Magic Pudding Economics: The Economy Under Labor – Helen Coonan

Issue 1 | 31 March 2009

Senator Helen Coonan is the Shadow Minister for Finance, Competition Policy and Deregulation and, on Tuesday 31 March 2009, addressed The Sydney Institute to put the Opposition’s case against the government’s response to the Global Financial Crisis. Reminding the audience that Australia had entered the GFC in better economic shape than comparable Western nations, thanks to the prudence and Budget surpluses of the Howard Government, she went on to argue that the Rudd Government had been caught unawares by the sudden economic downturn in 2008 and with policy that did not prepare Australia well for the global fallout.

MAGIC PUDDING ECONOMICS: THE ECONOMY UNDER LABOR

HELEN COONAN

I thank the Sydney Institute, Gerard and Anne Henderson, Directors of the Board and staff, for the opportunity they present to speak about matters of national and international importance. In Australia, as with the rest of the world, we are facing great challenges that will sorely test our political leaders as we struggle with the fallout from the global financial crisis.

Whether Prime Minister Kevin Rudd labels himself an “economic Conservative” or a “market socialist” matters little. It is becoming increasingly clear that, whatever he calls himself, he and his government are presiding over the economy as if it is a magic pudding. They are struggling to come up with a coherent and sustainable plan to manage Australia’s flagging economy. They are flying blind in the economic storm. All the trumpeting about taking early and decisive action to deal with the economic crisis is only defensible if it is the right action, and it gets results.

The December National Accounts released on 3 March 2009, however, show that the Australian economy is going backwards on Kevin Rudd’s watch, and if we are not yet in a technical recession, it will surely feel like one to people who have lost their jobs and who are anxious about what the future may hold. This evening I will examine four propositions that are germaine to my central argument that decisions made by the Labor government in response to the global recession, have failed to restore confidence in the economy and have only made Australia’s economic situation worse.

Before examining the four propositions, there are however some points of general importance to be made about the government’s erratic approach to decision making. It is perfectly true, as the government emphasises ad nauseum, that there is a global financial crisis. However, that can be responded to appropriately or inappropriately. The government has embarked on an extreme spending spree now totalling in the vicinity of $90 billion, in an attempt to spend its way out of the crisis, promising to create or protect 330,000 jobs.

At the same time the government acknowledges that it doesn’t know whether its so-called decisive action is the correct response – no “silver bullet” as Kevin Rudd concedes. That might be fair enough if the government can point to carefully calibrated policies that will, on the balance of probabilities, shield Australia from the worst of the economic slump. But the notion that frenzied spending can be justified as a sure way of creating or maintaining real jobs rests on no firmer footing than the application of a fiscal multiplier to estimate the bang you get for spending a buck.

Conventional methodology may be of only limited usefulness, however in the present crisis where the scale and scope of the problem is simply unprecedented, Professor Niall Ferguson recently observed:

There is something desperate about the way people on both sides of the Atlantic are clinging to their dog-eared copies of Keynes’ General Theory. Uneasily aware that their discipline almost entirely failed to anticipate the crisis, economists seem to be regressing to macro-economic childhood, clutching the multiplier like an old teddy bear.”

In short, all the government’s bluster about taking quick and decisive action provides no guarantee of jobs in the real world. What is real, quantifiable and painful, is the numbers of jobs lost as unemployment heads, inexorably, towards 7 per cent in the most recent official forecast , and that was before the economy went backwards in the December quarter.

Moreover, in the government’s panic to be ahead of the curve, they have ended up out on a limb. Closer examination of the government’s policy choices introduced since the last Budget, suggest that rather than acting on the best possible advice, they have embarked on actions that have resulted in insufficiently stress-tested, poorly targeted policy on the run, with resultant unintended consequences.

Take for example the government’s unlimited deposit guarantee. We know that the Prime Minister did not seek the advice of the Governor of the Reserve Bank, who recommended that the guarantee should be capped as low as possible and be kept on for as short a time as possible. As a consequence of the guarantee being unlimited, there was a run on non-guaranteed financial institutions, and some 250,000 investors, many of them self funded retirees, have had their investments frozen. This has not been resolved.

Further unintended consequences soon became evident with the crowding out effect on private investment, and on state and territory government borrowings. Suddenly it became very difficult to raise money for infrastructure projects on the markets because of the new AAA rated competing products from banks that appeared as a result of the guarantee. The Treasurer finally conceded the damage that lack of planning and poorly thought out policy design had caused, by recently announcing that the Commonwealth would guarantee State government issued bonds, to ensure that infrastructure investment did not collapse.

