The Wayne Swan Report Card
When Euromoney picked Wayne Swan as their Finance Minister of the year it was greeted with disbelief from many. So, why do Aussies claim he is not worthy?
Euromoney picked Swan because Australia has skipped a recession and has performed better than most other developed market economies. Yet the Murdoch press in particular seems to find it particularly difficult to accepting the Treasurer's gong. Henry Ergas was quoted in The Australian as saying, somewhat sarcastically, that "losing half your GDP is surely a small price to pay for glory".
So, does Swan warrant his award? I presented two economists with data that seemed to suggest Swan has been doing a good job of steering us through the crisis: Oliver Marc Hartwich, Research Fellow at the Centre for Independent Studies, and Richard Denniss, Executive Director of The Australia Institute.
Hartwich's view is that much of our economic performance has been due to monetary stimulus, for which the RBA should take the credit, not Swan. Denniss takes the opposite view --- we have chartered a steady course thanks to fiscal stimulus.
Debt Stimulus measures were expensive, but the resultant government debt is still a drop in the ocean compared to other leading economies. Denniss argues that there needs to be more awareness of how the increased debt helped us avoid recession. "The Americans had a cheap stimulus but are having an expensive recession," he says. "We had an expensive stimulus and no recession." Euromoney pointed to the Treasurer's swift response to the global downturn as part of the reason for the award.
Hartwich suggests our low public debt is the result of the previous years of surplus. It's the same call made by Shadow Finance Minister Joe Hockey, who claims Peter Costello should have won the award.
"I don't think even Swan would still argue that all the stimulus money was well spent," says Hartwich. "Pink Batts? School halls? Even the cheques he sent out did not change the long-term path of consumer spending but were used to pay off credit card debt."
When it comes to unemployment, Australia, again, is a great example to the rest of the developed world. "But how much of our performance is due to China buying our resources, and us benefiting from China's own stimulus measures?" asks Hartwich. It's a big question, isn't it? How would we have fared the GFC without our resources and the strongest terms of trade for 140 years?
Denniss acknowledges that this has kept things growing in the medium term, but says the stimulus package was also essential to help avoid a short-term crisis of confidence. The big issue now, he says, is the geographic distribution of jobs. "The high exchange rate is driving big reductions in, for example, tourism jobs and areas like Cairns are suffering the full impact of the so-called two-speed economy."
This has to be the biggest issue for the country. Are we catching Dutch Disease, with our mineral exports pushing up the exchange rate, making other exports too expensive and decimating our manufacturing and agricultural base? One solution might be to tax the profits of the mining industry and use that money to invest in alternate industries. Unfortunately, we know that attempting to put a higher tax on miners has already cost the scalp of one Prime Minister.
Which brings us to productivity --- Australia is more productive than most (measured at GDP per hour worked) and has been holding its own, although the growth has slowed. Again, the mineral sector is having a big influence here. It's helping to inflate the figures, but it could also be causing the slowdown. Denniss says record resource prices are encouraging miners to "dig deeper and deeper into mines with lower and lower grade ore", resulting in a "big drag in our productivity growth".
Outside the mineral sector, productivity is an issue, which Swan, to his credit, has identified. Of course, much of it relates to our ageing population and mixed attitudes towards high population growth. Tax changes are regarded as one way of getting people to work longer and of encouraging new entrants to the workforce --- something that will be tackled at next month's tax summit.
But many argue that Ken Henry's thorough review of taxation addressed many of these issues, but only a few hand-picked measures were adopted. "[Swan's] response to the Henry Tax Review was poor," says Hartwich, "and in any case, he should have never charged his Treasury Secretary with the task of reviewing the tax system".
Wealth Our wealth has been steadily increasing and, so far, we haven't suffered the big dip felt in other leading economies. That said, our growth in GDP per capita has flatlined, so consumer spending will take a hit. Denniss says household wealth is also heavily influenced by house prices. A lot of our income is going into inflated house prices and should a big correction come, it will mean a big reduction in household wealth.
Wayne Swan seems to be having little joy in addressing housing affordability, but it is a problem he has inherited, along with the ramifications of the two-speed economy. Denniss says, "The real issues facing Australian treasurers these days is not how to manage the economy but how to manage the disparity between the material wealth we are enjoying with the material deprivation we are imagining."
Conclusion The figures speak for themselves --- Australia is faring better than most. "Well, any half-decent government would now look splendid compared to North Atlantic governments," says Hartwich, who might inadvertently be explaining why Swan won the award. Was it out of lack of choice?
No, that's not the case, according to Richard Denniss. "It would be great if the Treasurer could tell the Australian people that we are living in one of the richest countries in the world at the richest point in world history. Things are far from perfect, but the imagined concerns of the Australian voter are trivial when compared to the pain felt by homeowners in the US and pale into insignificance when compared to the deprivation endured by millions of people in Africa." He says Australia's tall poppy syndrome stops Swan from doing anything except showing humility in relation to the award. But let's be honest, who had ever heard of Euromoney magazine before last week?
The truth is, there are big issues still to deal with, and steering us through the first phase of the global economic crisis might have been the easy part. Costello gave us a budget surplus when the world economy was enjoying unprecedented growth. That doesn't sound too difficult. Swan is selling lots of minerals to Asia. That's helped a lot. The big issue is one of sustainability, and we can't measure Swan on that one till we're way down the track. His issue is that the media and politicians are reluctant to engage in any discussion on strategy aimed at the long term. Getting the budget back into surplus does not address regional disparity, the risk of Dutch Disease or the needs of an ageing population. Over to you Wayne.
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