Hapless Joe Hockey

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Joe Hockey

One of the fascinating aspects of Australia’s political pantomime is the manner in which the Federal Treasurer is forced to metamorphose into a used car salesman who is spruiking the Australian economy. 'Jaw jaw', rather than actually doing something, seems to be the core skill of economic regulators, these days.

One reason for the relative impotence of the Treasurer is that the Federal government only has control over fiscal policy. Monetary policy, the interest rate, is set by the Reserve Bank, not the government.

Another reason is Australia’s heavy dependence on volatile commodity prices. The nation heavily depends on its resources base for its income, so the fiscal situation can change dramatically and unexpectedly. This is not something that politicians can control or influence.

The effect of the impotence can be seen in Joe Hockey’s increasingly fraught demeanour. In a recent radio interview, he squabbled with the interviewer about the meaning of consumer confidence surveys, sounding a bit like a used car salesman waxing lyrical about a flash chrome fender.

Yet trying to talk up consumer confidence is really the only option available. The sharp drop in commodity prices has created what some are dubbing an 'income recession' as profits and wages fall sharply. That creates pressure on the Federal Budget and fiscal policy.

It is only part of the story, however. Australia’s economy, like most developed economies, is heavily dependent on consumer spending. According to the World Bank, household final consumption expenditure accounts for 55 per cent of Australia’s GDP. This is lower than America’s 69 per cent and Britain’s 66 per cent (China is only 35 per cent) but it still means that the main game is getting consumers to spend. Little wonder that Hockey is exhorting people to get out there and buy. His government has rejected the idea of anything resembling an industry policy, which might have softened some of the effects of the commodities boom and bust, on the grounds that it would lead to ‘market distortions’ and ‘rent seeking’. Australia’s manufacturing base has been sacrificed to the soaring Australian dollar and it is unlikely to be reconstructed.

Saddled with his party’s anti-government, neo-liberal ideology, Hockey is caught between a Scylla and Charybdis. On the one hand, because government is inherently bad and an unacceptable drag on the markets, it is essential to get the Budget 'under control'. On the other hand, those same markets are delivering lower revenues, making it impossible to balance the Budget without, at least to some extent, increasing taxes. Yet taxes are inherently bad, and a drag on the markets. So getting the Budget under control is simultaneously necessary and unacceptable. Do not pass Go; do not collect $200.

Little wonder that Mr Hockey is looking slightly bemused. He has resorted to trying to blame the Labor Party, but for those of us who objected to the Coalition’s mindless blocking of everything when it was in Opposition, there is little sympathy. It is also clear that many of the cost savings measures, such as the proposed six month withdrawal of unemployment benefits for people under 30, the GP co-payment and the deregulation of universities, are simply bad politics. A far better option would be to nibble away at the really big tax loopholes like negative gearing and superannuation, but in those areas the government seems more inclined to stick to its word.

It makes good sense to keep the Budget in balance over the long term. If there is one lesson in the aftermath of the global financial crisis, government debt makes an economy highly vulnerable in a way that private debt does not. But tightening fiscal policy in the bad times carries self evident dangers. The IMF, shedding crocodile tears, has recently admitted it got it wrong in enforcing fiscal austerity in 2010-2011. An IMF report acknowledged that: 'IMF advocacy of fiscal consolidation proved to be premature for major advanced economies, as growth projections turned out to be optimistic…This policy mix was less than fully effective in promoting recovery and exacerbated adverse spillovers.'

Quite. Tightening an economy by reducing government spending when it is already contracting because of market developments only worsens the downturn.

Australia’s government debt remains unusually low for developed nations because Peter Costello, a salesman who also showed some other skills, kept the Budget in surpluses during the good times. That gives the Federal government some limited leeway now.

The big problem is Australia’s private debt, especially mortgage debt, which is largely the consequence of bad tax policy under both the Coalition and Labor governments. Government debt is about 14 per cent of GDP, although it will increase as the Budget worsens. Household debt is over 100 per cent of GDP.

The main determinant of consumption will thus be interest rates, which some are predicting the Reserve Bank will reduce further. If interest rates are lowered it may give heavily indebted households a reason to spend, but this is something Hockey is unable to influence. He will simply have to hone his salesman skills, and hope that someone is listening.


David JamesDavid James is a business journalist with a PhD in English literature. He edits Personal Super Investor.