But now that cash strapped incompetent State governments are propped up, where does this leave private investors? If public private partnerships are to work, there needs to be private investment too. Will the government be guaranteeing private debentures that are used for infrastructure partnerships? What are the consequences for private investors, who compete against the States for funding, now that the states have access to AAA ratings? Who knows – but one thing can be said, the Treasurer is, as one commentator said last week, “yet to meet a loan guarantee he can

refuse”! The cascading unintended consequences of the original decision graphically illustrate that the benefits of quick action were subsumed by failure to understand and think through the complexities before embarking on a course of action.

Now to return to my four propositions in support of the argument that the Rudd Labor government’s response to the global financial crisis is making Australia’s economic position worse.

First, on winning government, Labor inherited a sound economy. Australia’s prospects of withstanding the severity of the global economic meltdown are better than comparable countries because of the sound fundamentals inherited from eleven years of conservative economic management under the Howard Government. Second, the Labor government did not, but should have, foreseen the rapidity and depth of the economic turnaround in Australia and behaved more responsibly than they did when they got into government. Third, Australia’s strong economic inheritance is being gambled away and squandered in casino-like cash giveaways and other poorly thought out policy decisions that are not working as claimed, and that will leave future generations with a new legacy of debt and deficit, Fourth, the government is unwilling to explain its policies or to accept responsibility for poor choices that have failed to arrest Australia’s deteriorating economic outlook. The government’s political strategy is to play the blame game at the expense of a sound economic strategy and this is damaging to Australia’s future.

I will examine each of these propositions in turn, and finally I will suggest some approaches the Coalition could develop to respond to the unfolding economic challenges faced by Australia.

Australia‘s economic legacy

No incoming government in Australian history has inherited economic conditions as favourable as those inherited by Kevin Rudd and the Labor Party. Unemployment was at near historic lows, there were sustained high levels of economic growth, low inflation, real wages were rising across the economy, government debt had been eradicated and people had confidence in the strength of the Australian economy. This had been achieved because of the fiscal discipline of the Howard Government. Despite Labor’s criticism and strident opposition at the time, the Howard Government made the tough decisions necessary to return the Budget to surplus. It was these consistent Budget surpluses that enabled the then Coalition government to pay off the $96 billion debt that they inherited from the former Labor government.

Other critical economic achievements of the former Coalition Government, that Kevin Rudd has gladly inherited, includes a strong regulatory framework, a sound banking and prudential system, and an independent Reserve Bank. The “four pillars” banking policy has acted as a restraint on the risk taking that caused foreign banks to get into trouble last year. In Davos, earlier this year, before an international audience, the Deputy Prime Minister was able to claim quite rightly that Australia’s regulatory system was “better than world class”. Rudd and Labor also inherited a strong balance sheet that included a $21 billion fiscal surplus, as well as the Future Fund, Communication Fund and Education Fund. In March 2004 the Economist had described the Australian economy as the “wonder down under”.

Although you don’t hear this said these days, it was the heavylifting done to achieve economic reform during the Howard years that has enabled the current incumbents to claim repeatedly that Australia is better placed than most comparable countries in the OECD to weather the economic storm.

Failure to see a downturn coming

But the new Rudd Government failed to see the downturn coming. The collapse of the US housing bubble in the United States in 2007, due to a bubble caused in large part by government intervention and non-prudent “social justice” lending, led to financial instability in the American banking sector. Australia was of course, not immune. Whilst not significantly exposed to sub-prime lending because of strong prudential restraints, Australian businesses and the share market were affected by the downturn experienced internationally. Volatility in the Australian stock market, foreshadowed the effects of the credit crunch hitting the real economy.

However, upon taking office, the Labor government ignored the warning signs of the coming crisis and continued as if Australia were inoculated from the global downturn because of the commodities boom – that demand stemming from the growing economy of China would buoy Australian commodity exports and keep Australia out of recession. As the rest of the world started to experience a sharp contraction, in February last year, Kevin Rudd and Wayne Swan started to talk down the economy with exaggerated claims about the risks of inflation. Between 1996 and 2007 inflation had averaged 2.5 per cent, right in the middle of the Reserve Bank’s target range.

