March 31, 2010
Tony Abbott's economics speech is mostly a critique of the Rudd Government's home insulation programme, the pink batts programme, solar panels scheme, and hospital reform.These are used to argue that the Rudd Government has saddled Australia with government waste and years of higher interest rates, higher taxes and higher debt.
Abbott does spells out the Liberal Party's economic values:
The next Coalition government will reflect the Liberal Party’s abiding preference for smaller government, lower taxes and greater freedom not because we think that government is unimportant or that taxes are unnecessary but because we appreciate that individuals and businesses create wealth, not government.
How does that square with his climate action plan that gives billions to industry to maintain “business as usual” carbon emission, and the paid parental leave plan, which gives more money to people on $150,000 per annum than it’s giving to people on lower incomes? Or the Howard Government's high government spending to attract electoral support, via middle-class welfare and regional pork-barrelling?
Abbott's tacit argument is against government intervention and Keynesian economics: there was no economic crisis, or at least not one in Australia; even if there was, counter-cyclical fiscal policy won’t work; and in any case the stimulus packages had no effect.
His argument against this is done in terms of the global financial crisis:
Mr Rudd wants people to believe that he is responsible for this. He wants them to think that he’s the economic genius who saved Australia. In fact, he’s saddled us with years of higher interest rates, higher taxes and higher debt to avert a disaster that never was....Australia has survived the global financial crisis thanks much more to the reforms of previous governments than to the spending spree of the current one...The Prime Minister justifies everything as necessary to avoid a recession. In fact, the Global Financial Crisis has been a convenient justification for Mr Rudd’s instinct to spend more.. The economic stimulus wasn’t necessary to strengthen Australia’s economy at a time of global recession and the consequent increase in interest rates is almost certainly weakening it now that recovery is under way...... The Asian financial crisis in 1997 was more threatening than this one for Australia.
The conclusion is that countries can’t spend their way out of recessions but they could reform their way through them, and that Governments that live within their means would not need to increase taxes or drive up interest rates.
Where do you start with this kind of denial that willfully ignores the judgement of the Reserve Bank and Treasury and most governments in the western world that there was a global financial crisis and that Australia avoided a downturn last year because of government spending? Around the world stock markets had fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.
A good place to start is the lack of economic understanding on Abbott's part about the increasing levels of leverage for financial institutions, the asset bubble, the subprime mortgage crisis with the default of a large portion of subprime loans in August 2007, the massive flight to liquidity by investors and the crash of financial markets in March 2009.
Abbott then adds that:
Good government, though, is much more than an exercise in book-keeping. The national accounts, after all, are only a reflection of what’s happening in the economy. Government’s biggest challenge is to try to ensure that change makes people and organisations more productive. ... The next Coalition government will maintain the tightest fiscal discipline but it will also aim to maximise Australia’s economic growth.
Nothing about the well-being of the population--the Treasury's framework-- in Abbott's account.