 

Topic tags: David James, economics, Joe Hockey, fiscal policy, monetary policy

 

 

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David, can you please explain "If there is one lesson in the aftermath of the global financial crisis, government debt makes an economy highly vulnerable in a way that private debt does not" because as you say later "The big problem is Australia’s private debt, especially mortgage debt"
Russell | 09 December 2014


Perhaps a word of encouragement for a Treasurer trying to mend Labor's profligate spending in government, might be encouraging to Australians who have to bear with Shorten snivelling mantra of "broken promises". Any rational person realises that if Labor continues to act mischievously, destructively and wilfully in opposing any attempt to rectify their debt-laden legacy, then other options have to be found. This is not lying; it is called "trying to make the most of a bad situation" You are never a loser until you quit trying, so good on you, Joe - probably showing a bit of Jesuit fortitude. Lest we forget.....his background.
shirley McHugh | 10 December 2014


An extremely insightful and highly informative article, David. Once again you have clarified the current economic situation proving you can be economically savvy as well as a progressive critic of the current Federal Government's fiscal policies.
Edward Fido | 10 December 2014


The problem is not with Hockey or Shorten, it is with the two years of constant negativity when Gillard was PM: Juliar, Alan Jones and the chaff bag, and an Opposition leader who was disliked even by his own side; remember the Brown's Bitch banner - Tony Abbott was standing in front of it!!! Until the Coalition instals someone whom the electorate feel was above all that and go back to Malcolm Turnbull, this farce will continue.
Frank | 10 December 2014


Hilarious. Julia Gillard was renamed Ju-liar because she could not keep a promise in a hung Parliament, but the poor old Coalition has to bear the burden of Shorten's mantra of 'broken promises'. Bad policies, arrogance and a refusal to negotiate are the problems of the government. They don't deserve to be there beyond one - long and painful - term.
Eveline Goy | 10 December 2014


Great at theatre in parliament, name calling, and partying in opposition. Not so good now they have to take on the miners, big busness and show some responsibility. Not willing to work for the Nation in opposition and now not able to deliver for the Nation in government. Limited people with limited ability and a Treasurer who can be spotted lying before the interview starts. There is no nation without sound policy decisions for ALL of Australia not some wealthy and just for very influential Australians. Abbot's daughter didn't have to accept the scholarship but privilige blinds people to fairness, The proseqution of the woman involved in the leak of the farce scholarship was further proof of a political party out of kilter with the electorate. Trust is the issue and Australians now don't trust any politician and there are plenty of reasons why. Every day ICAC reveals more of the deceptions foisted on ordinary Australians.
Joseph | 10 December 2014


Labor's 'debt-laden legacy'? What do you mean, Shirley, Australia has no public debt problem, its debt is minor compared with that of other countries, especially that of the US. It does have a private debt problem, and lower interest rates will only make that worse. There is a simple solution to balancing the annual budget - a solution that both major parties have ignored - and that is to stamp down on tax avoidance and increase direct taxation on the rich.
Ginger Meggs | 10 December 2014


Confidence in our economy here is now becoming a major problem, but is it any wonder? For years, first in Opposition, the Liberals have been talking down the economy. Yet as Ginger Meggs reminds us, we are still in better shape in this regard than any other developed country in the world. But starting not to be. The manufactured "debt and deficit disaster" that we had to have in order to persuade people to react like the animals in "Animal Farm": "Liberal - good, Labor - bad" is starting to have its effect - on the economy. Yet the Liberals are still trying to talk down this economy of which they have been the "adults in charge" (their claim) for well over a year now! Certainly, we need to take a good hard and fairly urgent look at the way government raises (and spends) money in this country, but this needs to be largely bipartisan and arrived at by experts finding the best solutions, not ideologues wanting to try out their pet theories. We need a new tax summit. Meanwhile it would be nice if the "adults" (and their disgraceful Speaker) might occasionally act their age!
Paul | 10 December 2014


Joe Hockey, if he ever thinks about economic theories, would surely agree with Thomas Carlyle (1795-1881) when he described economics as 'the dismal science'. Carlyle was an armchair economist, a philosopher, a satirist and a pamphleteer - a bit like the commentators that criticise Joe Hockey. Except in Carlyle's case he had a smaller target, the adverse effects as he saw it of the emancipation of the slaves in the West Indies, of absentee landlords in Ireland, and the doctrine of 'laissez-faire' capitalism. I say 'smaller' in comparison with the enormous problem faced by any Treasurer who has to actually do something about the plethoric multiplicity of variables that go to make up any mixed national economy in a shifting global economy. One of the most intractable variables is 'the electorate' which is made up of individuals with very sensitive hip pocket nerves (or in the case of millionaires, very sensitive acquisitive tentacles). I personally think both the Coalition and the ALP have squibbed the taxation reforms suggested in the Henry Report - for political reasons not economic reasons. The hapless Hockey is caught between a rock and a hard place because the Coaltion is beholden to the super rich.
Uncle Pat | 11 December 2014


But David, budget day was the best day of Joe Hockey's life. Remember?
Anna Summerfield | 12 December 2014


How about taxing Banks ?? Why are Banks like a taboo topic ? They are like the untouchables, a mafia reaping billions and billions of profit each year. More than anyone can ever dream to ever be able to spend!!!! Yet they are allowed to shift wealth to the elites.
Maximus | 12 December 2014


Sadly, Joe Hockey is too unprofound for the task as National Treasurer and his mate Matthias Cormann too dogmatic.
Mary | 13 December 2014


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