Yet the Treasurer claimed in February, in an interview on Sky Business Channel, that “the former government, let the inflation genie out of the bottle”. Supposedly inflation had been “on the march for two years”, according to Wayne Swan. Going one better than the Treasurer, the Prime Minister went over the top in Parliament on 2 June 2008 and referred to an “inflation monster”. “Let’s look after families, not just for the short-term but for the long term, and deal effectively with the inflation monster” he boldly proclaimed!

The rhetoric of the inflation genie was a clear political ploy designed to do two things, distort and discredit the Coalition’s economic record and legacy, and to justify increased taxes in the May 2008 Budget to fund Labor’s increase in spending. The government wanted us all to believe that the Howard Government had presided over runaway inflation. They seized upon inflationary pressures because of the very low unemployment rate to talk up inflation and egg on the Reserve Bank to lift interest rates.

The September 2008 National Accounts showed the interest rate rises in early 2008 had caused damage to the economy. Before the collapse of Lehman Brothers in mid September last year, economic growth had come to a stand still. Before the financial crisis hit, overall growth slowed to 0.1 per cent, with non-farm GDP actually contracting by -0.3 per cent. Talking the economy down was not a successful way to manage pressures in the economy, although it may have had short term political benefits. Before the financial crisis hit Australia, some of the effects of it were becoming evident. But the government’s overblown political rhetoric had already served to undermine consumer confidence, precisely at the wrong time.

Even in June last year, well before the crisis hit, consumer confidence, as measured by the Westpac-Melbourne Institute index of consumer sentiment had collapsed to a then 16 year low of 84.7, well below 100, the marker of the beginning of negative territory. At that time, the economy was forecast to grow by a sound 2.75 per cent there was a large Budget surplus, and unemployment was at very low 4.2 per cent. Why then were consumers so gloomy?

Any government serious about reducing inflation would be seeking to reduce spending and not put pressure on prices with increases in taxation. Increased spending and new taxes in last year’s May Budget again shows either that the government was not serious about tackling inflation, or it did not know what it was doing. The $3.1 billion “alcopops” tax was never going to cut the mustard as a genuine attempt to address teenage binge drinking. It was a thinly disguised tax grab that was rightly defeated. By early November, Kevin Rudd had changed his tune – the rhetoric was dark: “It will be tough, it will be difficult, it will be hard, it will be ugly, particularly when you look at the unfolding economic data from around the world and the beginning of a global recession”.

Prior to the Federal Election, Peter Costello warned of a coming economic “tsunami”. He of course was pilloried by Labor at the time as being a scare-mongerer. But by last month, Kevin Rudd was taking the warning seriously and echoed Peter Costello’s economic Tsunami warning when he told Parliament: “The global economic recession is the equivalent of an economic cyclone spreading from continent to continent, leaving wreckage in its wake, devastating jobs and crushing the dreams and livelihoods of families across the world”.

And so, in the course of just twelve months, the government had veered from threatening the consequences of an inflation genie monstering the Australian economy, to dire warnings of an economic cyclone sweeping all in its wake. Consumer confidence had been undermined due to the constant negative rhetoric coming from the government. Focussed on populist rhetoric, the government surprisingly failed to see the signs of the coming crisis, they failed to adequately plan for it, and must accept responsibility for their failure to do so.

Squandering our economic inheritance

While overblown rhetoric may damage confidence in the short term, what is of lasting and profound significance is the way in which Australia’s economic inheritance is being gambled away by Labor’s magic pudding approach to the Budget. Nothing could have prepared Australians for the mind blowing cash splash, spend and guarantee bonanza that was about to unfold after September 2008, plunging the country once again into deficit and debt and contingent liabilities that could reach $1 trillion. Included in this unrestrained pledge of the nation’s credit are: a guarantee of retail bank deposits and wholesale borrowings from other banks; $8 billion to prop up small banks and credit unions; $10.4 billion pre-Christmas cash splash giveaway; $6.2 billion bailout for the car industry; $2 billion for car dealerships; $15.1 billion boost in new money to the states; $300 million for local government; $4.7 billion for transport infrastructure and universities; $2 billion for the infamous Rudd Bank, which will be matched by a further $500 million each from the big four commercial banks, underpinning commercial property companies. A government guarantee for Rudd Bank of $26 billion, to add to the $2 billion and $42 billion for the government’s second stimulus package. Another government guarantee, this time for debt issued by the states and territories, and $700 million in tax relief on PAYG instalments for small business cash flow. This totals a whopping $91.4 billion!

