Published in today's Daily Telegraph is my opinion article on how Joe Hockey is using a massive Reserve Bank capital injection in an irresponsible attempt to make his performance as Treasurer look good.
HOCKEY BORROWS COSTELLO ATTACK
The Daily Telegraph
Thursday 31 October
In the final rounds of the AFL, a team with no chance of making the finals will sometimes be tempted to play more poorly in order to get a better draft pick the next year. It’s called ‘tanking’, and it’s against the rules and spirit of the sport. When it looks like teams are deliberately underperforming – as in the famous Carlton versus Melbourne match at the end of the 2007 season – the result is frankly a bit embarrassing to watch.
And so it is with this year’s budget deficit. As anyone who’s been awake this past five years knows, the world has gone through the greatest slump since the Depression. Rather than drastically cut government spending – and damage economic growth – the federal Labor government chose to save jobs. Consequently, we have national debt equivalent to a bit over one-tenth of our annual income: one of the lowest levels in the developed world.
Yet for the past few years, the Coalition has focused its attention not on the 200,000 jobs saved when the Global Financial Crisis hit, but creating a farcical idea that Australia has a ‘problem’ with ‘debt and deficits’. Any serious economist would tell you this type of claim is just codswallop.
But from doing press conferences in front of a ‘debt truck’ to giving speeches about a ‘budget emergency’, the Coalition has left no fear campaign untested in their crusade to scare Australians about the state of the nation’s public finances.
Now that they’re in government, the game continues. Last week, Treasurer Joe Hockey provided the Reserve Bank of Australia with a cool $8.8 billion for its reserve fund with a flick of a casual afternoon press release. Justifying such a massive sum, Mr Hockey blustered ‘It's money that should have been allocated by the Labor Party in government but they didn't… Despite the warnings, they didn't do it and they should have done it.’
The exact opposite is true. Six months ago, Treasury advised the Labor Government that to give the RBA a capital injection could ‘risk undermining the credibility of the RBA as an operationally independent institution’.
$8.8 billion is a massive sum – more than the federal government spends on the army, childcare or housing. Because Australia has to borrow the money, Treasurer Hockey’s ill-advised decision will cost you, the taxpayer, around $1 million a day just in interest payments alone.
So why would Mr Hockey borrow more money to give the RBA a capital injection they don’t need?
First, because he wants to put himself in a position where he can get large dividends from the RBA in future years. As respected economic commentator Stephen Koukoulas has pointed out, the Howard Government took out an average dividend from the RBA of $3 billion a year, after accounting for inflation. By contrast, the Labor Government took out an RBA dividend of $1.5 billion in real terms. Mr Hockey clearly wants to go back to the days of the Howard Government, which in real terms extracted twice as much from the RBA than Labor.
But the second purpose of Mr Hockey’s strategy is to make the 2013-14 deficit look as bad as possible. Right now, he’s piling unnecessary costs onto the budget like a business owner who’s just sold his company and knows that the buyer will pay the bills. The secret of Mr Hockey’s economic management is that he doesn’t care about debt, and is only worried about deficits when he can’t blame them on someone else.
Despite inheriting one of the best-performing economies in the developed world, Mr Hockey wants to cast Labor as the villain in his pantomime play. Although he became Treasurer just one-quarter of the way through the year, Mr Hockey doesn’t regard the 2013-14 tax year as his responsibility. He thinks it’s in his political interests to make the current budget outcome as bad as possible.
Again, this is a move straight out of the Costello playbook. In 1996, the Howard Government confected a story about a ‘$10 billion black hole’, by adding up every possible spending program that Labor might have implemented – including some that had been rejected by the Keating Government. The ‘$10 billion’ number was a fiction, but with enough repetition, it caught on.
Today, Treasurer Joe Hockey is playing the same political games as Peter Costello. Step one: attack Labor’s legacy. Step two: appoint big business leaders to a Commission of Audit. Step three: cut programs that middle Australia depends upon (like the Schoolkids Bonus) and hike taxes on low-wage workers (one in three will pay higher superannuation taxes). Step four: deliver tax cuts to magnates.
But just as AFL fans are quick to smell a team that’s tanking, Australians are too smart to be fooled by Mr Hockey’s political diversions. If you’re a coach who’s taken over a quarter of the way into the season, you’d better step up and start leading. You can’t go into the big game blaming your predecessor.
This is the full version – the article as published was slightly abridged.
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