the world. As for the US, the reality of government has already shown the Obama administration that they can neither close Guantanamo nor abolish military commissions. They are hardly likely to close down American industry.

Before it became obvious neither the Australian government, the Treasury nor the Reserve bank had any idea the global financial crisis was about to erupt. They said the problem was inflation. The Reserve Bank even took the questionable decisions to ram up interest rates during the election campaign, with predictable consequences on the vote. Not only was it the wrong thing to do, it was the wrong decision.

Peter Costello knew a global financial crisis was imminent.  When he said so in the 2007 election, he was ridiculed. He and John Howard had form. They paid off Paul Keating’s $96 billion debt, left a large surplus and substantial funds.

Both in their failed projections, and in their profligacy the government and its advisors also have form.  We should not forget that they also seriously mishandled the bank guarantee, and became the first government to create a run on sound investment funds. Even now thousands of people still do not have full access to their savings in property funds. More recently the massive broadband and defence proposals have all the air of “back of the envelope” spin, supported by no business plans and no details.

The projections in the budget of a return to surplus should be taken with a cup of salt. Apart from its demonstrated incompetence and profligacy in financial matters, the government is quite prepared to slow growth and increase unemployment with such initiatives as its retrograde industrial laws and the Energy Tax Swindle. And as the already large debt grows, this will be compounded by a growing interest bill. 

To what extent are the government’s  actions today consigning the next generation of working Australians to higher taxes, higher interest rates and higher debt – a lesser opportunity to give their families what we ourselves enjoy in life?

As Malcolm Turnbull asked in his powerful budget reply “Will we be the first generation of Australians to bequeath to our children a lower standard of living?”

The debt will have to be repaid by young people working longer, losing benefits and paying increased taxes,  including taxes on their inheritance. What is particularly  ironical is that a government which cried wolf about inflation is likely to have already allowed that genie to escape.

Let us hope we never have to declare  the equivalent of bankruptcy, as Argentina has done.  The fact is that posing as a younger version of John Howard, Australia has  elected a peronist who  is leading the nation to disaster.