If all this causes you, as taxpayers, to catch your breath, the Treasurer has also hinted at yet another stimulus package in the Budget. In this giddy spendathon, the government has now committed Australians to $200 billion of debt – an unprecedented amount for Australia. Remember that it took almost the entire term of the Howard Government to repay the former Labor government’s $96 billion debt. The government and Treasury have also been vague about how many billions in interest costs will be necessary to finance the debt, but have not refuted the fact that every Australian, man woman and child, is now saddled with $9,500 additional debt each.

The government has no credible strategy to return the Budget to surplus, nor any commitment as to when that might be. The Updated Economic and Fiscal Outlook, released on 3 February, revealed a deficit of $118 billion over the forward estimates, with a forecast deficit of $22.5 billion in 08/09 and $35.5 billion in 2009-10. However, there are now concerns that the deficit could blow out significantly with some estimates as high as $30 billion this year and $60 billion next year. To that end it is worth stating that the Budget would be in surplus in 2008-09 had it not been for decisions since the May Budget that account for $67 billion over the forward estimates, including $29 billion in 08/09.

Leaving to one side the risks, the distortions and moral hazard caused by massive government interventions in the market, taxpayers would be entitled to assume that these interventions will work. They would be sadly mistaken. The December accounts clearly show that the majority of the pre-Christmas cash giveaway was saved by most householders, and not spent as intended. Increases in household consumption of just 0.1 per cent failed to boost business, with the recent Access Economics Retail Forecast concluding that Australian retailers will only “tread water” in the first half of 2009. And where are the 75,000 jobs the Prime Minister promised would be created by the $10.4 billion cash splash?

Sadly, the stimulus seems to have failed all its objectives as the country shot into negative territory in the December quarter. The same can be predicted of the $42 billion stimulus which was introduced at a time when there was no evidence to conclude whether or not the December cash splash was successful.

Treasury Secretary, Dr Ken Henry, told the Senate Finance and Public Administration Committee that the success of the $42 billion package may never be known. He said, “It is going to be difficult to for us to provide the parliament with the precise estimates of the actual fiscal impact of the package”. The prospects for the $29 billion infrastructure component of the $42 billion stimulus succeeding are no more promising than the $13

billion “cash splash” component. Quite apart from whether billions earmarked variously for Pink Bats, boom gates, and painting primary school halls, are an effective investment in nation building and jobs, how quickly this happens is dependent on the states’ capacity to respond.

The record is not encouraging. The notion that the states have billions of dollars of so called shovel ready projects stretches credulity for anyone who has been involved in public tender approvals and processes. If just $300 million ear marked by the Prime Minister in November for local governments to spend immediately is any guide, after four months only one agreement has been approved. It is fair to say that opinions of economists differ on the effectiveness and composition of fiscal stimulus. The recently published open letter to the American President, signed by 200 economists, including three Nobel laureates, caused a stir when they wrote:

… it is a triumph of hope over experience to believe that more government spending will help the US today. To improve the economy, policy makers should focus on reforms that remove impediments to work, saving, investment and production. Lower tax rates and a reduction in the burden of government are the best ways of using fiscal policy to boost growth.

Similarly, the Coalition advocated a more modest stimulus, which includes proposals that better targets business, such as temporarily reducing superannuation guarantee payments, which will assist in meeting the burden of employment and help to keep people in jobs, as well as bringing forward tax cuts. The Coalition warned at the time that the government’s stimulus was too big, too early and poorly targeted. As economics professor Tony Makin has commented, the government sought to boost consumption in the short term with a “go early, go hard, go household” response, whereas a sounder approach would have been the exact opposite “go later, go easy, go firms”.

Although his massive cash splash has failed to halt what the Prime Minister now admits is an inevitable recession, he is now at it again on the world stage in the lead up to the G20 summit, spruiking for the US & the UK, calling for yet more fiscal stimulus and massive spending. Whether the world can continue to spend its way out of recession seems to have some powerful dissenters, with Europe now questioning the value of this approach. Whilst this may be an enjoyable diversion for Kevin Rudd, what he has done with our economic inheritance will come back to haunt him.

Inefficient debt laden businesses have been propped up, taxpayers have once again been saddled with a massive debt and the Budget must sustain massive borrowings to pay for it. We can only hope that Australia will remain competitive in the crowded sovereign bond market, and that global investors will not be deterred by the rapid escalation of debt and the extent of the Budget deficit. Labor has simply spent the nation’s economic inheritance for little immediate gain, with much more long-term damage to come from increased taxation and inflation.

Labor’s populist spin

If there is not already, there should be a growing sense of unease that the Rudd Labor government is not a safe pair of hands when it comes to making calls on the economy. While Kevin Rudd did not cause the global financial crisis and could not hold back the tide of the world recession lapping at our shores, he and his government should be doing much better. This is not only because of the casino-like giveaways and uneven

decision making that has plunged Australia back into the debt and deficit spiral. It is in equal measure due to the dismissive air of the Prime Minister and the Treasurer and their refusal to explain decisions, provide information or respond to questions, that we see time and again in parliament and in the media.

It is not unreasonable, indeed it is to be expected that the Prime Minister and the Treasurer will explain to the Australian people how the policies they introduce will work, and to be responsive to legitimate criticism. This is an important part of the functioning of our open economy and society. It is as much about instilling confidence that our leaders know what they are doing, as it is about the government taking responsibility for poor policy choices when they are found not to work. This point was well made by Geoffrey Luck, commenting on Kevin Rudd’s essay in The Monthly:

The hallmark of economics, like all good science, is not its ability to forecast the future but to explain things. Also, like all good science, it moves forward incrementally and individually, not by consensus. The disappointment of Rudd’s essay is that it promotes the polarisation of economic thought along political lines. As such, it serves to stifle instead of encouraging constructive debate.

The Prime Minister’s and the Treasurer’s refusal to engage on basic questions about the stimulus packages shows a complete failure to explain or justify their approach. Here are some examples of what passes for public debate with political leaders in Australia.

Westpac’s Chief Economist, Bill Evans, spoke out recently regarding the December stimulus package. Amongst other things, Bill Evans stated that consumer spending increased by just 0.1 per cent, well below trend, and that there was no boost to household incomes. He also labelled the Christmas cash splash “bizarre”. Shadow Treasurer Joe Hockey put Mr Evans’ opinion to Treasurer Swan, as he questioned the impact of the stimulus package. Wayne Swan replied,

Those opposite are continuing to play this silly political game. The first part of it is that we should not engage in any economic stimulus to support jobs. They have this proposition that Australian should simply sit and wait and see as a global recession rolls over the country. That is the proposition that those opposite are putting.

So the Opposition asked about the effect of the stimulus on job creation – specifically, how many jobs had indeed been created thanks to the cumulative $72 billion spent (thus far) on creating and supporting Australian jobs? Kevin Rudd said:

The honourable member’s question goes to the impact of the stimulus measures on jobs…The alternative – and the dividing line between us in this parliament – is as clear as day. The Liberal Party stands for sitting, waiting and doing nothing; this government has a clear plan of action.(Monday 16 March 2009)

As you will recall the Coalition supports a differentially composed economic stimulus. Claiming that we proposed to do nothing is just dishonest. But it continued. On 12 March, under pressure to explain where were the 75,000 jobs that the $10.4 billion was supposed to create, Kevin Rudd said, and I quote, “Had we waited and done nothing, instead of acting decisively, these unemployment figures would be much worse.” And it is not just the Oppositions questions that Kevin Rudd can’t or won’t answer.

A fortnight ago on ABC Radios’ AM program, Chris Uhlmann interviewed the Prime Minister about Labor’s Industrial Relations reform and Fair Work Bill. Six times consecutively, Chris Uhlmann asked Kevin Rudd how pushing up the cost of labour would not destroy jobs. Six times the Prime Minister did not answer the question. And it’s catching.

Earlier that week, Deputy Prime Minister Julia Gillard was interviewed on the ABC’s 7:30 Report. Kerry O’Brien pushed the same line of questioning, asking Julia Gillard four times about the impact of increased labour costs on employment levels. Julia Gillard refused to answer all four times, but has since been forced to admit that there is a “negative relationship between minimum wage increases and employment”, in response to union pushes for a $21 a week minimum wage increase.

Kevin Rudd and his Ministers may have the neat Hawker Britton five second grabs for the six o’clock news, but this does little to enlighten the rest of us as to whether the Prime Minister is able to properly explain his government’s policies – whether in fact he knows what he is doing. In their frantic attempts to avoid responsibility for a series of decisions that have failed to deliver the boost the economy needs, confidence in the government’s ability to handle the economy has been eroded and this is holding back the speed of recovery. Avoiding questions and discussion may be straight out of The Hollow Men’s playbook, but it won’t work when Australians are looking for explanations and reassurance – it will only make the situation worse.

Future directions

It is fair enough to ask what the Coalition would be doing differently to respond to the global financial crisis. As I have demonstrated, we certainly wouldn’t be starting from here if that is not too Irish! We do recognise that there are a number of emerging international and national pressures that will require careful handling and great care to get right for Australia. The size and complexity of the matters being grappled with by the Group of 20 at the London meeting on 2 April are eye popping. Thorny issues include an extended role for the International Monetary Fund, strengthening the Financial Stability Forum, and pitching for new global financial architecture all taking place against a bold US plan to remove toxic debt from the balance sheets of stricken banks. Now added to the mix is the controversial call by China’s Central Bank Governor to replace the greenback with a new global currency reserve, and the ever present threat of protectionism evident in the subsidies and targeted industry assistance in many stimulus packages throughout the world.

Although Australia has not experienced the severe stresses on the financial system that contributed to the failure of the banking system in the US and UK, Australian does have a vital interest in seeing the removal of toxic assets as a fundamental step to restoring confidence in the global financial system and in restoring credit flows. But we need to be careful to ensure that calls to broaden and strengthen global financial regulation do not detract from the effective financial regulation Australia already has in place. Following fallout from the collapse of HIH, Australia’s biggest general insurer, as the Assistant Treasurer, I worked with the Australian Prudential Regulatory Authority – APRA – to overhaul supervision, including strengthening capital adequacy, stress testing and other prudential requirements.

These reforms have largely shielded Australia from systemic failure of our financial institutions and from some of the worst effects of the global recession. In the biannual Financial Stability Review released on 25 March 2009, the Reserve Bank Governor has again confirmed the sound position of our banks. We should be resisting the notion when it comes to proposals for global financial regulation that “one size fits all”, whilst at the same

time, being open to the possibilities for enhancement that alignment with an improved international system could bring. As ASIC’s Chairman, Tony D’Alosio pointed out in an address to IFSA on 26 March 2009, Australia will need to respond to recommendations for more effective global regulatory oversight of cross border investment and transactions, such as short selling and credit default swaps.

Inevitably, this will mean some additional regulation. But this should not relieve us of the important objective of reducing the regulatory burden on the financial services industry where possible. Regulation for regulations sake can never be justified. The Rudd Government has made a big song and dance about deregulation even putting it in the title and responsibility of the Minister for Finance. Promising a one-in-one-out approach pinched from the UK, the government pledged not to introduce new regulation without tossing one out.

So far, we have seen little evidence of this being taken seriously as more and more regulation gets heaped on industry without obvious benefit for consumers. Regulation should be introduced where it is necessary and it must be effective. If it is not, it should be removed. Apart from reducing the compliance burden on business, more needs to be done to put Australia in poll position to take advantage of the opportunities that will flow from economic recovery.  While features of this economic downturn may be different from anything previously seen, confidence in the market will be restored, with more effective handling than we have seen from the Labor government. Giving small business a helping hand is a case in point.

Inexplicably, while the government has been prepared to give out cash, to prop up ailing and inefficient industries, to invest in pink batts and risk the taxpayers’ all in guarantees, for large institutions and property companies, they have remained disengaged with the plight of small business. Apart from the 30 per cent tax break on new equipment in the $42 billion stimulus package and the PAYG tax break, small business has not directly benefited from the government’s spending spree. Obviously business did not get much out of the trickle down effect from the cash handouts, with Access Economics describing retailers and small business as merely “treading water”.

The Labor government neglect of small business is puzzling, especially given estimates that 1.88 million Australian small businesses employs 3.6 million people, providing 47 per cent of private sector, non-agricultural employment. The Coalition has been a consistent advocate for small business. We have argued that a more effective fiscal stimulus would have targeted businesses bottom line in a meaningful way and that any stimulus would focus on productivity rather than consumption. Leaving out assistance for business was a serious miscalculation in the government’s approach to the stimulus spendathon. For many small businesses it will be too little too late, to restore their shattered confidence. But for many struggling firms, the most crippling obstacle they face is the credit drought, as funds become unavailable or prohibitively expensive as lenders re-rate risk. While some reductions in official cash rates have been passed on by banks, many viable small firms remain stymied by lack of available credit.

The government is in a strong position to urge the banks that after all, are the beneficiaries of the taxpayer backed guarantee, to do better. The government must insist that banks do more to assist credit worthy businesses. How to do this was explored at the recent Small Business Roundtable but so far this initiative does not seem to have been a wild success in assisting small business to access available credit. The Coalition takes the view that freeing up credit for business that will let the market operate will be of more lasting benefit to the economy than a grab bag of handouts and treats that significantly rewards inefficient players at the expense of the rest.

To finish, the Coalition remains optimistic that out of the global upheaval will come renewal and opportunity. There are lessons to be learnt of course, but it will be important that the rebuilt system does not stifle innovation and initiative, the life blood of the economy. As Jiang Jianqing, Chairman of the Industrial and Commercial Bank of China said recently: “We shouldn’t reject the need for innovation in financial services merely because it carries some element of risk with it. In China, we say: you can’t stop eating just because you’re afraid of choking on your food.”

Now therein lies a lesson for a true fiscal conservative!

Endnotes

Ferguson, Niall, “The Great Repression” in The Australian, 28 February 2009, p 17

Commonwealth of Australia, Updated Economic & Fiscal Outlook, February 2009, p 33

Swan, The Hon. Wayne, “Temporary Guarantee of State Borrowing” Media Release, 25 March 2009

“Chanticleer” in Australian Financial Review, 26 March 2009, p 60

Gillard, The Hon. Julia, Address to the Australian Reception speech in Davos Switzerland, <online> http://www.deewr.gov.au/Ministers/Gillard/Media/Speeches/Pages/Article_090130_100921.aspx

“A Wonder Down under” in The Economist, 20 March 2004, p 86

Kryger, Tony, “Economic Indicators: Whitlam to Howard”, Commonwealth Parliamentary Library, 9 August 2007, p 4

Swan, The Hon. Wayne, “Interview with Helen Dalley” on Sky Business Channel, 3 February 2008, <online>http://www.treasurer.gov.au/DisplayDocs.aspx?doc=transcripts/2008/018.htm&pageID=004&min=wms&Year=2008&DocType=2

Rudd, The Hon. Kevin, Commonwealth Parliamentary Debates (Hansard), 2 June 2008, p 3960

Rudd, The Hon. Kevin, Press Conference, Brisbane, 3 November 2008, <online>http://www.pm.gov.au/media/Interview/2008/interview_0583.cfm

Irvine, Jessica & Hartcher, Peter, “Look out for the Tsunami, says Costello” in Sydney Morning Herald, 26 October 2007, p 1.

Swan, The Hon. Wayne, “Desperate Costello Unleashes Tsunami of Distraction” Media Statement, 26 October 2007.

Rudd, The Hon. Kevin, Commonwealth Parliamentary Debates (Hansard), 12 February 2009, p 1260

Ray, Nigel, Evidence given during Senate Inquiry, Senate Standing Committee on Finance and Public Administration (Hansard), 5 February 2009, pp 30-32

Commonwealth of Australia, Updated Economic & Fiscal Outlook, February 2009, p 39

Fifield, Senator Mitch et al, ‘Coalition Senators’ Dissenting Report, Senate Standing Committee on Finance and Public Administration, 10 February 2009, p 60

Access Economics, “Retail Forecasts”, Media Release, 11 March 2009

Henry, Dr Ken, Evidence given during Senate Inquiry, Senate Standing Committee on Finance and Public Administration (Hansard), 9 February 2009, p 56

Media Release, Scott Morrison MP, 25 February 2009

Open letter from 200 economists New York Times/ Washington Post/Wall Street Journal, January 2009

Makin, Tony, ‘Follow the Kiwi Leader, not Obama’ in The Australian, 11 March 2009, p 14

Luck, Geoffrey, “Rudd’s Fatal Conceit” in Quadrant, April 2009

Rudd, The Hon. Kevin, Commonwealth Parliamentary Debates (House Hansard), 16 March 2009, p 31

Rudd, The Hon. Kevin, “The World Today”, ABC Online, 12 March 2009

Stutchbury, Michael, “How Julia will kill jobs” in The Australian, 31 March 2009

Karvelas, Patricia, “Julia Gillard opposes minimum wage rise” in The Australian, 24 March 2009

Access Economics, “Retail Forecasts”, Media Release, 11 March 2009

COSBOA. Retrieved 30 March 2009. http://www.cosboa.org/